Friday, November 2, 2012

Another cautionary tale about Germany's green energy

One of the strategies of a solar-powered society is to give price breaks to folks who can "make hay while the sun shines."  When the wind is blowing and the sun shining, there is an abundance of solar power—so much that a lot of it is wasted.  Of course, storage would be the solution but in truth, no one really knows how to do storage on that sort of scale.  So until this can be figured out, the fallback strategy is to financially favor those industries that can ramp up their demand on sunny / windy days.  Not surprisingly, those industries who cannot vary their demand are bound to resent the folks who are getting a lot of cheap energy—especially in Germany where most customers are paying a premium for their renewable electricity (the second highest prices in Europe.)

In this story, the beneficiary of the cheap electricity is Norsk Hydro, an unbelievably rich Norwegian company that uses the electricity to smelt aluminum.  The small to medium-sized German industries that are struggling to keep their doors open are probably not at all happy to subsidize a wealthy foreigner—no matter how much sense this sort of load-balancing strategy may make from an energy point of view.


The High Price of Clean EnergyTax Breaks and Subsidies for Industry Divide Germans

By Jörg Schindler and Gerald Traufetter

Major industry is being spared of the costs relating to Germany's expensive shift from nuclear to green energies. The burden is being placed on small and medium-sized business as well as German consumers, who pay the second highest price for electricity in Europe. Resentment is starting to grow.

At the moment, factory halls 1 and 3 are echoingly empty. Several smelting furnaces sit idle in a hall that could hold several soccer fields. A worker in a red jumpsuit is painting the handrail of an emergency exit, in no particular hurry.

Soon, though, this factory on the shores of a lake called Silbersee, in the city of Neuss near Düsseldorf, will be swept up in something of a gold rush atmosphere. If all goes according to plan, the facility, which belongs to aluminum manufacturer Norsk Hydro, will once again be buzzing with activity early next year, with liquid metal sloshing through many of its 474 electrolysis furnaces for the first time in four years.

The aluminum plant, also known as the Rheinwerk, is expected to employ 600 full-time workers again -- the hard years of slashed work hours are over. "Things are looking up here," company spokesman Michael Peter Steffen reports.

A Minor Miracle

There's a minor economic miracle taking place here on the Lower Rhine River. Since the financial crisis hit in 2009, Norsk Hydro has produced just 50,000 tons of aluminum a year here at its Rheinwerk facility -- a fifth of its full capacity.

Today, however, the company needs its full staff back, to implement a plan to increase production to 150,000 tons annually. Quality and logistics factors played a role in the decision, Steffen says, but of course recent developments in German energy prices have been a boon as well.

That's certain. The industry's complaints may paint a different picture, but in fact the market price for electricity in Germany recently fell. Renewable energy sources, though more frequently known for driving up energy costs have actually played a not inconsiderable role in that change, by creating excess capacity at certain times, which in turn lowers the so-called spot price. For a big energy user such as Norsk Hydro's facility in Neuss, which consumes as much electricity as the entire neighboring city of Düsseldorf, such a development is a welcome one.

But there are additional factors at play. "The political situation around energy prices was another reason for our decision," Steffen says, referring to a number of tax breaks and subsides that the German government provides to large energy consumers.

A Growing Rift

There's a growing rift in this country. On the one side are companies such as Norsk Hydro, which get a whole series of tax breaks and benefits. On the other side are the many small and mid-sized businesses, known as the Mittelstand, which comprise a very significant portion of the German economy, that don't qualify for these generous exemptions.

Perfume retail chain Pieper is one company that falls into this second category. The company doesn't receive any benefits for the six gigawatts of electricity it uses, because its business activity is in the retail sector, rather than manufacturing. "Big industry takes itself out of the game, and we're the ones played for fools," complains Gerd Pieper, the head of this family-run business with more than 100 stores.

Meanwhile, the Edeka supermarket chain counts over 1,000 stores -- all with humming freezers and heaters running at every entrance to beat the autumn cold. "The burdens of the energy transition should be shouldered by everyone," says Reinhard Schütte, a member of the board of directors for Edeka AG. "It's time to put an end to these exemptions." By burdens, he is referring to the costs associated with the German government's ambitious "energy revolution" plans to phase out all nuclear energy by 2022 and for renewable energies to account for 80 percent of the electricity in the country by 2050.

Small- to medium-sized companies such as these are finding themselves in surprising solidarity with private energy consumers, who now pay more than 25 euro cents ($0.32) per kilowatt hour of electricity, with that price steadily on the rise. Industry pays 12.4 cents per kilowatt hour, according to Eurostat. Within the 27-member bloc, only Danish households pay more than Germans, with electricity costing an average of 29.8 cents for kilowatt hour compared to the EU-wide average of 18.4 cents. By comparison, the average price per kilowatt hour of electriticity in the United States in 2011 was 11.8 US cents (9.12 euro cents) for residential customers, $0.102 for commercial enterprises and $0.0688 for industry, according to statistics provided by the US Energy Information Administration.

A Two-Class Society

Germany is increasingly splitting into two different countries when it comes to energy: the land of those who have to fork up the cash to fund the transition to renewable energy sources, and the land of those who have remained unscathed, at the expense of others.

This imbalance then ends up doubled and tripled, because the savings made by major industrial players show up instead on the bills of private energy consumers. Then there's the fact that big consumers such as steel mills draw their electricity from the spot market at the European Energy Exchange (EEX) in Leipzig, where major consumers from the industrial sector pay just six cents per kilowatt hour. more

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