In a recent talk, Hans-Werner Sinn, professor of economics at Munich University and head of the ifo-Institute of economic research in Munich, hit the nail on the head when he said: “Anybody who believes that a highly developed industrial country like Germany can be electrified by renewable energies is not facing up to reality.” Unfortunately, most German consumers and voters are still not facing up to reality, but increasingly dislike the side-effects of the German “Energiewende”. Considering the legacy of more than ten years of highly subsidized renewable energies, a phase out of nuclear energy capacities, and a more and more dysfunctional energy market, the new German government is caught between a rock and a hard place. On the one hand, the new super minister, Sigmar Gabriel, in charge of economic policy as well as energy issues, wants to nurse the economic winners of renewable energy subsidies and other stakeholders of heavy involvement of the state in energy markets, on the other hand, he is well aware of the dangers of rising energy prices to German economic development. Though energy intensive companies that compete globally are exempt from paying their share of the renewable energy subsidies, people don’t like this discrimination.
Therefore, Mr. Gabriel is under pressure to keep electricity prices down, without risking a fundamental reform of the renewable energy promotion scheme. Besides the physical and economic constraints, that’s the political reality. Expectedly, the German government prefers to make more smoke rather than take actions. Like others before, Mr. Gabriel plans to cap some renewable goals arbitrarily, force operators of renewable energy power plants to sell their electricity directly at the market while still getting subsidized the difference between the market and the buyback price, and is looking for new ways to redistribute the burden of rising energy prices. Such a kind of window-dressing is started up by dim prospects of a later auctioning of renewable energy promotion contracts.
It is highly doubtful if such measures are really effective in reducing the costs of Germany’s energy transition. Neither will they cure the discrepancy between electricity supply and demand, nor end renewable energy subsidies any time soon. The betting is that Germany is heading for more and more state planning and fine tuning of energy markets, the more so as the German government plans to introduce more stringent energy efficiency standards in commercial property development and private housing, as well as product-related efficiency requirements. At this stage, it is foreseeable that German citizens and entrepreneurs will not only bear the heavy load of rising energy prices, but also suffer from a loss of freedom to act as they see fit. What Mr. Gabriel’s green growth strategy will yield is not economic growth, but growth of state power with more and more intrusion in our civil liberties.