A Cheerio For Germany’s “Energiewende”

Handelsblatt, one of Germany more prestigious newspapers, just brought a statement by Ralf Brinkmann, Vice-President of the US chamber of commerce (AmCham) und regional boss of Dow Chemical, on Germany’s Energiewende. You can read it at http://www.handelsblatt.com/9636428.html.

Basically, he says that Germany’s Energiewende is, liberally translated, a costly disaster. (The exact words are “Die Energiepolitik sei aus Sicht der Industrie der “schwarze Fleck” auf der ansonsten weißen Westen des Standortes.”) This statement was based upon a questionnaire of US enterprises in Germany, of which 71% stated that the energy costs in Germany are problematic. According to Ralf Brinkmann, companies located in other countries only need to pay roughly half the amount for electricity compared to Germany.

Let’s see what the data tells us. I took the 2013 Eurostat data on European energy prices for industrial consumers. Here is the graph below. I guess anyone can see that Germany is at the lower end of the energy prices in Europe.

Präsentation1

These data exclude taxes. With taxes, which make up a wopping 40% of energy prices in Germany, it is true that Germany’s industry pays more than the EU average. However, larger companies pay even less than the electricity price given in the graph (see HERE) since they tend to be exempt from paying the taxes and they are also supported by the electricity producers. Smaller industrial consumers pay much more, that is true, and they are charged roughly 15 cts/kWh. That is at the upper end of the spectrum of electricity prices in Europe. Nevertheless, the US companies that are locating in Germany are large producers, and they pay electricity prices at the lower end of the spectrum, so roughly the prices shown in the graph above.

So if the US companies compare Germany’s electricity prices to those in developing countries, then yes, the statements may be correct. But companies do not locate in Germany to compete for the cheapest production costs, but because they want quality labor and technology. And then energy prices are much less important than in e.g. China, a country where unit production costs must be as low as is ever possible. So if they search for labor and technology at the German standard, one has to look at comparable countries within Europe, e.g. UK, Italy etc. And there electricity costs tend to be much higher.

The only country which has lower electricity costs while a similar structure (so excluding Eastern European countries) may be France, but there we have an electricity producer that is owned by the French government, and not a free market as is the case in Germany. And then we have Finland, which has much lower energy costs, but there electricity production is cheaper because they have a huge amount of hydropower which is very cheaply produced in Finland.

So, conclusively, at a closer inspection, Germany is doing very well, has much lower electricity prices than the EU average, at least for larger industrial consumers, and this despite its Energiewende. Small industrial consumers tend to be less focused on mass production and thus the electricity prices are less important as they tend to compete less on prices.

So this is still a Cheerio for Germany’s Energiewende, and Miss Sophie.

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