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Germany’s planned shift away from nuclear power and towards renewables is stalling. Energy is set to be a key area of controversy in the run-up to next year’s general elections. The cost of renewable power may become prohibitive, driving industry away and forcing the import of more fossil-fuel based energy.

German Chancellor Angela Merkel met energy industry executives on Wednesday to explore how to make her government’s planned shift away from nuclear power and towards renewables a reality.

The plans are stalling because of a plethora of differing interests, which undermine the coalition government’s bid – in response to shifting voter preferences – to move to “green” energy following the Fukushima disaster in Japan.

Energy is set to be a key area of controversy in the run-up to next year’s general elections.

Merkel met the heads of utilities E.ON, RWE AG and municipal utilities as well as representatives from Siemens AG, power network operators, trade unions, and energy lobbyists.

Among other issues, the meeting identified a looming power generation capacity gap, equivalent to 15 power plants. It served as a precursor to a meeting of German state premiers on May 23 to follow up on the challenges.

These include hesitant grid expansion and question marks over the planned use of offshore wind power and the possible subsidising of flexible gas-fired plants, which Brussels would likely oppose under state aid rules.

HOW MUCH CAPACITY IS NEEDED TO REPLACE NUCLEAR?

Participants said there was agreement that phasing out Germany’s remaining nuclear power – totalling 12,696 megawatts (MW) – by 2022 would require putting in around 10,000 MW, or 15 power generation units this decade.

Conventional power stations fired by coal or gas are the backbone of electricity supply as they can work around the clock, while renewable plants driven by wind or solar power are by definition unreliable.

DOES NEW CAPACITY HAVE TO BE BUILT?

Investors shy away from the billion euros or so a new power production block would cost unless they can be sure they can sell the power profitably.

At the moment grid operators must buy renewable energy at above-market rates when it is available.

Capacity from conventional power operations cannot be quickly switched on and off, making it unprofitable when there is too much renewable energy available and utilities’ margins and share prices have already been hit.

One of their ideas centres on capacity payments in lieu of keeping old capacity in standby mode so as to balance out grid imbalances, rather than shutting old power stations. This could be cheaper than building new plants.

A 60 billion euros ($78.91 billion) new building programme announced two weeks ago by members of industry association BDEW reflects theoretical intentions, but many plans may not go ahead without more clarity on the market.

IS POWER SUPPLY REALLY SAFE IN THE MEANTIME?

Transmission grid firms say they must work much harder now energy flows have become more erratic, stressing cables and costing more engineering man-hours.

There have been a few near-misses threatening stable power supplies in adverse weather situations since eight nuclear units were shut hastily last summer.

IF NOT, WHY ARE THERE NO BLACKOUTS ALREADY?

Grid management and the size of renewable installations have ensured power flows are steered and there is enough, if not too much, power at all times. This is crucial as electricity cannot be stored for later use in any meaningful volume.

European interconnections mean there are already many cross-border flows of power that can help relieve national markets of surpluses and facilitate imports when necessary.

The enmeshed structure of Germany’s grids makes the system robust, preventing large-scale collapses. The market uses balancing power to make up shortfalls, albeit at a high price.

WHY IS NETWORK EXPANSION SO SLOW?

Germany’s federal structure gives state legislation free rein in many areas, meaning central policy-making suffers when there is no overriding need or incentive to comply.

New power lines across the country are too slow to come about, delaying the transportation of renewable energy.

Money is also tight – grid companies were split from energy production under European directives requiring such unbundling to encourage energy market competition.

Small grid firms now lack the funds for billion-euro infrastructure programmes.

These firms were split off from huge former incumbents that are angry they have lost control. So it is not always clear who is responsible when problems arise.

WHAT IS HOLDING BACK OFFSHORE WIND EXPANSION?

A plan to build 10,000 MW of offshore wind parks by 2020 – aimed at showcasing Germany’s industrial prowess – may be in doubt. There are rows about who pays for connecting the parks by cable to the onshore transmission networks, insurance questions, and uncertainty over who is responsible for technical glitches.

WHAT IS THE ROLE OF BIG UTILITIES?

Utilities’ profit margins are suffering because they have lost big nuclear plants due to last year’s closure decisions. Fuel costs are high and power prices historically low.

Big energy is no longer seen as a safe haven investment even if there are profitable pockets of renewable power, thanks to subsidised prices.

WHAT IS THE ROLE OF POLICYMAKERS AND REGULATORS?

Energy regulation is complicated because of a division of labour between the federal network agency (Bundesnetzagentur) and the cartel office.

The Bundesnetzagentur oversees energy supply flows but transmission firms are responsible for ensuring them.

WHAT DO GERMANY’S NEIGHBOURS THINK?

Some, like Czech and French power providers, profit from the developments. But network operators, for example in Poland and the Czech Republic, complain that they have to absorb excessive wind power flows when Germany’s power lines are overstretched.

Germany’s singular strategy clashes with its pro-Europe rhetoric as it did not consult the nine sovereigns it shares borders with before embarking on the energy shift.

WHAT IF THE WHOLE PLAN FLOPS?

The cost of renewable power may become prohibitive, driving industry away and forcing the import of more fossil-fuel based energy. This could make Germany dependent on neighbouring power providers, subject to inflated energy costs and vulnerable to disruption. The impact on its economy could be negative, from loss of face in carbon markets to job cuts and economic decline.

WHY THE SHIFT? COULDN’T IT BE A POSITIVE MOVE FOR GERMANY?

Germany’s voters favour a withdrawal from the perceived risks of nuclear power. They also support a low-carbon economy – reflected in the successes of the Green Party even in an industrial state like Baden Wuerttemberg. The costs of the changes were not first on the agenda when the shift was designed last summer.

The move towards renewables should also lead to more jobs and progress in technology and skills for Germany’s industrial sector.

Reuters, 4 May 2012