Can Germany’s energy sector survive the transition?
by Christophe Adrien, Associate Writer, Wall Street Sector Selector
German Chancellor Angela Merkel has dealt with a complex plethora of issues, but none so crucially important to her home of Germany (NYSEARCA:EWG) as the issue of energy. Greece may fill global headlines as the most dysfunctional member of the EU, but Germany has issues of its own to contend with that will require a great deal of attention and investment. Considered the rock of Europe, Germany has spearheaded the effort to prevent the European debt crisis from crashing the whole system, yet little attention has been paid to Germany’s recent energy woes.
Beginning in the 1970’s, Germany experienced a change in environmental awareness leading to the creation of the Green Party, an organization which today has ample popular support. Following the disaster at Fukushima, Japan, Germany’s Green Party figuratively wagged their fingers at the German nuclear energy program. Germans decided to turn a new leaf and ditch the non-green, and now unsafe, nuclear power plants. Ideologically, the move against nuclear made sense. Fiscally, it has recently proven to be a thorn in Germany’s side.
Germany’s industry is one of the largest consumers of energy on the globe. Their recent decision to dismantle their nuclear power plants, responsible for over one quarter of their net energy (NYSEARCA:IYE) supply (1), will add amplified stress to high-energy demands already in place. One of Germany’s leading energy companies, RWE, has publicly sited losses of over €1 billion (2) in 2011. In the immediate, Germany will need to import energy from other countries, adding additional losses to their energy sector.
Germany will need to increase its energy imports from France (3) whose nuclear infrastructure is designed to export large amounts of energy to neighboring countries. Germans will not accept this alternative for long. Support for the anti-nuclear movement is growing evermore, forcing Chancellor Merkel to decide on other sources of energy. Currently on the table as the most popular option, Germany has begun investing in solar energy (NYSEARCA:TAN) (4). As a long-term energy strategy, this is the most viable option for Germans. Unfortunately, solar energy is presently too costly and too inefficient to compensate Germany for the loss of power from their nuclear power plants.
The only options remaining to fill the energy needs of German industry while adhering to Germany’s anti-nuclear policies are coal (NYSEARCA:KOL) (currently the largest source provider in Germany), and natural gas. (NYSEARCA:UNG) These added sources of energy should suffice to bridge the gap between fossil fuels and renewable energy. The German people are contributing to the cause, and the country has seen a drop in energy consumption since 2011 (5) as part of a public effort to transition Germany into the green.
The “German Machine” is bustling. Germany has committed to renewable resources in full swing (6). Within the two next decades, Germany is likely to be energy-independent, using solar energy among other renewable energy sources to power its industry. Renewable energies are likely to see exponential growth as time passes, making Germany’s green movement the next possible big moneymaker despite current losses due to the loss of nuclear energy.
Bottom Line: Germany’s energy sector may be receiving negative reviews, but their plans for the future show promise. We may expect Germany to lead the world towards renewable energy by example if their long-term plan can successfully navigate the uncertainty of today’s markets.