In this post, I will break down what is happening to Germany today, what I think will happen over the next year or so, and what we should do to prevent economic collapse of the EU.

­­­­­­­Germany: 80 Million people, 350.000km2, (former) export champion of the world, the global heaven for car enthusiasts, an industrial power house with a stellar reputation abroad for “clean”, “efficient”, “straight”, “knowing how to do it.” Today, Germany is struggling. Just this year, Germany became a net-importer …

Introduction

­­­­Over 20 years, Germany embarked on one of its biggest economic and societal endeavors ever, the “Energiewende”, the transition away from fossil fuels to “clean renewables”, mainly wind and solar. It invested 400 billion EUR of German taxpayers’ money, not counting the consequential cost to the economy and citizens because of the highest power prices in the world. Today, Germany is at the center of western energy starvation, surely made worse by the “dispute” with Mr, Putin further East.

Shouldn’t Germany be happy with high coal and gas prices? Isn’t that what Europe tried to achieve with high CO2 prices, to make fossil fuels more expensive? After all, Francesco La Camera, Director-General of IRENA said: “2022 is a stark example of just how economically viable new renewable power generation has become. Renewable power frees economies from volatile fossil fuel prices and imports, curbs energy costs and enhances market resilience — even more so if today’s energy crunch continues.”

The idea was that the quick capacity build-up of wind and solar will take care of — at least — our electricity needs. Did that happen?

Germany consumes about 600 TWh of electricity annually

That’s a lot, but it’s only about 2% of 28.000 TWh worldwide. Further, Germany requires total primary energy to provide electricity, heat, transportation, and industrial activity of about 3.500 TWh, 82% from oil, gas, coal, and nuclear, 5% from wind and solar when they are working­­­­­­.

­­Recently, German year-ahead base power price breached 900 EUR/MWh on Friday 26th August 2022

This amounts to 0,90 EUR/kWh = or about 1,80 EUR wholesale cost to power your 2 kW washing machine for 1h when it used to be 10 cents. The old 5c/kWh whole-sale power price at the exchange translated to 39c/kWh consumer price. What does 0,90 EUR/kWh wholesale power price translate to for consumers? 5 EUR/kWh? I don’t know, but we will see soon…

Energy bills in Europe already increased by over 1,4 Trillion EUR in the 1st Quarter of 2022, when power was less than one quarter of today’s price, compared to 2020. Imagine now what will happen in Q1 2023 (Figure 4). Citizens in Germany and many other countries struggle to pay for their electricity, gas, and heating bills… even before the winter has started.­­­­

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Everyone will be hurt, but most hurt are the lower income half of the population (Figure 5) spending closer to half of their disposable income on energy.

­­­­Germany is NOT able to import significant quantities of electricity from its neighbors.

• France is struggling with its own electricity market as only 46% of the nuclear capacity is currently operational. In fact, France has already turned to a net power importer, whereas it has historically been a net power exporter (Figure 6)
• Poland is short of power and energy as well… as 9 Mio t of coal — that used to be railed from Russia — ceased to flow in. Polish coal levels are at historical low levels.
• Norway has historically been one of the biggest electricity exporters in Europe, to the UK, Germany, Netherlands, and Denmark. But it is under pressure to stop exports, as water levels at Norwegian dams might become too low for adequate hydro generation to supply the domestic demand.
• Norway now plans to curb power exports as a result of low water levels for their hydro power stations. Germany can’t count on electricity from Norway, as every nation will serve its own needs first … understandably (Montel News)­­­­­­.

­­Utilities in Germany

German utility Uniper has announced a €12Bn loss in H122 due to record gas prices and Uniper’s gas supply commitments to industry and households, amid the supply restrictions from Russia. Uniper expects further losses in the second half of 2022. The German government has announced it will take a 30% share in Uniper and has rescued the company with taxpayers’ money.

• Uniper also announced that its 875 MW Heyden 4 coal-fired power plant will again produce electricity for the market from end August 2022 until April 2023 as part of the government’s plan to secure energy supply in the coming winter.
• German utility STEAG has announced it will bring back two of its coal-fired power plants, currently in reserve, to the grid by November 22: 726 MW Bexbach and 655 MW Weiher.
• STEAG is following into the footsteps of EPH, which has restarted its 750 MW Mehrum coal-fired power plant in early August.
• Swedish utility Vattenfall said it was unable to restart Germany’s Hamburg Moorburg coal-fired plant. Vital components, such as transformers, have been removed from the 1.6 GW plant, as part of the decommissioning process, which started in July 2021 as part of the “Energiewende”. There are also not enough staff available to operate the plant.

Germany’s manufacturing sector continues to weaken

During July and August, extended hot weather and little rain lowered the Rhein River to critical (but not unseen) levels, putting further pressure on German industries. In the meantime, it rained a lot in the Alps last week and weekend, almost tripling water depth at the lowest points of the Rhein.

The government intends to pass new legislation on 14 September, which will give priority to oil, coal and other critical commodities for railway transportation this winter. Likely, such shift creates a shortage of rail cars for coal transportation. Unfortunately, many rail cars for coal transportation have been scrapped or sold to other countries (such as Russia) over the last 10 years. Even before the issue of the low water levels on the Rhine, there was the same issue of a lack of barges exactly for the same reasons.

­­­Gas and coal prices started to skyrocket in 2021

As a result of these policies, prices started to increase before the war in Ukraine. If today a utility had a spare coal fired power plant, it could buy coal and CO2 certificates and make an unprecedented 400 EUR/MWh in profits. Imagine the situation if Germany hadn’t retired all these coal and nuclear plants?

• 400 EUR/MWh in profits… what does this mean? about 240 Mio EUR per month gross margin — if you assume 24h, 25days a month, and a 1.000 MW power plant. That is if you had an idle coal fired power plant and can sell the power in the free market.
• Unfortunately, CO2 offset prices are at all time high, near 100EUR/mt

Where are the cheap renewables?

Where is wind and solar? Why do we have to turn coal back on just because Putin gives us less gas? Weren’t we told we can completely wean off fossil fuels? Weren’t we told that high-fossil fuel prices are good because that will eliminate those old technologies?

­­­­The EUR reaches parity with the USD, first time in 2 decades

That in itself is big economic news. The lower exchange rate helps European net exports ,which are practically at zero already, but weakens Europe as a whole­­.

My forecast for Germany and Europe: scheduled power cuts

Europe is facing a critical power shortage this winter. Germany is at the center, but the critical energy situation is mirrored in the UK, Poland, and France. This will have spill over effects to Austria, BeNeLux, Switzerland, and other nations.

Coal and gas are following power prices upwards. Keep in mind, there is no coal shortage globally or in Europe. There is only a shortage of power plants (decommissioned) and transportation infrastructure (sold). We might be reaching the point where coal-fired generation becomes almost inelastic to prices (due to the logistical issues) and gas-fired generation might follow soon (due to the lack of fresh international supply).

The only solutions for the German power market seem to be a miracle of fresh supply or a drastic cut in demand. The German government is still considering the possibility of extending the life span of the 3 remaining nuclear power plants from December 22 to March 23. But German nuclear generation has averaged about 2,8TWh per month in 2022. An additional 3 months of nuclear generation would represent less than 2% of German total annual electricity demand … much less of total energy.

During the winter, Germany will be forced to cut its power demand through scheduled outages, or based on economic decisions taken by industries. Scheduled power cuts — such as South Africans see daily — are very likely this winter. Please, Germany, go to South Africa and learn from them quickly before the winter how to plan for scheduled outages. A true disaster would be unscheduled large-scale outages that will have a ripple effect across Europe’s energy system.

But the risk of such unscheduled outages is rising every day.

If the unthinkable happens — major unscheduled power outages — or even if prices remain this high (very likely) and trickle through to every person on the street, to every industrial operation, then Europe will face social unrest not seen in decades. I am concerned that strikes or other civil action will worsen the economic crisis. I am concerned that extremists on both sides of the political spectrum in Europe will take advantage of this, that people will understandably look for alternative political solutions. I am concerned that governments do not understand the underlying cause of the situation. ­­­­­

What is the cause?

The “Energiewende” has had a disastrous outcome, and not just because of the war …

1. The “Energiewende” has as its core the near-instantaneous replacement of coal, oil, gas, and nuclear with wind and solar (plus as much biomass, hydro, geothermal as possible, but those are limited so not expected to expand much).
2. Wind and solar cannot — under any circumstance — power an industrial nation because any functioning economy requires a reliable supply of energy every single second of the day, that does NOT depend on the weather, that is energy and material efficient and energy dense. Also, supply of wind and solar infrastructure is largely controlled by China. (More details about why wind and solar don’t work at Schernikau et al. 2022 or my upcoming book “Electricity and the Future of Energy”.)
3. Even if we had a long-term storage solution to overcome the intermittency of wind and solar, which we do NOT, the underlying problems of wind and solar in regards to their low energy density, material inefficiency, recycling challenges, short life-time, negative environmental effects, and conversion and transmission inefficiencies would not be overcome (See figure 11).
4. Hydrogen is NOT the solution (see my newsletter from 10 April 2022). Up to 80% of energy is lost in the hydrogen supply chain, required to produce, store, transport, and repower (even “Energiewende” supporter Prof Kemfert agrees with me here).
5. You would only use excess, unutilized electricity from wind and solar, nothing else. Because Hydrogen loses so much energy, you would never ever use electricity that you can use elsewhere. You would always first charge your Tesla, before you waste 4/5 of the energy producing hydrogen. Obviously, you would never use coal, gas, nuclear, biomass, hydro to produce Hydrogen. That would just be madness to throw away valuable electricity especially at a time of electricity shortage.­­

­­­­What should we do?

I know I am biased. I come from the energy raw material business. But this is not about business; this is about Germany and her people. I agree that our energy systems needs to improve, emissions need to be reduced, efficiencies need to be improved. I agree that coal, oil, gas, nuclear, hydro have environmental issues, but many of those can be solved with existing and latest technologies. Therefore, since wind and solar DO NOT work (which Germany has now shown), logically, I recommend three courses of action …

1. Invest in base research to find a long-term truly sustainable and workable source of energy, like modular nuclear reactors.

2. Until something new and better has proven to work at grid scale, invest in our existing energy infrastructure, in supply of resources, and in energy generation capacity. We urgently need power plants, refineries, transportation, raw material extraction infrastructure, transport, and financing for the above.

3. Get the required money from money currently going to wind, solar, and hydrogen. They cause energy starvation …

­­­­­Imagine how strong Germany could be if it was allowed to build this industrial equipment for the world, with its talent for “clean”, “efficient”, “straight”, “knowing how to do it.” As of now, politics and the media are still smoking the long-term viability of the “Energiewende” and the government incentives that have so far not worked.

Our upcoming book “Electricity and the Future of Energy” covers all of the above in more detail… thank you for your continued interest in this subject and for helping to spread economic and environmental realities also to the people you care about. The subject of energy is not about politics or “beliefs”, it is about physics, chemistry, and economics — provide energy as efficiently, as cleanly, and as affordable as possible. That is what energy is about.

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­­Dr. Lars Schernikau is an Energy economist, Entrepreneur, commodity trader, and book author on energy commodities.

This piece originally appeared at shortfall.blog and has been republished here with permisson.