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How To Kill An Industry: The Dark Side Of Germany’s Energiewende

Handelsblatt Global Edition

The fact that Germany is a world leader in green power is by now familiar. Much less familiar is the price the country is paying for it, not just in cold hard cash, but in growing losses and dislocations across the entire economy.

The losers include once-stalwart utility giants like E.ON and RWE that are struggling with rising debt and falling shares. Manufacturing companies, from chemicals maker BASF to carbon fiber producer SGL Carbon, have shifted investments abroad, where energy costs are often a fraction of Germany’s.

Losers include laid-off workers in these industries, but also millions of ordinary consumers. Their utility bills have skyrocketed, largely driven by subsidies for eco-friendly fuels. As much as the transition creates new jobs building wind turbines, farming biofuels or installing solar panels on rooftops, the changes are cutting a deep swathe through other parts of the economy. Germany’s “green” revolution has a dark shadow.

The reengineering of Germany’s economy is of course deliberate. When the environmentalist Green party first began co-governing at the national level in 1998, Berlin quickly drafted plans to exit nuclear energy. Generous subsidies to support wind and solar power, tacked on to consumers’ electricity bills, got their start in 2000.

Already struggling to expand renewable energy fast enough to compensate for the nuclear phaseout, Germany had to move even faster after Chancellor Angela Merkel’s surprise decision to accelerate the shift just days after the news from Fukushima. Now, the country is rushing to replace what was once 35 percent of German electricity generation by 2022.

Utilities Suffer Losses-EON RWE 01

Hit hardest, of course, are the traditional utilities. After all, the energy transition was designed to seal their coffin. Once the proverbial investment for widows and orphans because their revenue streams were considered rock-solid — these companies have been nothing short of decimated. With 77 nuclear and fossil-fuel power plants taken off the grid in recent years, Germany’s four big utilities — E.ON, RWE, Vattenfall and EnBW — have had to write off a total of €46.2 billion since 2011.

RWE and E.ON alone have debt piles of €28.2 billion and €25.8 billion, respectively, according to the latest company data. Losses at Düsseldorf-based E.ON rose to €6.1 billion for the first three quarters of 2015. Both companies have slashed the dividends on their shares, which have lost up to 76 percent of their value. Regional municipalities, which hold 24 percent of RWE’s shares, are scrambling to plug the holes left in their budgets by the missing dividends.

Thousands of workers have already been let go, disproportionately hitting communities in Germany‘s rust belt that are already struggling with blight. RWE has cut 7,000 jobs since 2011. At E.ON, the work force has shrunk by a third, a loss of over 25,000 jobs. Just as banks spun off their toxic assets and unprofitable operations into “bad banks” during the financial crisis, Germany’s utilities are reorganizing to cut their losses.

E.ON is spinning off its problematic fossil-fuel operations in a new company called Uniper. The utilities have also been calling on Berlin for fresh subsidies to keep idle power-generating capacity on standby – to jump in whenever the wind doesn’t blow or the sun doesn’t shine.

The corporate pain goes far beyond the utility giants. Suppliers to the power industry have also been rocked. Germany’s largest industrial group, Siemens, specializes in turbines, power plants and electricity infrastructure. Parts of that business have collapsed.

“I do not have a single order from Germany,” Siemens chief executive Joe Kaeser recently said about the company’s gas turbine business. “Not today, not next year.”

It’s the second major hit to Siemens from Germany’s energy policies. Siemens once built all of Germany’s 17 nuclear plants, and many more abroad. But after Ms. Merkel’s Fukushima decision, the company gave up its nuclear division and spun it off to the French company Areva. Today, Germany no longer has a nuclear technology industry.

Last year, Siemens also moved the global headquarters of its oil and gas business from Erlangen to Houston, and has been producing gas turbines in Charlotte, North Carolina, since 2011. Mr. Kaeser said Germany’s energy policies will lead Siemens to “reallocate our resources, as painful as that is.” The first to feel the brunt have been the company’s workers; since May 2015, Siemens has slashed 4,500 jobs.

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