Energy Policy

Nick Butler: Last week’s results from the German utility Eon offered a stark reminder of the costs of the changes taking place in the energy market. Eon posted a loss of 16bn euros as a result of the transformation of the German energy market (known as the Energiewende) over the last decade. But we are not at the end of the story. To pursue its chosen policy objectives, Germany needs to expand the scope of the system it has created. Companies and investors across Europe who assume that the status quo will persist should take a careful look at Eon’s experience and be prepared for radical change. The company’s problems stem from two specific policy decisions made in Berlin – the determination to press ahead with the transition to a low carbon economy in a way that gives priority to technologies such as wind and solar power, and Chancellor Angela Merkel’s edict issued after the Fukushima accident in 2011 to accelerate the closure of Germany’s nuclear power stations. Taken together, the decisions undermined the business models of the German utilities. Wind and solar took precedence leaving gas-fired power as the marginal swing supplier filling the gaps when the wind didn’t blow. The programme of nuclear closures destroyed the value of existing assets and added a further cost burden through the recent decision that the industry must pay 23.6bn euros to manage the residual waste and decommissioning problems. As seen from Berlin the logic is to bring some or all of its neighbours into its system, removing all barriers to trade. In many ways this is the German version of the common energy policy that the European Commission has been trying to establish over the last two years. You might say that countries such as France, with its distinctive commitment to nuclear power, would never tolerate the extension of the Energiewende in this way. Maybe, but France is financially weak and one of the strong themes in the presidential campaign of the current favourite Emmanuel Macron has been the need for “more Europe” and for the closest economic and industrial partnership between France and Germany, in particular. A common energy market would be a major step in that direction. At the beginning, such a development would be highly technical and the process of change would be gradual. But, as Eon and the other German utilities have found over the last decade, the Energiewende is a cumulative process that over time transforms the whole market and sweeps away the apparent certainties of existing business models.

FT 20th March 2017 read more »

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Published: 20 March 2017