🔋It's Only Natural
🔋It's Only Natural
Revisiting Germany one year after the last nuclear shutdowns.
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The issue of nuclear power is a dead horse in Germany. - Olaf Scholz
I’ve previously discussed some of the ramifications of the Russia/Ukraine war and European energy policy on Europe and its economy [1,2,3,4]. Last April, Germany took its last three nuclear power plants off the grid, with consequences ulterior to their policy objectives. With no more Russian gas coming through to Germany due to the Nordstream pipeline sabotage, the country resorted to re-opening coal plants to fill the difference.
With another year of information at our disposal, we can better assess how Germany’s economy and emissions have fared. Despite the increasing renewables including 17GW of new capacity, natural gas is still second in consumption behind oil in their energy mix. Without Russian flows, the gas was made up elsewhere. As you can see below, the big winners in this were Norway, Netherlands, Belgium, and liquefied natural gas (LNG) exporters.
Further, the US expanded its LNG capacity and helped fill the void for Europe. You can see a sharp increase in US exports to Europe immediately following the start of the war.
The high energy prices in 2021/22 hurt businesses and consumers. Germany has seen a manufacturing slowdown, many longstanding companies have gone bankrupt, and others cut investment. The economy has had two consecutive contractions in GDP and the heaviest slump in 20 years. Some economists predict the country will enter recession sometime this year. German manufacturing Purchasing Managers' Index (PMI) is in contractionary levels not seen since the pandemic in 2020 and the recession that followed the financial crisis in 2009.
As far as the energy mix goes, Germany remains reliant on fossil fuels. Oil and natural gas are consumed the most followed by renewables and then coal. ~50% of Germany’s renewable energy is biomass, which is not a clean energy source, especially when considering a significant amount is imported from the US. Even with the aggressive renewables buildout, the US still has a higher percentage of clean energy than Germany[1,2].
With such an energy mix, you wouldn’t expect a super clean grid. Much of the oil is used for transportation, so the electricity production component will look slightly better. Still, in 2023, Germany’s carbon intensity was 400g, ~8x higher than neighboring France at 53g. I highlight France to remind you of the contradictive energy policy of lowering emissions while maintaining a staunch opposition to nuclear. France decarbonized its electricity over 30 years ago and has maintain it for decades.
Unfortunately for Germany, their policies are still not looking in their favor. Hindsight suggests they should not have become so reliant on Russian natural gas only to import it from the US at higher costs and close nuclear power plants at the expense of their carbon emissions. The country has also had to step in to fund the majority of the renewable energy buildout, seen once again recently with the wind industry. These policies not only hurt their policy objective of lowering emissions but also have resulted in the country on the verge of recession with the closure or bailout of many companies within the nation.
Looking ahead, the country has eeked long-term deals for natural gas with the UAE, Qatar, Algeria, Norway, and Nigeria. Along with the US, these deals will help the nation replace natural gas otherwise sent through Russia. Germany has done a good job maintaining stockpiles of gas storage to mitigate damage from the energy insecurity and looks good today with energy prices closer to their pre-crisis trends. Even with recession lowering demand which generally lowers energy prices, the higher costs for this energy will likely be felt in the long run, meaning prices are still slightly to moderately higher than pre-crisis. These natural gas trends and deals are necessary evils in a world where sanctions on Russia remain. Even with decarbonization goals, Germany’s actions suggest they will be using natural gas for quite a long time.
The aggressive Energiewende will help decarbonize the grid, but they face an uphill battle absent nuclear power. Demographic trends like an increasing retirement population coincident with less working-age population also do not bode well long term. While everyone, especially Europe is rooting for Germany to get their feet out of the mud economically and for the environment, they face a challenging road ahead. Until next week,
-Grayson
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