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The moment Germany announced its highly publicized decision to phase out nuclear energy in the wake of the Japanese triple disaster; observers began to ask one very important question.
Just what energy source would replace such a huge swath of power in Europe's dominant economy?
The short-term solution had to be natural gas.
But this would make Germany more dependent upon imported energy, especially from Russia.
In that sense, the nuclear phase-out made the Nord Stream pipeline - from Russia, under the Baltic Sea, to northern Germany - absolutely essential.
Today, the first line of the twin pipeline is already in operation. The second should be on line at the end of next year (if not sooner).
Then there is the other Russian project - South Stream. This one intends to move Russian and Central Asian gas into Southern and Central Europe.
Much of that will also reach Germany.
In addition, several pipeline projects are vying for the excess production from the second phase of the Azerbaijani Shah Deniz offshore development in the Caspian Sea.
Included among these is Nabucco, a venture to bypass Russia and transport gas into the Baumgarten hub in Austria for ongoing distribution.
Nabucco has long been the European Union favorite, but it has been unable to attract sufficient supplies. Three other pipeline proposals also are attempting to secure the Caspian gas for transit to Europe.
But there is a problem for Germany in all of this.
It does not want to form an increasing dependence upon imported gas to power its economy.
And this sentiment is driving one of the biggest alternative energy revolutions in recent memory.
The German Push Toward Wind and Solar Power
The 17 currently operating nuclear reactors in the country provide about 20% of the national electricity needs. Any replacement of those plants (where capital expenses are already sunk) will add significantly to the end costs of energy.
That means a political decision following the Fukushima Daiichi disaster one year ago ends up costing the average German citizen even more to secure what is already among the most expensive electricity in the world.
Germany does have shale gas.
But the furor over nuclear power is paralleled with a similar environmental concern regarding the dangers of fracking, a process of pumping water and chemicals under high-pressure to break open the rock and free the gas.
There are now four U.S. examples of seismic anomalies resulting from the combination of fracking and deep horizontal drilling.
And they have not instilled much confidence for the markets.
Instead, what the Germans are deciding to do is already being called the biggest restructuring of the national energy landscape since the end of World War II.
The government will initiate a campaign valued at more than $260 billion to harness wind and solar power.
The price tag is staggering. It is already pegged at more than 8% of the nation's entire gross domestic product (GDP). And it could move even higher.
This will involve huge wind farm areas in the Baltic and massive new high-power transit lines nationwide. The goal is to have at least 35% of the nation's power needs generated from renewable sources by 2020.
However, the developments of this massive policy shift are even more exciting.
All Eyes on Germany
Germany has become the first nation to really tackle the rising energy crisis. To succeed, the country will need new technologies and fresh approaches, some not even yet on the drawing board.
The most important European market will transform into a massive energy laboratory. But success is hardly certain.
Either way, all eyes will focus on this huge German experiment.
It will cost German consumers even more than they pay now - some analysts say as much as 60% more. It holds captive the survival of a government, political careers, industrial prospects, and continental-wide financial policy.
As the Eurozone wrestles with debt contagion and questions the strength of cross-border banking, the main lynchpin of that zone - Germany - is embarking on a very ambitious and risky path.
For those accustomed to seeing renewable energy sources such as solar, wind, geothermal, and even biofuels dependent upon heavy government subsidies, the German experiment will be a significant change.
The large public sector injections of tax revenues and credits will still be there.
Germany will have to increase taxes to pull off this grand departure. That could make it the most expensive government debacle in recent memory.
What changes is this.
A Solid Market for Alternative Energy
For the first time, a huge, guaranteed market will be opening up for alternative energy.
It will require new developments, infrastructure, improvements, and breakthroughs to make it work.
In short, there will be a new playing field for well-focused, forward-looking, entrepreneurially driven energy firms.
Unlike any other alternative energy push in memory, this one will have both government support and an assured, expanding need.
In the months ahead, wind power pioneered in Denmark and major advances in solar from China, along with a number of other ingredients introduced geographically in between, will converge on Germany.
That will translate into some huge profits over the next decade, both from new applications in Germany and the export potential to other countries.
A brave new world is underway for retail investment's next big return sector.
That's why people all over the world are turning to Kent.
Kent's uncovered the biggest -and most profitable- trend in the markets. Seriously, this is the story of the summer.
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.
wunderbar
Thank you for a timely article. There are some big rocks on the road to green energy, in Germany as elsewhere. The costs are utterly staggering, and combined with continuing German government outlays in the old East Germany, and the threat of a Euro debacle, I would not be surprised to see Germany eventually reverse her decision to close her nuclear plants. The world is using increasing amounts of energy all the time and green solutions may not be able to cope, however much is spent on their development.
The costs that are utterly staggering will be the cost of dismantling old reactors and dealing with used nuclear fuel. This is a cost energy producers are allowed to ignore when they talk about cost/kw hour. It will be better to cut the losses now. Future generations of Americans will ask how this generation could be so shortsighted and selfish.
We must take action now and learn from the mistakes of nuke power accidents of Russia , Japan and what about Three Mile Island events in the past… Not going down that road again or suffer from glow in the dark societies. I like several alternative options versus nuking the planet for power.
Ken,
My wife is from Poland and follows the news there reguarly. This week she read about efforts stemming from Germany to limit or even stop fracking in Poland due to environmental concerns. I'mnot sure how this is possible within the EU, but apparentlt it is. So your article seems timely. Do you see the German idea of limiting energy sources spreading to other countries?
Thanks
Rich Kondrat
Germany decided many years ago to abandon Nuclear Power. Mrs. Merkel had back-pedalled on the decision but made another U-turn after the disaster in Japan.
Looking at the latest scandal of having radiation from every-days products made from recycled materials in/from China and India (reported on Bloomberg TV) I believe the Germans are very smart. They do not see a real solution for disposing of nuclear waste and Germans like to be safe rather than sorry.
The fact that Germany will be spending enormous amounts of money on renewable energy shows the entrepreneurial spirit. Other than in the US, the Germans are willing to pay the price for renewables, less pollution, and more environmental protection. That will give the German industry an edge which is essential for a country that lives from exports. Besides, the Germans like quality and long term solutions.
Ah yes, Germany – well know for having lots of sunshine as well as being one of the most earthquake and tsunami prone countries on Earth…
This idea sounds so stupid, it's hard to know what to say about it. An idea only a government could have come up with. Good luck powering the mighty German industrial economy with these sources…
Its makes sense to go towards Renewable Energy, India produces 1.67 lakhs Mw against the demand of 3.70 lakhs Mw by 2017 – 18. The per capita power consumption in our country is at 700 units which is much lower than 11,000 in US & 2,800 units in China.
The Power Mix in India (2010) is – Thermal: 65 %; Hydro: 25 %; Nuclear: 3%; Renewable: 7 %.
The Installed capacity as on 30th November 2010 – Coal is at 89,778.38 Mw; Hydro is at 37,367.40 Mw; Gas is at 17,624.85 Mw; Diesel is at 1,199.75 Mw; Nuclear is at 4,560 Mw; Wind & Solar energy is at 16,786.98 Mw.
This shows that even if the nuclear power projects which contributes 4,560 Mw are not allowed due any reasons we still can manage to mop up our power demands. We can utilise this money by giving subsidies & financing to renewable energies. Looking at the current scenario I think that govt. will have no option rather than to promote alternative energy resources. NUCLEAR PLANT OR NO NUCLEAR PLANT INDIA WILL SHINE AS IT WAS & AS IT IS……..
Very interesting strategic action focus to meet future requirements.
Germany acts with determination and courage, as usual.
Is it possible for you to send me the last five minutes article about the Hoower Dam?
With thanks
Tomas Nathhorst
I hear there is a movement in Germany to stop Poland from fracking due to environmental concerns. Any chance this will succeed or spread to other EU countries?
Thanks
Rich Kondrat