Germany moves while China watches

With China’s renewables industry waiting in the wings, able to achieve astonishing economies of scale, a nuclear-free Germany could see its first mover advantage quickly turn sour.

China dialogue

China’s solar panel makers are well aware of Germany’s clean energy program. They have been quick to supply technology to it. Some 80 per cent of Chinese solar photovoltaic exports go to Europe, and much of that to Germany. Indeed, so successful have these exports been that there is talk of the European Union following the United States in taking protectionist anti-dumping measures against Chinese solar panels.

But Germany’s extraordinarily ambitious goals to halve its energy consumption, cut greenhouse-gas emissions by 80 per cent and raise the renewable share of its electricity by 80 per cent, all by 2050, deserve a wider audience in China. Not because Germany is a model for China in any literal sense – Beijing has no intention of following the German strategy of abandoning nuclear power while also moving away from fossil fuels. Rather, Germany’s attempted energy revolution will show a country like China, which cannot afford to let its energy consumption run away or choke itself with emissions, what can – or cannot – be achieved technically and politically.

Germany’s reaction to the Fukushima accident was not a total surprise. The decision never to re-start the eight reactors that were, at the time of the March 2011 accident, shut for repairs or servicing was certainly illogical. These reactors were not in any predictable danger from earthquakes or tsunamis. But the accompanying decision to phase out all of Germany’s other nine reactors by 2022 was simply a return to an earlier position: a phase-out by this date was official German policy from 2002 to September 2010, when Chancellor Angela Merkel decided to extend the working life of German reactors by an average of 12 years, to around the mid-2030s.

Indeed, you could argue that it was more surprising for Merkel, in the first place, to extend the life of the nuclear reactors than it was for her later to cut their life short, given German ambivalence towards nuclear power. For many Germans, civil nuclear power was long tainted by the presence of so many foreign nuclear weapons on German soil during the Cold War, in total contrast to the French whose development of nuclear weaponry was a source of national technical pride. The Germans, too, are probably more worried than most populations about the uncertainty of where and how to store highly radioactive nuclear waste.

But Merkel’s second policy u-turn did not totally cancel out the first. For the reactor life extension was decided at the same time as the 2050 energy goals, and was an integral part of this so-called Energy Concept. Nuclear power was given “a bridging role” in this Energy Concept, according to the environment ministry, “until renewable energies can play their part reliably and the necessary energy infrastructure has been established”.

It would therefore have been quite understandable for the Merkel government to accompany its 2011 announcement on nuclear with a parallel easing of those Energy Concept targets, whose attainment will be harder without nuclear power. Unless the carbon-free power provided by the nuclear reactors is entirely replaced by renewable energy, Germany will find it more difficult to meet its emission-reduction goal. But the Merkel government decided to stick to its earlier goals. It only added a series of measures to speed up grid expansion, market integration and investment in non-nuclear forms of generation capacity to back up renewables.

Of course, German energy policy may change again. Germany is unlikely to alter its position on nuclear power, but could do so in relation to clean energy and emission-reduction targets, which could be scaled down by a future government. But one has to ask why Germany is being so bold now. The answer is that, while Germans appear more nervous than ever about nuclear power, they also appear more self-confident in their technical ability to do without it. “We can be the first major industrialised nation to accomplish the transition towards a highly efficient, renewable energy system,” claims the environment ministry.

In other words, Germany is hoping to reap a “first mover” advantage in renewable energy. It has already gained much in technology and employment. Germany rivals the United States and China in deployment of wind power, and especially in solar PV power, which together employ 370,000 people in Germany. A large part of its big engineering sector, led by Siemens (which has pulled out of nuclear engineering), has a vested interest in Germany’s renewable revolution continuing. If the world market for clean energy and environmental goods and services continues, then Germany’s gamble will have paid off.

Equally, however, Germany could end up providing a cautionary lesson on the impossibility of rapid transformations in energy systems. In trying to rush change, Germany could incur a “first mover disadvantage”. To an extent, it has already done so by paying high subsidies for solar PV generation and now regretting the cost. German households, through the renewable subsidies they pay, have effectively made the world a gift of solar technology, which China has been happy to exploit. Germany also has many energy-intensive industries, such as chemicals and steel. These companies pay the renewable electricity surcharge at a reduced rate. But anything that raises their energy costs could harm their international competitiveness.

Rushed replacement of nuclear power could produce another “first mover disadvantage”. Germany is investing in additional coal-fired plants – as complementary back-up to renewables – before its public is ready to accept the fitting of carbon capture equipment that would reduce carbon pollution from these plants. Germany runs the risk of locking itself prematurely into more dependence on coal, before excess supply in the world gas market can exert downward pressure on the price of gas in the German market. 

Like several other European countries, Germany has recently been cutting solar subsidies. These cuts are intended to reflect the sharp reduction in solar PV production costs which, according to the environment ministry, fell by more than 30 per cent between late 2010 and early 2012. However, the sharpest decrease in production costs has come in China, where massive output of PV panels, in large part stimulated by German (and other European) subsidies, has led to economies of scale and a rate of price reduction that German solar manufacturers have been unable to match. As a result, the year 2011 to 2012 saw a number of German solar companies file for bankruptcy – among them Q-Cells, once the world’s largest maker of solar cells.

Some observers have expressed surprise that the German government has been prepared to allow this reduction in the country’s solar capacity, given its claims about the first mover technology advantages stemming from its renewable revolution. On the other hand, it could hardly bail these solar companies out just as it was acknowledging the wastefulness of past solar subsidies and curtailing future support.

This shows how finely balanced technology pioneering can be, and how easily a first mover advantage can turn into disadvantage.

David Buchan is senior research fellow at The Oxford Institute for Energy Studies. He is author of recent paper “The Energiewende: Germany’s Gamble”, on which this article draws.

This article was originally published in China Dialogue.