The Economic or Competitive Advantages of the Energiewende for Germany

The German Energiewende has repeatedly come under scrutiny for its cost. R. Andreas Kraemer, founding director of Ecologic, argues that the economic benefits prevail: Germany has matured a new branch of industry that creates economic growth and makes Germany more energy independent.

Economic Benefits

The Energiewende has helped to reinvigorate German manufacturing. (Photo by Frisia Orientalis, CC BY-SA 3.0)

The energy transition in Germany is “pragmatic”, moderately paced, and produces benefits that far outweigh the costs:

  • This new industry worth 40 billion euros per year employs about 400,000 people, which drives up tax revenue and stabilises the social security systems.  The lesson that well-designed policies for energy transformation can help governments with high deficits and debts is sadly often lost in the debate about public finance in the euro zone.
  • The employment is across skill levels — from highly specialised technicians to farm hands — and geographically spread, particularly useful to stop the economic decline of rural areas and the migration to towns and cities.
  • Import substitution reduces the cost of imported fuels and strengthens the balance of trade and payment.  This is not just a short-term fix but implies the development of a broad and deep value chain on renewables, smart grids and storage within Germany.
  • Security of supply and grid stability improved due to fuel mix diversification, but Germany still largely depends on foreign imports of fossil fuels.
  • Wholesale electricity prices, the prices paid by large industrial power users and utilities that buy electricity to distribute it to their customers, are very low in Germany — at around 4 cents per kWh — and projected to remain there for the next few years.  This is attracting inward investment, or the expansion of some electricity-intensive industries, such as aluminium recycling.
  • The renewable industry is driving innovation and acts as an automatic stabiliser, as seen in 2008-2009 when the wind industry, for instance, took off on the back of lower steel prices.
  • Once the last nuclear power plant has gone cold at the end of 2022, Germany will no longer be adding to the already high (and largely unfunded) legacy costs of nuclear power, and can address the issue of long-term nuclear waste storage.
  • At that point, Germany will also no longer risks the devastation of a nuclear catastrophe, at least from nuclear power plants on its own territory; the consequences of such accidents have the potential to bankrupt a country.
  • Germany will still be exposed to the risks emanating from plants in other countries.  (I am advising the German government to explore ways to leave the international agreements that currently prevent Germans who suffer damages from nuclear accidents from suing nuclear plants operators in other countries.  These agreements are in violation of the polluter-pays principle, and Germany’s adherence loses its rationale once it no longer operates any such plants.)

The overall, macro-economic assessment shows that the total cost of electricity supply to end users in Germany, expressed as a percentage of the Gross Domestic Product (GDP), representing the size of the German economy, has not changed much as a consequence of the Energiewende. In essence, the benefits listed above are being obtained at low net cost to the German economy, and domestic controversies are the result of and about distributive and social consequences of the Energiewende.

R. Andreas Kraemer is the Founding Director & CEO of Ecologic Institute. This post was first published on his private blog.