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Not enough juice to keep German industry growing

World Energy Council says government's energy policy may come up short when competition for resources heats up

In 20 years, windmills may generate more electricity than nuclear power plants, but Germany may not have access to the energy it needs for its industrialized economy, according to Gerhard Ott, chairman of the World Energy Council's German committee. That, he says, is because the government is pursuing a misguided policy that focuses one-sidedly on conservation in an environment where rising demand will intensify the competition for scarce natural resources.

Chancellor Gerhard Schröder's Social Democrat-Greens coalition was swept to power in 1998 on the promise to phase out nuclear energy, limit consumption of fossil fuels and subsidize alternative energy sources. For businesses and private customers, this recipe has spelled stifling energy prices. But beyond high prices, which are choking the domestic economy, the World Energy Council says the government's strategy will not guarantee Germany the energy it needs to keep growing.

Germany ranks No. 5 in energy use behind the United States, China, Russia and Japan. Like most EU countries, Germany is highly dependent upon energy imports, especially of oil and natural gas. This dependency on imports, 61 percent in 2001, will increase in the future, with Russia as the main source. “Security of supply, therefore, is a serious concern and a challenge, for which the answer can only be diversification of supply sources,“ says the WEC's Ott. His motto: “Keep all energy options open!“

Germany has done just the opposite. It began phasing out nuclear energy, a clean and cheap source, shortly after it took office in 1998. And it is pumping taxpayer euros into wind power and other “alternative“ energy sources, artificially boosting demand for these expensive forms of power.

At the same time, energy taxes are high. They account for 41 percent of the price for electricity and 47 percent of the price for gasoline. And the market is distorted, especially through subsidies and quotas favoring renewable energies. As the Green party gains strength and the Social Democrats fall out of favor, these tendencies will become even stronger. Ott says that this is putting at risk “the principal task of any energy policy, namely to secure and to maintain balance among the three elementary factors of security of supply, environmental acceptability and competitiveness.“

The World Energy Council forecasts a strong jump in energy demand in fast-growing Asia for decades to come. This means that Asian countries will be competing for the same resources as Germany and other European Union countries. Although the share of fossil energy sources is expected to fall in the coming decades to 70 percent from 80 percent, energy consumption will almost double from today's level, according to the WEC. During this period, the share of gas in German energy consumption will rise to 33 percent from 23 percent today.

While the United States is working hard to secure access to cheap natural resources, Germany is promoting the expansion of non-fossil energy sources such as windmills and biogas to compensate for the phasing out of nuclear energy. But the WEC said atomic energy is the only source that will allow Germany to reduce its dependence on fossil fuels. It is also the cheapest. Alternative energy, in contrast, will never account for more than 10 percent of Germany's energy use, according to the WEC.

When the electricity market was liberalized in 1998, the government marked the decision as the beginning of falling prices. For almost two years, prices fell for businesses. But consumers continue to pay the same high prices, and energy-intensive industries are now paying close to what they paid in 1998. Rather than let businesses profit from sinking prices, the government has increased its share of the profit.

On every kilowatt of electricity, the government collects electricity tax and other fees. It also forces consumers to subsidize every kilowatt hour of energy generated by non-fossil fuels and other regenerative energy sources. In total, the government collected EUR12.3 billion in 2003 compared to EUR2.3 billion in 1998. The government's bite of the electricity price jumped to 40 percent last year from 25 percent in 2003.

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