Energy Darwinism Coming to Germany

Many people interested in energy are focused on new developments in Europe's largest economy but do Merkel and co. actually have a good plan?

Jan 26, 2014 at 1:06PM

Nearly three years ago, I was publicly vocal against Germany moving away from nuclear power as quickly as it did post-Fukushima. Chancellor Angela Merkel sped up the timetable to abandon nuclear power after the tragic incident in Japan and vowed to turn Germany into a renewable energy juggernaut. In theory that move had it merits, but the real problem with the move was that the renewable energy sector was not ready to take on such as massive role. As a result, there have been widespread spikes in electricity prices across Germany, and renewable energy is getting unjust blame for not being able to pick up the load that was lost during the rapid nuclear phase-out plan. 

What does this mean for renewable energy?
So now there are calls to dramatically cut renewable subsidies in Germany. Renewable energy is very promising and has experienced pricing falls that have made it more competitive with fossil fuels. However, there are still development costs, infrastructure costs, and a maturation phase that many renewable sources of power must go through to further penetrate into the residential market. Additionally, we've all heard the naysayers dismiss cleantech because the sun doesn't shine all the time and the wind doesn't always blow (yadda yadda yadda), yet energy storage solutions are improving -- that bodes well for the "evolution" of cleantech in Germany and around the world, but do the Germans have a good energy plan?

I'm all for easing subsidies and letting the strongest renewable sources survive, but holding the feet of solar and wind over the fire seems premature, even for someone like me who actually supports advanced nuclear power if it can be safe. Germany has some of the highest electricity prices in the European Union, but penalizing the renewable space by grossly stripping subsidies, especially for onshore wind projects above 2.5GW, may only delay the growth of renewables, specifically onshore wind, at a time when nuclear is shelved and power prices remain elevated.

Something has to give
Either the new German government under Merkel agrees to lower the amount of renewables subsidies "gently" enough so players in the space aren't derailed by cutting subsidies by 20-30% within two years or the country needs to delay the phase-out speed of nuclear power slated by the end of 2022 in order to lower power prices, a move that would confirm that Merkel's earlier decision to move away from nuclear so quickly was a big mistake. Germany needs to navigate the present when it thinks of its energy future.

Therefore it should look at renewables for what they can still become, not the false prophecy that they were suddenly moving from a toddler-like growth cycle to being given the keys to drive the largest European economy's energy needs and replace nuclear power overnight. Germany's economic and energy minister Sigmar Gabriel should proceed with caution and not pull the plug on renewables as aggressively and quickly as Merkel did to nuclear.

European energy giants E.ON (NASDAQOTH:EONGY), a company with a new software relationship with General Electric (NYSE:GE), and RWE (NASDAQOTH:RWEOY) could be served well to at least consider merging, especially after RWE's 2015 program to cut costs and boost earnings. The two companies do have overlapping businesses, so a more coordinated, synergistic approach to onshore wind develop could result in better project savings in what seems like a more stringent renewables environment in Germany that will likely influence power prices throughout Europe.

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John Licata has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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