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How to Kill an Industry

March 29, 2016
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By Paul Homewood 

 

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https://global.handelsblatt.com/edition/396/ressort/companies-markets/article/how-to-kill-an-industry

 

A devastating analysis published last week by Handelsblatt on Germany’s Energiewende:

 

“It was a dark, dark day for us,” said Felix Kusicka, the mayor of Biblis, a small town on the eastern bank of the Rhine. For decades, the town’s main employer was a 2500-megawatt nuclear plant that supplied power to nearby Frankfurt. After the authorities ordered the plant shut down in 2011 following the Fukushima nuclear accident in Japan, workers have dismantled the reactor cores and are taking the plant apart piece by piece.

With the shutdown, the town lost 50 percent of its corporate tax take and hundreds of jobs. House prices have fallen. Now, once-prosperous Biblis is shrinking. Stores have shut their doors and hotel rooms are empty. Biblis residents, bitter that even the Japanese are turning on their reactors again, call their town’s demise “the catastrophe after the catastrophe.”

The fate of Biblis is only a tiny sliver of the vast economic upheavals that began when Germany launched its energy transition that simultaneously phases out all nuclear power, winds down coal and other fossil fuels, accelerates the push towards alternative sources of energy, and builds the new grid infrastructure to make it all possible. The fact that Germany is a world leader in green power is by now familiar. Much less familiar is the price the country is paying for it, not just in cold hard cash, but in growing losses and dislocations across the entire economy.

The losers include once-stalwart utility giants like E.ON and RWE that are struggling with rising debt and falling shares. Manufacturing companies, from chemicals maker BASF to carbon fiber producer SGL Carbon, have shifted investments abroad, where energy costs are often a fraction of Germany’s.

Losers include laid-off workers in these industries, but also millions of ordinary consumers. Their utility bills have skyrocketed, largely driven by subsidies for eco-friendly fuels. As much as the transition creates new jobs building wind turbines, farming biofuels or installing solar panels on rooftops, the changes are cutting a deep swathe through other parts of the economy. Germany’s “green” revolution has a dark shadow.

The reengineering of Germany’s economy is of course deliberate. When the environmentalist Green party first began co-governing at the national level in 1998, Berlin quickly drafted plans to exit nuclear energy. Generous subsidies to support wind and solar power, tacked on to consumers’ electricity bills, got their start in 2000.

Already struggling to expand renewable energy fast enough to compensate for the nuclear phaseout, Germany had to move even faster after Chancellor Angela Merkel’s surprise decision to accelerate the shift just days after the news from Fukushima. Now, the country is rushing to replace what was once 35 percent of German electricity generation by 2022.

 

Utilities Suffer Losses-EON RWE 01

 

Hit hardest, of course, are the traditional utilities. After all, the energy transition was designed to seal their coffin. Once the proverbial investment for widows and orphans because their revenue streams were considered rock-solid — these companies have been nothing short of decimated. With 77 nuclear and fossil-fuel power plants taken off the grid in recent years, Germany’s four big utilities — E.ON, RWE, Vattenfall and EnBW — have had to write off a total of €46.2 billion since 2011.

RWE and E.ON alone have debt piles of €28.2 billion and €25.8 billion, respectively, according to the latest company data. Losses at Düsseldorf-based E.ON rose to €6.1 billion for the first three quarters of 2015. Both companies have slashed the dividends on their shares, which have lost up to 76 percent of their value. Regional municipalities, which hold 24 percent of RWE’s shares, are scrambling to plug the holes left in their budgets by the missing dividends.

Thousands of workers have already been let go, disproportionately hitting communities in Germany‘s rust belt that are already struggling with blight. RWE has cut 7,000 jobs since 2011. At E.ON, the work force has shrunk by a third, a loss of over 25,000 jobs. Just as banks spun off their toxic assets and unprofitable operations into “bad banks” during the financial crisis, Germany’s utilities are reorganizing to cut their losses.

E.ON is spinning off its problematic fossil-fuel operations in a new company called Uniper. The utilities have also been calling on Berlin for fresh subsidies to keep idle power-generating capacity on standby – to jump in whenever the wind doesn’t blow or the sun doesn’t shine.

The corporate pain goes far beyond the utility giants. Suppliers to the power industry have also been rocked. Germany’s largest industrial group, Siemens, specializes in turbines, power plants and electricity infrastructure. Parts of that business have collapsed.

“I do not have a single order from Germany,” Siemens chief executive Joe Kaeser recently said about the company’s gas turbine business. “Not today, not next year.”

It’s the second major hit to Siemens from Germany’s energy policies. Siemens once built all of Germany’s 17 nuclear plants, and many more abroad. But after Ms. Merkel’s Fukushima decision, the company gave up its nuclear division and spun it off to the French company Areva. Today, Germany no longer has a nuclear technology industry.

Last year, Siemens also moved the global headquarters of its oil and gas business from Erlangen to Houston, and has been producing gas turbines in Charlotte, North Carolina, since 2011. Mr. Kaeser said Germany’s energy policies will lead Siemens to “reallocate our resources, as painful as that is.” The first to feel the brunt have been the company’s workers; since May 2015, Siemens has slashed 4,500 jobs.

“Several years ago, about one fifth of global demand for gas turbines was in Europe,” said Udo Niehage, Siemens’ head of government affairs in Berlin and representative for the energy transition. “Now, though, the energy transition that’s taking place not only in Germany but in many European countries has significantly reduced our business with fossil fuel power stations in Europe and in Germany, it is almost at a standstill.”

 

A further cost of the energy transition is the building of power lines to transmit energy from the north to the south of the country. This could prove expensive and controversial, Mr. Niehage said. “Ultimately, we can’t say what it will cost to bury the cables – it depends on whether the ground is stony or not,” he said. Building the power lines throughout the country will lead to more protest, he noted.

Mr. Niehage predicted that by the end of the decade, with a better investment climate, gas power stations may be built again. “There’ll also be a greater need for security of energy supply in southern Germany because of the delays in the completion of the electricity highways. Also, we won’t be able to just “borrow” power station capacity from our neighbors because they’re planning to undertake similar activities.”

There has also been a quiet but noticeable exodus of energy-hungry manufacturing abroad, not with dramatic plant closures but with an inexorable shift in investments. Automaker BMW and SGL Carbon, which produces carbon fibers for BMW’s lightweight E-series electric cars, built their latest $300 million carbon fiber plant in Moses Lake, Washington, because of “competitive energy costs,” the companies said at the time.

Chemicals giant BASF also chose the U.S. for its largest single investment ever, a $1 billion propylene factory in Freeport, Texas, to take advantage of low energy costs. In the U.S., industrial customers pay less than half the German rate for electrical power, according to the OECD. The difference between gas prices is even higher.

Not only are jobs disappearing, so is knowledge. “There’s definitely a brain drain in terms of conventional power plant production,” said Matthias Zelinger, energy-industry expert at the German Engineering Federation (VDMA), an association that represents manufacturers. “Companies might start just moving their manufacturing to China but eventually the engineering and development follows,” he said. Eventually, he said, knowledge related to fossil fuel power will disappear from Germany.

 

Alternative Resources-energy renewables germany 2015 Energiewende wnd solar lignite coal nuclear gas

 

Klaus-Dieter Maubach, chief executive of renewable energy operator Capital Stage, said he experienced the loss of expertise when he worked at E.ON.

“I once helped to build a power plant of 1,100 megawatt in Rotterdam. I still remember it was a huge challenge to find enough people with the appropriate welding skills. Why? Because no one had been making such large plants for decades,” Mr. Maubach said.

Eventually, he said, knowledge related to nuclear power and fossil fuel power will disappear from Germany. “When students know that investments in coal and nuclear power will no longer be made they lose interest in these subjects.”

The result, industry experts like Mr. Zelinger say, is that Germany loses entire branches of industrial engineering in which the country has traditionally been strong, and which are still growing dramatically in the emerging markets.

Ordinary consumers have seen their electricity bills double since the introduction in 2000 of a renewable-energy levy, slapped on every household’s electricity bill to subsidize the owners of wind turbines and solar panels. The total cost has risen from €0.9 billion in 2000 to €23.7 billion last year, and will likely hit €25.5 billion this year.

Consumer advocates warn that a growing number of German families can no longer afford their electricity bills. Some 350,000 have had their power cut off, up 13 percent from 2011. The inefficiency is shocking: the renewable energy produced by €25 billion in electricity-bill surcharges this year will only be worth €3.6 billion on the market, according to the economics ministry.

 

blue jacket at a power plant dpaSome power plants in Germany stand empty. Source: DPA

 

No one knows what the final bill will be. The green-power surcharge on electricity bills has already cost consumers €188 billion since it was first introduced in 2000 – or €4,700 for each of the country’s 40 million households. The nuclear shutdown will cost another €149 billion by 2035, according to a Stuttgart University study.

The latest cost involves the vast new grid infrastructure necessary to connect new offshore wind farms in the country’s stormy but sparsely populated north with the energy-hungry south. Because of citizens’ outrage over new high-voltage lines crisscrossing the landscape, plans are now to run them under-ground, a novel experiment with long-distance transmission.

These costs, too, will be tacked onto electricity bills, while large industrial users will be hit with another €370,000 to €990,000 each year, according to the government. Altogether, the cost of Germany’s energy policies will reach €1.15 trillion by 2050, according to a Fraunhofer Institute study. Others say the costs will be even higher.

Ironically, the move away from nuclear power and towards renewables has left the climate losing out, too. Unlike in other European countries, German energy policies have always been more focused on ending nuclear power rather than concerns over the climate – nuclear power emits no CO2, after all.

As the country moved swiftly to wind down nuclear power, utilities fired up their carbon-spewing coal generators again, leading to higher emissions in 2012 and 2013. Total emissions have barely budged since 2008, despite the massive wind and solar buildout.

Adding to the bitterness about lost jobs and disappearing industries are big doubts if the changes even make sense. “Germany has set itself extremely ambitious targets but I don’t think the global climate is determined here,” said Michael Denecke, an official with Germany’s union of mining and energy workers. “Germany is responsible for 2.7 percent of global carbon emissions, so we’re fighting over nanograms here while in China, they’re building coal power stations every other week.”

 

Electricity Prices 2015-01

 

As the country plows ahead with its far-reaching energy policies, the future is uncertain for companies and consumers. “Industry has become fearful and skeptical about the political debate,” said the engineering association’s Mr. Zelinger, adding that companies need to be able to plan in the short and longer term.

More unknowns are ahead.

“There was a lot of initial euphoria, when we achieved the first 5 percent in the switch to renewables,” he said. “But reaching 50 percent is harder and a lot needs to happen.” The technical and economic challenges are enormous, Mr. Zelinger, though adding that there are many positive aspects to the energy transition as well.

Why aren’t more Germans complaining? The energy transition remains popular, with strong support in the political parties and leading media. Most of Germany’s current power brokers came of age in an era of fervent anti-nuclear protests, so in a sense this is the culmination of a generational project.

Most Germans also see the energy transition as positive for the environment, even if Germany has negligible influence on global CO2 emissions. And the vast amounts of money that have been mobilized have created new jobs, new companies — and new power centers to advance the cause. For the companies and workers on the losing end, speaking up can seem like tilting at windmills — or the zeitgeist.

Another reason why the losers of Germany’s energy transition have kept mostly quiet could be that they, too, have been bought off. Utility workers can now retire as early as age 52 and receive 80 percent of their pay. In the past, layoffs on the scale of what is now happening at the utilities often caused a national scandal. Instead, union leaders have kept largely silent.

Arthur Oster, a former RWE manager who had to shrink the payroll at a coalmine that supplied the company’s power plants, said there were no conflicts with workers. “Reducing the number of jobs went pretty well,” Mr. Oster said.

As the costs and stresses on the German economy mount, however, things may not always stay so quiet.

https://global.handelsblatt.com/edition/396/ressort/companies-markets/article/how-to-kill-an-industry

 

Where Germany goes today, Britain follows tomorrow.

14 Comments leave one →
  1. March 29, 2016 5:12 pm

    Reblogged this on The Arts Mechanical and commented:
    Maybe the victims of this don’t have a voice.
    https://notalotofpeopleknowthat.wordpress.com/2016/03/29/green-europe-lets-its-poor-freeze-to-death/
    The victims of these kind of bad decisions are usually the kinds of people who have little voice and are far away from the concerns of Brussels and Berlin.

  2. markl permalink
    March 29, 2016 5:12 pm

    It’s all part of the plan to redistribute wealth from the successful industrial countries to other countries that…for various reasons within their control….failed to become prosperous. The result will be nothing left to share once the robbery is complete. It’s only fitting that Germany, the home of “Green”, will be the first to suffer the consequences of the Socialist ideology driven restructuring. It’s never been about Climate.

    • diogenese2 permalink
      March 29, 2016 5:29 pm

      They are not sharing their wealth they are destroying it. The post war economic miracle was based on a drive to continuous growth in efficiency based on sound engineering and economics. This is reversing as can be seen from the above graphs and the text. What will occur in the Eurozone as Germany collapses doesn’t bear thinking about. The consequences of 1933 are well understood. This is beginning to get scary.

      • Derek Buxton permalink
        March 30, 2016 9:18 am

        Yes, very true. But like lemmings we are hell bent on following the German stupidity. The EU was well past its sell by date some time ago and this could be the kill time.

    • dangeroosdave permalink
      March 29, 2016 5:32 pm

      Visit Clean Green Detroit

  3. March 29, 2016 5:53 pm

    The article failed to mention that German CO2 is rising, a frequent blind-spot of the media, who simply can’t criticise the green agenda itself. Even if the German countryside gets a full carpet of wind turbines, power lines, and solar farms there still remains the gas burnt for heating and the petrol/diesel burnt for transport.

    The word “futility” never penetrates the self-righteousness of the “green” vision.

    • sarastro92 permalink
      March 30, 2016 5:15 am

      Correct climan… the EU, led by Germany are actually re-carbonizing their economy… which proves it never was really about CO2 and Climate Catastrophe… it’s about de-industrialization and depopulation. Sad to watch Europe self-euthanizing … but their nations are being repopulated from displaced war refugees from the Middle East. It’s hard to be sympathetic to the demise of mighty Europe… a few pockets in the East will resist.

      The question is whether European suicide will be an object lesson for the US as well as the Far Eastern powers.

      • Adam Gallon permalink
        March 30, 2016 7:32 am

        Not much depopulation going off in Germany, with around 1,000,000 migrants come over from Islamic countries.

  4. David Richardson permalink
    March 29, 2016 8:26 pm

    “Where Germany goes today, Britain follows tomorrow.” Well yes Paul – but at least we don’t have any real industry to lose. Germans will have get by selling each other a skinny latte – like we do.

    It amazes me how modern western politicians ( left,right and centre ) seem to think that pouring money down a grid (or into a grid) has no knock on effects. They all appear to be enthralled by the Green Genie.

    The Greens are the problem and not the solution – but saying that assumes that running an efficient country for the good of its people is anywhere near their agenda – its not.

    • Fantail permalink
      March 29, 2016 9:06 pm

      Hey, the Greens have finally worked out how to make a buck from environmentalism. In decades past environmental activism meant being poor and living an ideology in poverty. It still does for those not involved in the climate change business. But for those in the climate change branch of Environmentalism, money is coming from all quarters. It’s a good, easy living. Name-calling is simple and effective. Public shaming is proving lucrative. These individuals and groups have worked out that by exacerbating fear in the public, stroking the egos of the politicians in charge of the public purse strings and playing up pity for the Third World and underprivileged, they can maneuver into positions to suckle lucratively at the taxpayer money teat. The bull dust will eventually make contact with the fan, but this is little concern to those with an agenda to push.

  5. March 29, 2016 10:00 pm

    It’s quite hard to believe that intelligent people fail to understand the consequences of simple facts: the wind blows intermittently and the Sun disappears at night and when it’s cloudy.

    Most five year olds are aware of such things.

  6. John F. Hultquist permalink
    March 30, 2016 4:10 am

    It is much easier to say green-utopian-society than it is to achieve one.
    Diogenese2 says “They are not sharing their wealth they are destroying it.”
    I might add that “wealth” in this case is a broad thing, not just money, and when destroyed, it cannot be recovered. A poor nation is less able to cope with its problems.

  7. Ex-expat Colin permalink
    March 30, 2016 7:30 am

    As I understood it those Power Co’s are taking the German Govt. to High court over this very matter. Reported about 2 weeks back…somewhere?

  8. Jack Broughton permalink
    March 30, 2016 3:05 pm

    I’m afraid that the truth is as David Richardson says, the UK have already destroyed its skill base and manufacturing over the last 3 decades.

    The UK was used in EU mergers to cut capacity cheaply (steel especially) even before the energy madness started: emission-mania is the final stage.

    The ruination of large companies based on political expediencies will return in spades for both Germany and the UK.

    What is going to pay for the coffee beans to make the skinny lattes!

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