Wednesday, August 27, 2014

Germany's Energiewende

It means, "energy revolution," which really means government mandated move to renewable energy. The Wall Street Journal has a pretty good summary of the results so far:

Average electricity prices for companies have jumped 60% over the past five years because of costs passed along as part of government subsidies of renewable energy producers. Prices are now more than double those in the U.S....
...nearly 75% of Germany's small- and medium-size industrial businesses say rising energy costs are a major risk, according to a recent survey by PricewaterhouseCoopers and the Federation of German Industry.
A similar percentage of the U.S. companies operating in Germany said the Energiewende had made the country a less attractive place for business, according to a separate poll by the U.S. Chamber of Commerce. And for the first time since 2008, German companies cited rising overall costs at home as a motivation to invest abroad in a recent survey by the German Chambers of Commerce and Industry. 
I've been reading "The Economic Consequences of the Peace," by John Maynard Keynes. In it he discusses the punitive terms of the Paris Peace Treaty that ended WWI and the raping of Germany's industrial base by the victors. This passage struck me:

In a régime of Free Trade and free economic intercourse it would be of little consequence that iron lay on one side of a political frontier, and labor, coal, and blast furnaces on the other. But as it is, men have devised ways to impoverish themselves and one another; and prefer collective animosities to individual happiness.
 "Men have devised ways to impoverish themselves and one another." Substitute "delusions" for "animosities" and the last sentence applies to Germany's Energiewende.

Here in Connecticut (and elsewhere I suppose), our local politicians brag about the renewable energy standards they have imposed on the electric utility industry. Whenever I hear renewable energy standards I think increased costs.

When businesses and consumers face increased costs they act. Again from the Journal article:

BASF, which consumes as much electricity every year at its main German plant as the entire country of Denmark, said in May it would substantially reduce its investments in Germany as a result of the country's energy policy. It said its plan for the next five years is to cut investment in Germany to one-fourth the €20 billion global total investment, from one-third currently, and that it would invest in Asia and the U.S. instead. BASF has more than 50,000 employees in Germany, about half the company's total workforce.
 Germany's loss is our gain. But I doubt BASF will look at Connecticut. Electricity prices here are the highest in the continental US.

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