Watching Germany’s Endangered Utilities

Earlier articles have described the effect that Energiewende is having on Germany, with its effort to have 80% of electricity from renewables by 2050, and how, at only 22%, the power generation and delivery system is already being stressed to the limits.

Energiewende has rewarded, with large subsidies, the building of wind and PV solar installations, while giving priority to renewables when dispatching electricity from all available sources.

My first article was last October, Germany as the Canary. The next was on January 7, Germany: Canary for Renewables.

This article will ask the question: Can utilities survive under Energiewende, in Germany … or any other country adopting similar policies?

And if utilities cannot survive, what other industries will be affected?

And how will that affect private investment in the stock market?

Brandenburg Gate, Berlin. Photo by D. Dears

The first major crack in the German utility industry came last week when E.ON, the largest utility in Germany, announced it would shutter 13,000 MW of power generation capacity, which is more than 25% of its conventional power generation capacity.

The company announced a 14% reduction in earnings for 2013, compared with 2012, attributing the decline to “the market situation in fossil fueled-power generation.”

Johannes Teyssen, E.ON’s CEO, went on to say, “In particular, the ramifications of policy decisions in Germany and the related insufficient market prices for conventional energy continue to have an adverse impact on our generation portfolio, which has long been a mainstay of our business.”

Previously, in August of 2013, Germany’s second largest utility said it would shutter 3,100 MW of conventional generation across Europe on similar profit woes. RWE said that subsidized renewables were the reason for shuttering such a large portion of its power generation capacity.

Interestingly, little of this was reported in the media in the United States, which continued to lionize Obama’s war on climate change.

In Germany, it’s becoming increasingly clear that, unless Energiewende is stopped, there are only two possible outcomes for the utility industry, including the grid.

• The government allows utilities to charge customers a capital fee as part of their rates, to cover the cost of power generation, transmission and distribution investments. This is unlikely to be greeted favorably by consumers, who already pay as much as five times more for their electricity than do Americans.
• Private utilities go bankrupt, with all power generation, transmission and grid assets taken over by the German government, i.e., are nationalized.

The ramifications of either alternative are appalling, first because of their effect on the stock market, second because of all the other businesses that will be affected. For example, Siemens, Germany’s largest manufacturer of electrical equipment, has 20% of its sales in the sector.  For comparison, General Electric Company has 22% of its sales in power generation. There are literally hundreds of companies, and thousands of jobs, that depend on the power generation, transmission and distribution businesses.

It should be noted that policies in the United States supporting wind and solar, are having the same insidious effects as is Energiewende in Germany.

We are fortunate to be able to watch the effects that such policies are having on another country, providing we have the common sense to change our policies accordingly.

 

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