Martin Springâ��s On Target
German companies now have to pay almost three times as much for electricity as their American competitors, according to a Siemens study. One reason is that there’s no supply in Europe of cheap shale gas. Another is the cost of huge subsidies given to producers of wind, solar and biomass power.
Because of lack of a national grid, too much of that power is generated in the North, yet isn’t available where it’s needed, in the South. And because those supplies are so erratic, polluting coal-fired plants have to be used to make up the difference, increasingly being fuelled by imports from the US.
The German government has shut half the nation’s nuclear power production, and planned to close the rest. It’s committed to sourcing 80 per cent of its electricity from renewables by the year 2050. Subsidies for wind and solar power are now costing $23 billion a year, and forecast to total $735 billion by 2050.
Most of these extra costs are being loaded on consumers, with the pain greatest for those least able to afford them. More than 300,000 households are having their power shut off for lack of payment as winter approaches.
One consequence of the chaotic policymaking is that Germany’s emissions of greenhouse gases are actually rising, with older “dirty” power stations being reopened.
Energy policy, known in German as Energiewende (energy turnaround), is an “unholy mess,” says FT editor Tony Barber.
Eoin Treacy's view Iberdrola’s CEO highlights that the politically driven subsidies for wind and solar are not only affecting German consumers.
“More than 50 percent of the bill European consumers are paying today has nothing to do with power generation and networks, and that’s because of political decisions,” said Iberdrola’s Ignacio Galan. “That has already created a lot of distortions.”
However, it is also worth pointing out that while sentiment towards the sector remains moribund, shares have rallied rather impressively over the last month. The Euro Stoxx Utilities Index has returned to test the upper side of an 18-month base and the 200-day MA has turned upwards. While somewhat overbought in the short-term a sustained move below the trend mean would be required to question medium-term scope for additional higher to lateral ranging.