U.S. energy prices threatening German economy

October 15, 2013 | By Barbara Vergetis Lundin

Germany is facing important choices about the pace of renewables development, and how it should be funded, that will have a significant impact on economic growth and the country's ability to remain competitive in the global economy as rising electricity costs present a growing challenge, according to global analytics firm IHS.

Click to enlarge

Rising electricity prices in Germany and lower energy prices in North America are making German products less competitive and forcing firms to relocate to other countries. The study notes that this "investment leakage" creates a ripple effect in Germany's highly integrated and specialized economy as other companies in the supply chain follow suit and move out of the country, slowing overall economic growth and negatively impacting the standard of living.

"Rising electricity costs present a challenge similar to one Germany faced a decade ago from a rigid labor market," said Ralf Wiegert, director, IHS Economics. "Solving that problem was key to enabling Germany's formidable export performance in the years since. Today, a rigid and inefficiently organized energy market with rising costs -- which have strikingly jumped nearly 10 percent in the past 12 months -- puts Germany's international competitiveness, and thus its economy, at risk."

The research concludes that transitioning to a lower carbon energy policy could help maintain German global competitiveness, including a more moderate pace of renewables development and an increased role for thermal power generation, especially natural gas.

Key to such a transition would be maintaining the current EEG exemptions (Erneuerbare Energien Gesetz -- Renewable Energy Act -- surcharge and tax discounts) that have partially shielded energy-intensive German industry from the rising cost of renewables support to avoid additional costs for energy-intensive industries. The transition would also require balancing overall system costs and CO2 emissions when deciding on a suitable mix of power generation. For example, investing in gas-fired power generation can minimize the tradeoffs between lower system costs and higher CO2 emissions. As renewable technologies mature, gas would move into a back-up role, ensuring the security of Germany's power supply, the study concludes.

For more:
- see this report

http://www.fierceenergy.com/story/us-energy-prices-threatening-german-economy/2013-10-15