German Green Energy Push Bites Hand That Feeds Economy
Comment of the Day

January 31 2013

Commentary by David Fuller

German Green Energy Push Bites Hand That Feeds Economy

My thanks to Jackson Wong for this informative article published by Bloomberg. Here is the opening and a few other short samples
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."


That's chipping at Germany's competitive position and the country has been overtaken in theWorld Economic Forum's competitiveness index by The Netherlands, which moved up to fifth place in the 2012-2013 ranking compared with Germany's sixth.

In the aftermath of the financial crisis sparked by the collapse of the U.S. housing market, the Mittelstand helped hold down the unemployment rate, which has sunk to the lowest since reunification in 1990. Small and medium-sized companies added 104,000 jobs from 2007 to 2010, while bigger companies cut 120,000 positions, according to a study by Ashwin Malshe of the ESSEC Business School and Johann Eekhoff of the University of Cologne.

The Fukushima reactor accident in March 2011 in Japan prompted Chancellor Angela Merkel's decision to phase out nuclear power. The government guarantees above-market prices for wind, biomass and solar power that helped build Europe's biggest renewable energy complex.


Taxes and other government charges make up about half of household electricity bills, ZGV's Veltmann said. In addition to the renewable energy surcharge, customers have to pay electricity tax, licence fees, a network surcharge and value- added tax. The cost for households and companies is rising even as electricity prices decline on the wholesale market, he said.

The extra charges are widening a gap between Germany and the rest of the world. The electricity cost for industry was 20 percent higher than the European Union average at the end of 2011. Germany now pays twice as much for energy as the U.S., partly because of cheaper shale gas there but also because of lower surcharges and taxes, according to a McKinsey report.


"The fundamental question is whether we want to push through this crazy 80 percent renewable energy share at the expense of the economy," said Marc Tenbieg, managing director of the DMB Deutsche Mittelstands-Bund, which represents more than 14,000 small and mid-sized enterprises. "Why do we always have to be the trailblazer and show the other countries how it's done? They are laughing their heads off."

David Fuller's view I have long felt that Germany was the most successful manufacturing country that the comparatively modern world has ever seen, particularly in terms of precision engineering. Inevitably, no country leads in all sectors and Germany is certainly not the first country I think of in terms of information technology. However, in its areas of specialisation, Germany has a deservedly high reputation for quality and reliability.

This success is too often taken for granted by Germany's politicians, especially since their post Fukushima decision to phase out nuclear energy. That may have been politically expedient, but at a very high price for the German economy if it drives away the so-called Mittelstand, consisting of approximately three million medium to smaller-sized businesses which account for approximately half of the country's GDP.

Similarly, the UK's Conservative Government, which should have known better, has caused energy costs to soar because of its obsession with expensive and inefficient wind farms, which soon become anathemas for those who live anywhere near them. Belatedly, the UK has decided to develop its shale properties as I have mentioned before. They may not lower the cost of heavily subsidised wind farms, at the taxpayers' expense, but will hopefully reduce the risk of power blackouts.

Surely Germany also has commercially worthwhile shale deposits of gas and oil. However, I have heard very little to date about efforts to develop these valuable resources.

(If you are interested in this subject, see also: "the beginning of the reversal in the decline of energy intensive heavy industries within the USA is entirely due to the invention of fracking" - in the Subscriber's Area.)

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