German energy policy – a template for disaster?

Merkel puts her nation’s infrastructure to the test

If earthquake/tsunami prone Japan has more incentive than most to consign her nuclear power industry to the dustbin of history local lawmakers there last week resisted the temptation to set a target date for such an eventuality – presumably because the government’s plan for replacing the ensuing power generation shortfall remains a ‘work in progress’.

Earthquake/tsunami-free Germany on the other hand does have a ‘Plan A’ in place. But it could yet prove a disaster of man-made proportions – especially if Berlin’s mad dash to ramp up the nation’s power generating capacity from renewable sources, such as wave/wind (offshore and onshore), biomass, and photovoltaic (solar) isn’t implemented correctly.

Barely two months after the March 2011 earthquake/tsunami damaged Japan’s Fukushima nuclear power plant Berlin confirmed its intention to shut all of its nuclear reactors by 2022 – the final three (of 17) staying open to that date to ensure no disruption to the national power supply. Prior to Chancellor Merkel ordering the temporary shut down of eight plants Germany was generating 23 percent of her electricity needs from nuclear power plants.

The zeal with which Berlin has sanctioned eco-friendly electricity production via the use of attractive feed-in tariffs (subsidies) in recent years has come at the expense of sufficient investment in a national power grid that is now showing signs of creaking.

In short, the nation’s Renewable Energy Sources Act (EEG), which offers operators of wind farms, solar arrays and biogas plants a guaranteed, fixed feed-in price for all  electricity they generate over a period of many years, has been too successful.

In addition, power companies are required to purchase this energy, but at a price much higher than what they get for it on the market. Which means – you guessed it – hapless consumers end up with higher electricity bills.

Of course, depending on one’s point of view renewable energy can be viewed as a warm fluffy way of helping to save the planet or, an economic monstrosity foisted upon consumers by governments that customarily use power companies to conduct their dirty work for them.

In Germany’s case the core issue of transmission capacity within the nation’s borders is likely to become an increasingly important one.

It isn’t difficult to see why, given Berlin’s aggressive target of 40 percent of the country’s electricity generating capacity having to come from renewable sources by 2020.

But herein lies the problem; an increase in the use of renewable sources to generate electricity, coupled with developments resulting from the liberalisation of the energy markets, has resulted in alterations in the way electricity generation is structured, which in turn has impacted the stability of the electricity grid itself.

Germany’s grid is designed to connect conventional coal-fired power stations and nuclear power plants with high demand areas. Yet given the geographic concentration of wind energy development in northern Germany this has meant huge variations in the power flow.

As a result of the priority regulation set out in the Renewable Energy Sources Act (EEG), wind energy supplants a proportion of the electricity produced by conventional power stations. What this means in reality is a regional shortage during periods of high winds of reactive power, which in contrast to active power, can’t be carried over long distances.

The inevitable consequence of further wind energy development is the requirement for further investment to bolster the grid by upgrading the overhead network and installing additional grid equipment, including the use of voltage smoothing technologies to manage potentially disruptive power flows.

Until Berlin is prepared to commit the necessary investment to comprehensively upgrade the grid or remove the priority of wind generated power for inclusion in the network, the underlying problem of a strained network and increasing likelihood of power cuts won’t go away. In fact, it will probably get worse.

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The May – June 2013 Issue

Highest corporate tax
rates in Europe

European countries are scrambling to raise every last penny of funds through taxes. But some countries may have gone too far...

Belgium

Though all business taxes in Belgium can be paid online with little effort and preparation, the rates are still sky-high at 57.7 percent, including a staggering 50.8 percent total rate on profits only in social security contributions.

Belarus

In Belarus, a company spends up to 338 hours annually preparing for and paying ten different taxes and duties. The total tax rate has incredibly been lowered to 60.7 percent, from 117.5 percent in 2008.

France

A company in France pays seven different taxes and duties, the sum of which can amount to 65.7 percent of profits; though President François Hollande has announced a wave of business tax rate cuts coming up.

Estonia

A business in Estonia pays 67.3 percent of profits in tax, 37.2 percent exclusively in social security contributions. The country has gone against the grain in Europe by raising businesses taxes from 48.6 percent in 2008 to the current rates.

Italy

While corporate income tax (IRES) in Italy is limited to 38 percent of taxable profit, a company operating in Italy can expect to pay 14 other taxes and duties, including social security contributions, bringing their total payable tax to 68.7 percent of profits, according to the World Bank.

Norway

Norway taxes motor fuels twice, with a road use tax and a CO2 emissions tax. Combined with strikes in the energy sector that have curbed output, the price of gas at a local pump has soared to $10.12 per gallon.

Turkey

Though Turkey sits on the Suez Canal and neighbours many oil rich countries, the price of a gallon of average gas clocks in at $9.41 in Turkish pumps, because of a 60 percent share of taxes. 

Israel

Like Turkey, Israel is surrounded by oil-rich neighbours, but drills very little itself. Gas prices are controlled by the government, so about half of the $9.28 per gallon goes to taxes.

Hong Kong

There are few gas stations in Hong Kong, but the ones available charge up to 76 percent more per gallon than mainland China, where the government caps the cost of fuel. A gallon at the pumps will cost around $8.61 on the island.

Netherlands

Expensive labour costs make the Dutch petrol prices the dearest in Europe, at $8.26 per gallon; though the 57 percent tax add-ons don’t help.

The credit crisis

8 February 2007
HSBC warns of subprime mortgage losses

2 April 2007
New Century goes bus

14 September 2007
Wholesale markets have dried up

17 March 2008
Rescue of Bear Stearns

7 September 2008
Rescue of Fannie Mae

15 September 2008
Lehman Brothers file for bankruptcy

3 October 2008
US congress approves $700bn bailout

14 February 2009
$787bn stimulus approved by congress

 

The effects of the current financial crisis are global and irrefutable. With the collapse of Lehman Brothers, the domino effect of irresponsible public monetary policies, huge levels of unsustainable debt, and a deregulated financial sector, has escalated to the point where no corner of the globe has been left untouched.

1973 oil crisis

October 1973
Syria and Egypt launch an attack on Israel on Yom Kippur and set off a twenty day war;

1977
US President Carter creates Department of Energy, which develops the US strategic petroleum reserve

 

The Organisation of Petroleum Exporting Countries (OPEC) used their oil reserves as a weapon with the Arab Oil Embargo against those who supported Israel. By January 1974, world oil prices were four times higher than they were at the start of the crisis, especially in the US, and the shock led to a huge drop in the stock market with NYSE losing $97bn in just six weeks.  The embargo lasted five months, and the effects are still seen today.

German hyperinflation

1922-1923

Hyperinflation
1923 – 1924
Stabilisation

 

The trouble began when Germany missed a repatriation payment, worth about one third of the German deficit in this period. Inflation was already high but by 1923 it was raging. Prices doubled within hours, and by late 1923, it cost 200bn marks to buy a single loaf of bread. People burned money as it was cheaper than buying firewood. Germany eventually regained control of its economy when it introduced the Rentenmark into circulation in 1923, and then the Reichmark in 1924.

The Great Depression

1929-1933
The Great Crash
1934-1939
Recovery and Recession

 

After the decadence of the Roaring Twenties, the 1930s saw the biggest economic slump of all time. The stock market crashed on 29 October 1929, and optimism and decadent living tumbled along with the figures. The GDP fell from $103.6bn in 1929, to $66bn in 1934 and the subsequent years of recovery were the most dramatic in US history.

1907 bankers’ panic

1907
Otto Heinze and his brother Augustus Heinze bought shares of United Copper.

 

The stock market was already cautious over the tight money supply, but the US was thrown into a depression after the stock market fell nearly 50 percent from its peak in 1906. The Heinze brothers thought they could influence market shares but ended up bankrupting lenders that provided the financing to buy the stock. A chain reaction left nine institutions bankrupt. By February 1908, the panic was over and the government created the Federal Reserve system, to prevent banks from exercising too much control over the economy.