This week two events have occurred and will have serious impacts on the European and German energy market: 1) the withdrawal from conventional power generation by Europe’s and Germany’s largest power company, E.ON, and 2) Russia’s cancelling the construction of the South Stream gas pipeline. The public reaction in Germany was quite subdued. That in itself shows how little the German public comprehends the issue of power supply stability.
But this is exactly what these two events are all about.
E.ON accepts that there is no longer any future for coal and nuclear power in Germany, as this is the will of the federal government and the German public. That is indeed suicidal for Germany as a location for business, and E.ON knows it. The forced shutdown of nuclear power plants, without compensation, and the loss-intensive relegation of coal and gas power plants to serve as uneconomical back-up power plants for the most-unstable renewable energies, has left a deep impression on the bottom lines of German power producers.
E.ON will place all its conventional operations into a subsidiary company, which will then be put on the auction block. E.ON’s abandonment is striking proof that a market-oriented commitment in Germany’s energy sector is politically unwelcome. Ultimately it is E.ON’s silent wish that in the end – with political guarantees from the German government – a buyer will take over the risk of producing conventional energy in Germany.
If it is not the state-controlled companies in France or Russia, then it will be the German state itself who will take over the supply of energy, and certainly over the coming years – after one of the feared brown-outs. That of course will be because of politics. But the political reaction will claim: The energy supply has to be placed in the hands of the state because the market failed. Perhaps the managers at E.ON saw it coming, and so are now attempting to salvage a part of the capital.
Fritz Vahrenholt is Honary Professor of Chemistry at the University of Hamburg, former Environment Senator of Hamburg, was on the board of Deutsche Shell AG 1998 – 2001, CEO of REpower Systems AG wind turbine company 2001 – 2007, and RWE Innogy renewable energy from 2008 to 2012, and co-author of the climate science skeptical book Die kalte Sonne (English version: The Neglected Sun). In 2012 Vahrenholt was elected chair of the Deutsche Wildtier Stiftung, a German foundation for the preservation of wildlife in Germany. He is also a member of the Academic Advisory Council of the London-based Global Warming Policy Foundation.