If You Want It, You Can Have It -- But You Better Hurry, 'Cause It May Not Last

Here are two great Bloomberg stories on renewable energy in Europe and Great Britain (which likes to think it is not part of Europe).

The first article is a "feel-good" article that elitist environmentalists will enjoy. One really needs to read the entire article and think of the unintended consequences, perhaps ask some questions not asked (or answered by Bloomberg.

Germany’s $710 billion green-energy drive is cutting production at nuclear reactors, the nation’s most profitable large-scale plants, as power prices slump to a six-year low. 

The reductions, which typically last for hours at a time, underscore how Chancellor Angela Merkel’s plan to replace atomic power with renewable energy within a decade is gaining ground at the expense of profit at utilities from RWE to EON SE. The boom in green power, coupled with the lowest demand in 10 years, sent the average operating margin at 15 European utilities to the lowest since 2002, company data compiled by Bloomberg show.

Renewable power is so prominent in Germany’s grid that natural gas-fired plants haven’t been profitable for 17 months, according to a Bloomberg calculator that takes power prices, fuel and emissions costs into account. Reactors are cheaper to operate than lignite-, coal- and gas-fired stations on a marginal cost basis.

Sounds great, doesn't it?

Nowhere are the implications or the unintended consequences mentioned in this very, very long article, filled with figures and obfuscation that few folks will read to the end.

Nowhere is the cost factor discussed.

For that we need to go to a second article, also from Bloomberg, and also just published, June 14, 2013. In this article we are told very clearly what this "feel-good" story is costing the Germans, and how much more it will cost the Brits.

The lede:

Electricity in the U.K. is poised to cost almost twice as much as in Germany within two years as Britain lags behind in building solar and wind plants. U.K. power will be 85 percent more expensive than in Europe’s biggest energy market in May 2015, according to data compiled by Bloomberg. That compares with an average premium of 17 percent over the past five years and 80 percent today.

So, big deal. British electricity will be more expensive than German electricity. If the price the Germans are paying for electricity is inconsequential, then no big deal.

Unfortunately that's not the case.

The lower German prices are no comfort for the 40 million households in Europe’s biggest economy.

Retail [electricity] prices have risen 17 percent since the end of 2009, according to Eurostat data compiled by Bloomberg Industries.

[Germany] has the highest residential costs in Europe after Denmark as utilities pass on the costs of solar and wind generation

German Chancellor Angela Merkel’s government should take steps to contain the cost of the switch to renewables as households have so far borne the brunt through power bills inflated by renewable-power subsidies while industrial users have been shielded from the increased costs, the International Energy Agency said last month.

“The fact that German electricity prices are among the highest in Europe, despite relatively low wholesale prices, must serve as a warning signal,” Maria van der Hoeven, the Paris-based adviser’s executive director, said May 24.

More, after the video.

Come and Get It, Badfinger
So,  how bad is the price of electricity in Germany? Again, from Bloomberg, January 28, 2013 (yup, this year):

Worlee-Chemie GmbH, a family-owned company that has produced resins in the city of Hamburg for almost a century, is trying to escape the spiraling cost of Germany’s shift to renewable energy.

A 47 percent increase on Jan. 1 in the fees grid operators set to fund wind and solar investments is driving the maker of paint ingredients to Turkey, where next month it will start making a new type of hardening agent at a factory near Istanbul.

The levy will cost Worlee 465,000 euros ($620,000) this year, the equivalent of 10 full-time salaries, or one-third of the company’s tax bill. As German labor costs rise at the fastest pace in a decade, the price of weaning the country off nuclear energy by 2022 is crushing the so-called Mittelstand, the three million small and medium-sized businesses like Worlee that account for about half of gross domestic product.

“It could be the proverbial straw that breaks the camel’s back,” Chief Executive Officer Reinhold von Eben-Worlee said in an interview. “It comes on top of tax, general production costs, raw-material availability and bureaucracy, which have led to a deterioration of the investment climate in Germany.” 

From CanadaFreePress:

Germany’s switch to renewable energy is bound to fail with consumer prices at a 15-year high while wholesale prices are languishing, the chief executive of Austrian energy group Verbund said. Germany’s market, due to its retreat from nuclear power after Japan’s 2011 Fukushima disaster, was ‘about to collapse’, Wolfgang Anzengruber said, citing a lack of necessary investment that is compounding a broken pricing model.

The CEOs of manufacturing industries are warning that production in Germany is at risk because of low energy prices in the United States. The energy prices there are now only a third of those in Germany. “Many industrial companies are planning to build new factories in the U.S. and not in Europe because of low energy prices there,” said Gisbert Rühl, chief of steel trader Kloeckner. “We are now reacting to this development and plan new business units in the United States.” To move production to the U.S. is especially attractive for companies in energy-intensive industries such as steel and aluminium or chemistry.

Even the NY Times reported on this debacle, December, 2012:

On Dec. 19, Voestalpine, an Austrian maker of high-quality steel for the auto industry, announced that it would build a plant in North America that would employ natural gas to reduce iron ore to a kind of raw iron that would then be used in the company's European blast furnaces. 

Asked whether he had considered building the plant in Europe, Voestalpine’s chief executive, Wolfgang Eder, said that that “calculation does not make sense from the very beginning.” Gas in Europe is much more expensive, he said.

High energy costs are emerging as an issue in Europe that is prompting debate, including questioning of the Continent’s clean energy initiatives. Over the past few years, Europe has spent tens of billions of euros in an effort to reduce carbon dioxide emissions. The bulk of the spending has gone into low-carbon energy sources like wind and solar power that have needed special tariffs or other subsidies to be commercially viable. 

Both consumers and the industry are upset about high energy costs. Energy-intensive industries like chemicals and steel are, if not closing European plants outright, looking toward places like the United States that have lower energy costs as they pursue new investments.

BASF, the German chemical giant, has been outspoken about the consequences of energy costs for competitiveness and is building a new plant in Louisiana.

“We Europeans are currently paying up to four or five times more for natural gas than the Americans,” Harald Schwager, a member of the executive board at BASF, said last month. “Energy efficiency alone will not allow us to compensate for this. Of course, that means increased competition for all the European manufacturing sites.”