What kind of difficulties will the German economy, which has realized “denuclearization”, face in the future?Russia problem, instability of renewable energy

The de-Russianization of natural gas is expected to be realized by April 2024, but given the uncertainties in power supply and demand until then, the FDP said nuclear power plants should continue to operate. However, the second-largest environmental party, the Alliance 90/Green Party (B90/Gr), rejected the FDP’s proposal and, together with Chancellor Scholz’s Social Democratic Party (SPD), decided to move away from nuclear power.

“Instability” of Renewable Energy and Natural Gas

According to the German Federal Statistical Office, the share of nuclear power in Germany’s power mix has fallen to 6.4% by 2022. Given that Germany already accounts for only about 6% of the power supply mix, it seems a bit too optimistic to say that Germany’s electricity supply and demand will not worsen that much even if it drops to 0% as a result of the phase-out of nuclear power. Isn’t it?

As is well known, in February 2022 Russia invaded Ukraine, triggering an energy crisis in Germany and other European countries. During this period, the electricity price in Germany soared (on a consumer price basis, the price of electricity in Germany in 2022 will rise by 20.0% from the previous year). strong.

The German government will shut down three nuclear power plants in 2021. As a result, the share of nuclear power in the power mix will fall from 12.6% to 6.4% between 2021 and 2022. If the three nuclear power plants that had been shut down in 2021 had been restarted, the power supply and demand situation in Germany in 2022 would have been less tight even after the energy crisis.

In the first place, if renewable energy and gas-fired power were as stable as nuclear power and coal-fired power, Germany’s electricity supply and demand in 2022 would have been more stable. Even though it was only 6%, it was precisely because of the stable power source of nuclear power that the tightness in power supply and demand was only that level.

But the move away from nuclear power will make Germany’s electricity supply even more volatile, at least for the next few years.

Germany is trying to place renewable energy at the core of power generation, but the biggest problem is “unstable output.”

For example, electricity prices in Europe rose in 2021 as well, but the main reason was the slump in wind power generation due to extreme weather (shortage of wind). In addition, renewable energy generation is strongly subject to geographical restrictions.For example, Germany has a lot of flat land, so it is not suitable for hydroelectric power generation, which requires rivers with a certain degree of gradient.That’s it.

Germany’s Losing International Competitiveness

On the other hand, in the case of gas-fired power, there is the problem of increased gas costs.

From the perspective of “departing from Russia,” Germany is reducing its use of Russian natural gas via pipelines and is working to increase imports of liquefied natural gas (LNG). However, LNG is more expensive than Russian natural gas due to tanker transportation and processing costs (liquefaction and re-vaporization).

The Scholz administration aims to make most of the power mix renewable in the future, andStrategies for using gas-fired power as a transitional power sourceis drawing However, it is unclear how much the volatility of renewable energy will improve in the future. In addition, gas-fired power will inevitably increase in costs due to de-Russianization, and there is a risk that gas prices will soar, depending on market conditions.

The risks posed by renewable energy and gas-fired power, as pointed out above, have already materialized in the form of worsening terms of trade and trade balance.

Germany’s terms of trade (the export price index divided by the import price index) have deteriorated significantly since 2021 as import prices rose faster than export prices (Chart 1). Soaring fossil fuel prices led to a sharp increase in imports, which reduced Germany’s real income.

againThe trade surplus, which was one of the representative barometers of the strength of the German economy, will also decline sharply in 2022.(Chart 2). In the first place, German exports were losing momentum as China’s economic growth slowed. In addition, Russia’s invasion of Ukraine led to sharply higher prices for fossil fuels, such as oil and gas, and increased imports, resulting in a sharp decline in the trade surplus.

Natural gas prices in Europe have surged since 2021, but as mentioned earlier, this is due to the sluggish wind power generation, which caused countries to increase their procurement of gas. Furthermore, in 2022, the price of fossil fuels has skyrocketed due to Russia’s invasion of Ukraine. Deteriorating terms of trade and decreasing trade surplusesBehind the phase-out of nuclear power generation, Germany has been strongly influenced by its increased dependence on renewable energy and gas-fired power.

Attention-grabbing pros and cons of denuclearization

To reiterate, Germany has increased its reliance on renewable energy and gas-fired power at the same time as it has progressed in denuclearization. In other words, Germany’s electricity supply and demand, and thus the economy, have made it more vulnerable to risks associated with renewable energy and gas-fired power. It is difficult to envisage a prospect for Germany, which has such vulnerabilities, to improve its declining international competitiveness in the short term.

In addition, if the output of renewable energy power generation declines again due to bad weather, or if the cost of gas-fired power generation rises due to the rise in the price of natural gas, Germany, which cannot use nuclear power, will strengthen coal-fired power and increase the supply of electricity. I wonder if it will be In 2022, the Scholz administration also temporarily restarted coal-fired power plants, but this is a decision that conflicts with the administration’s strategic goal of decarbonization.

In any case, the Scholz administration decided to phase out nuclear power at this timing, overcoming the cautious voices of the people. And this decision will severely undermine Germany’s international competitiveness, at least in the short term. Future developments will be closely watched to see whether the benefits, both environmental and economic, will be sufficient to compensate for the loss.

(* Contributions are personal views and are unrelated to the organization to which I belong.)