Merkel’s Taste for Coal to Upset $130 Billion Green Drive – by Julia Mengewein (Bloomberg News – September 22, 2014)

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When Germany kicked off its journey toward a system harnessing energy from wind and sun back in 2000, the goal was to protect the environment and build out climate-friendly power generation.

More than a decade later, Europe’s biggest economy is on course to miss its 2020 climate targets and greenhouse-gas emissions from power plants are virtually unchanged. Germany used coal, the dirtiest fuel, to generate 45 percent of its power last year, its highest level since 2007, as Chancellor Angela Merkel is phasing out nuclear in the wake of the Fukushima atomic accident in Japan three years ago.

The transition, dubbed the Energiewende, has so far added more than 100 billion euros ($134 billion) to the power bills of households, shop owners and small factories as renewable energy met a record 25 percent of demand last year. RWE AG (RWE), the nation’s biggest power producer, last year reported its first loss since 1949 as utility margins are getting squeezed because laws give green power priority to the grids.

“Despite the massive expansion of renewable energies, achieving key targets for the energy transition and climate protection by 2020 is no longer realistic,” said Thomas Vahlenkamp, a director at McKinsey & Co. in Dusseldorf, Germany, and an adviser to the industry for 21 years. “The government needs to improve the Energiewende so that the current disappointment doesn’t lead to permanent failure.”

Slumping Prices

While new supplies sent wholesale power prices to their lowest level in nine years, consumer rates are soaring to fund the new plants. Germany’s 40 million households now pay more for electricity than any other country in Europe except Denmark, according to Eurostat in Brussels. A decade ago, Belgium, the Netherlands and Italy all had higher bills than Germany.

“Politicians are often trying to kid us,” Claudia Fabinger, a 65-year-old self-employed marketing manager, said in between shopping for groceries on Leipziger Strasse in Frankfurt. “Our power bills keep rising and rising to fund clean energies; on the other hand, we are still polluting the air with old coal plants.”

The annual increase in residential rates has accelerated since 2011, when the nation boosted solar and wind subsidies in response to closing down eight of its oldest nuclear reactors. The annual increase is now 7 percent, compared with 4.3 percent between 2005 and 2010, according to Eurostat.

Consumers paid 106 billion euros between 2000 and 2013 to renewable energy producers, according to the nation’s four grids. To stem gains, the government cut green subsidies last month by 29 percent on average to 120 euros a megawatt-hour, according to the Economics and Energy Ministry’s website.

2008 Peak

German power for next year, a European benchmark, traded at 34.90 euros a megawatt-hour today in the wholesale market, or 59 percent below its 2008 peak, broker data compiled by Bloomberg show.

The average day-ahead German power price will probably drop to the lowest in 12 years this year amid the boost of renewable energy and a glut of capacity at conventional plants, Johannes Mayer, researcher at Fraunhofer-Institut fuer Solare Energiesysteme ISE, said today by phone from Freiburg, Germany.

The contract has averaged 31.40 euros this year and is at its lowest level since 2002, adjusted for inflation, Mayer said.

The price slump — coupled with the surge in renewable energy into the market where the biggest power generators also sell the output from their coal, nuclear and gas plants — cut the average operating margin at the eight biggest producers in Germany to 5.4 percent on average last year from 15 percent in 2004, company data compiled by Bloomberg show.

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