Main Edition
US
FR
August 29, 2024 - 4:00pm
Amid reports of Germany’s economy contracting, Vice Chancellor and Minister for Economic Affairs and Climate Action Robert Habeck has made a sub-optimal if predictable announcement. Citing renewables as Germany’s primary future energy source, Habeck said that manufacturing businesses should adjust their production according to the weather. German industry, he insisted, should produce more when the sun is shining or the wind is blowing. On still or cloudy days, production should be allowed to falter.
This is not the tack of an economy minister worried about his country entering a recession. While it would be easy to mock the Germans for all the unwise decisions in recent years which have accelerated the decline of a once-mighty manufacturing power, the country’s industrial production is still the highest in Europe, outpacing France and Italy combined. But there will be continental ramifications stemming from Germany’s decreased output. If the industrial heart of Europe is beating ever slower, the rest of the body will also become weaker. The times in which German economic strength could underwrite Greek or Italian debt will soon be over, and Southern European countries will have to address their structural economic problems. So, too, will Germany.
Germany’s problems are for the most part self-inflicted — if there were enough political will, its downtrodden fortunes could be reversed. While geopolitical events have accelerated Germany’s economic decline, this did not begin with the Russian invasion of Ukraine in 2022. Contrary to the widespread idea that everything can be pinned on the destruction of the Nord Stream 2 pipeline, inefficient sanctions on Russia, and an unavoidably harsh lockdown policy during the Covid-19 pandemic, German GDP has been stagnant since 2017.
A combination of too much bureaucracy, a misguided energy policy obsessed with wind and solar, and a business atmosphere hostile to start-ups has contributed to the current malaise. According to data from the German Chamber of Commerce, interest in starting a new company among the country’s population has declined by over 50%.
As with other Western nations whose state benefits systems have grown uncontrollably, for many people welfare pays more than actual work. The journalist Jan Fleischhauer calculated that a couple with two children is entitled to €2,502 euros per month, a sum that corresponds to a gross salary of €3,320 euros per month. According to the law, the state will cover the full rent of a family on welfare for the first year, regardless of the amount. Any instalment payments for a single-family house will also be fully reimbursed. So, Fleischhauer writes, anyone who owns a house can simply forward the bank’s letter to the social welfare office. The reasoning is that the Government wants to spare welfare recipients the stress of moving.
The greatest madness (and there is no other word), however, continues to be energy policy. The fact that turning off fully functioning and paid-for nuclear power plants — to be replaced with new gas power plants — was celebrated by the Greens as an environmental victory itself shows that the people in charge are not to be taken seriously. There is a deep irony in the fact that the country’s primary producer of solar panels, Meyer Burger, is preparing to relocate to America because of how expensive German energy is. Habeck’s recent announcement essentially punishes those who want to produce independent of the weather. Apparently, the Economy Minister and his advisors believe that complex industries such as refineries, glassmakers, steel mills and aluminium smelters can simply turn production on and off at a moment’s notice.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeUnfortunately, I suspect these unrealistic industrial policies will continue until the economic system collapses. As more and more people lose their jobs, they will rely on government for income and so will support an expanding bureaucracy which will, itself, become a major employer. The decreasing number of private businesses will have less say in economic policy and can no longer act as a reality check.
It will take time, but, like gradually applying too much weight to a bridge, there will be creaking and groaning then a sudden collapse. That seems to be the path much of the Western world is now on. The zealots are in charge and, for now, it seems impossible to dislodge them.
….zealettes and their adjacents mostly.
I almost spit out my coffee when I read this line; “ Habeck said that manufacturing businesses should adjust their production according to the weather.”
Germany is screwed, and so goes Germany so goes Europe.
Big car companies plan production of cars a month in advance , so that they can give car buyers a promised delivery date.
Are BMW going to tell people they can’t get their new car by next Friday as promised, because it has been cloudy this week?
Adjusting production according to the weather will mess up logistics, supply chains, leading to food shortages as cans are not made in time to put food in.
Absolutely catastrophic.
You can’t run a big company supplying things to consumers (like food!) if you can’t plan production.
They will just build the cars outside Germany
Hi Steven. You’ve shown a vulnerability to believing what you read without double-checking, if it’s a comfortable ideological fit. Elsewhere on this forum you recently claimed “Muhammad Ali said after he had been to Zaire, ‘I’m glad my granddaddy got on that boat.’” I provided the actual source (with link), who wasn’t Ali. The reason I checked is because it didn’t sound like Ali. Ali was informed and intelligent. He wasn’t a deeply ignorant man like the one who actually said it. He’d resent having such words put in his mouth. Context matters.
What does this have to do with German energ policy:
It has to do with being more skeptical. Writers frequently leave out or distort context. They’re not trying to get as close to the truth as possible but to be as convincing as possible. So many articles are specious. Swallowing the writer’s claim about the policy being weather-related led Steven to imagine catastrophic food shortages, and so on.
When I learn that a writer has intentionally distorted one thing, it makes me wonder what else they distorted. What else they left out. It makes me mistrust them.
Like, what other context might be important to know about this particular German energy policy? People say it’s unfair to manufacturers who cannot be flexible. Okay, but has there been some sort of accommodation made? I don’t know, maybe not. But I don’t trust the writer to tell the whole story.
I noted some other things the writer said that sounded sketchy, but it becomes tedious to fact- or context-check all the time.
All the German newspapers are saying that Habeck wants demand to be aligned to supply, and not the other way around.
So charge your EV when it is sunny, etc
So all the fork-lift trucks carrying things around the warehouse will be recharged during the daytime?
How do you run a factory like that?
Maybe slow down a little, Steven? So often on these forums people leap straight to indignation and conjuring dire scenarios without knowing enough context — which many of the articles do not provide.
This article cannot serve as a means to understanding; the author goes straight to criticism without setting a full enough stage for readers to make informed judgments.
For example, I have to read beyond this article to get a basic sense of the lay of the land — including beyond mainstream newspapers. It’s going to take a fair amount of reading, frankly.
It seems to me that Minister Habeck is trying to resolve long-standing policy inaction that has had several negative consequences — a major one being that energy-intensive industry which COULD be flexible has not been incentivized to utilize that flexibility, and has even been effectively “punished” with much higher electricity costs for deviating from constant load “in an attempt to flexibly respond to intermittent electricity supply and corresponding price signals… Ultimately, they refrain from supplying flexibility in most cases.”
In other words, the problem has been unfair treatment of flexible energy-intensive industry. The author of this Unherd piece finds fault with the proposed attempt to break the inaction and resolve the associated problems. He feels that the proposed revision would now punish inflexible industry that had previously benefited from policy, though it was outdated.
Energy transition is a complex and tricky endeavor. A key element that makes it so tricky is that transitional policy must take into account five forms of energy justice: distribution, procedural, recognition, restorative, and cosmopolitan (related to fair distribution of benefits and drawbacks among countries).
For those curious, I found this scholarly overview illuminating. It was published in Energy Policy, June, 2022:
On the progress in flexibility and grid charges in light of the energy transition: The case of Germany
https://www.sciencedirect.com/science/article/pii/S0301421522001070
I completely agree with your point.
I read Unherd (and happily pay for a subscription) exactly because i have a perception that its journalistic integrity is high.
I do not have to agree with everything written. I do want to understand the basis of the commentary,
Once that trust is lost then I will stop.
That trust is very close to being lost for me. Too many shoddy, superficial articles lacking context and substance. I really only subscribe for the comments.
You pessimism has been noted by someone in government. Begin to cover your tracks.
If you look at what Robert Habeck actually said, you wouldn’t spit out your coffee. He did not say that manufacturers should adjust their production according to the weather. He said that companies who can be flexible enough to produce when electricity is in less demand and not when it is in high demand should be rewarded with cheaper rates when they do use electricity.
That’s sensible — it’s basic economics. Germany and other countries have been doing it for years. Robert Habeck’s suggesting a further adjustment to electricity rate schedules. He’s not suggesting rationing or reducing supply.
There’s plenty to criticize about Germany’s energy policy, but putting that comment in Robert Habeck’s mouth is unfair criticism. Bild is a German tabloid that relies on sensationalized and misleading headlines to lure in readers. Too bad UnHerd writers are prone to doing the same thing.
Thank you for the clarification, Carlos.
I’ve come across some sketchy pronouncements by this author. It’s not that I disagree with everything he says with regard to various topics, it’s that I find him intellectually kind of “meh.”
Thanks for the clarification. Politicians can be idiotic enough without exaggerating their idiocy to absurd lengths through misrepresentations.
“He said that companies who can be flexible enough to produce when electricity is in less demand and not when it is in high demand should be rewarded with cheaper rates when they do use electricity”. Which is another way of saying that companies which require reliable baseload electricity supply during the standard core working day should be punished with more expensive rates. Goodbye manufacturing. That’s infantile economics.
You misunderstand the economics. Energy-intensive industries in Germany are given subsidized rates. The electricity they use is not rationed. But when supply is tight that means that the grid operator has to buy power from somewhere, and the price is expensive. If companies can be flexible in not using power when supply is tight, they are rewarded by cheap prices for the power they use when supply is ample.
That makes a lot of economic sense. Everybody wins. (Except those electricity suppliers who cannot sell their power at expensive rates during times of tight supply.)
The economics of electricity markets is complex, and we are learning as we go. Electricity cannot be a deregulated market — we saw that here in California with the crisis in 2000 and 2001 that toppled governor Gray Davis and put Arnold Schwarzenegger in the governor’s mansion. Enron traders in particular gamed the system in spectacular fashion, with tactics like Ricochet, Death Star and Fat Boy. It was crazy.
What Germany is trying to do now is modest and well thought out in comparison. It may not work, but I commend them for trying.
‘But when supply is tight that means that the grid operator has to buy power from somewhere, and the price is expensive. If companies can be flexible in not using power when supply is tight, they are rewarded by cheap prices for the power they use when supply is ample.’
OK. You are running a restaurant in the Dusseldorfer Altstadt on Friday at 8 pm in December. No solar power.
The wind dies down and supply is tight.
Do you switch off the pizza ovens or do you simply pass the increased costs on to the customers?
Your hypothetical is based on a system where electricity prices to companies vary in real time according to demand. We know from experience such a system would be as idiotic as you say. No one has proposed it. Certainly not (as far as I can tell) Robert Habeck.
Energy policy is complex. Simplifying it down to simplistic straw men arguments doesn’t help.
I don’t think you understand how the strategy to electrify everything – transportation, heating etc in order to eliminate fossil fuels – at the same time as creating an electricity market with supply constrained by the intermittent and unpredictable supply of energy from renewable wind and solar generation? It will have a dramatic impact on people’s way of life, the productivity impact would significantly reduce GDP, being unable to get efficient use of assets and employees would make UK products and services uncompetitive in the wider global economy all of which would set UK standards of living back decades. There is a reason demand responsive networks and generation sources exist in every 1st world nation and are aspired to by everyone else and it’s that cost effective and reliable energy is key to prosperity. Remember electricity currently meets around 1/3 of UK energy consumption and power stations burning gas or wood pellets is not only responsible for a significant % of annual supply but also provides the ability to match supply with demand. If
the current government achieves its ambition to electrify all of our energy consumption supplied by unpredictable & unreliable weather dependent generation sources this will require measures to reduce demand to match availability, we are already sailing close to the wind with plans for regional rolling blackouts having been close to needing to be put into action recently. Proven energy storage solutions of the scale needed to address the intermittency issues with renewable generation don’t yet exist and many options under consideration require vast upfront investments in plant & infrastructure that would make HS2 look like pocket money. The £60B investment planned over next 5 yrs by National Grid adapting an electricity grid design where regional power stations meeting local demand & transmission networks with sufficient capacity between regions to provide resilience and follow demand which is both cost effective and energy efficient. The £60B is to needed for renewable generation – North Sea and Scotland etc wind farms – can be supplied to where it’s needed. Considering the financing, operating and maintenance costs (excluding grid balancing cost increases and transmission losses) this will add a minimum £6B p/a to energy bills most likely further cranking up standing charges. Grid scale batteries, green hydrogen and other options bandied around are impractical and unaffordable leaving the only option being load shedding which most likely happens as a result of variable / dynamic tariffs that become punitively expensive at times of limited availability forcing consumers and businesses to switch off. This will hit the poorest in society hardest whilst wealthier households will invest in house battery storage and generators etc being able to ride out the peaks pricing.
So a lot of people will be working on the graveyard shift?
Well no, because it will be too expensive to turn the lights on.
Thanks for the clarification. I should have been more skeptical. It still makes for unreliable energy policy. You are basically rationing electricity.
One can certainly criticize Germany’s Energiewende, and I often have. But while I would still call it a failure overall, it’s been a lot more successful than I thought it would be. And there’s no going back now, so they will have to make the best of it.
In that light, what Robert Habeck said makes sense. It’s not rationing electricity, it’s the opposite. He’s proposing giving flexible companies a break on price when they use electricity when the supply is robust in exchange for them agreeing not to use it when the supply is tight. That helps reduce demand to match the tight supply, which benefits everyone.
Of course it’s not that simple, but economics never is. Our economy is a complex adaptive system. It’s important to avoid simplistic analysis and simplistic solutions when complex problems occur. Instead, we need to try things based on experience, taking small steps and then waiting to see what the results are.
‘He’s proposing giving flexible companies a break on price when they use electricity when the supply is robust in exchange for them agreeing not to use it when the supply is tight.’
The National Grid has a team of experts matching supply and demand. It is not easy. They need to know demand almost in real-time. It takes about 15 minutes to balance supply to demand (very roughly)
Now Habeck wants every firm to employ people to try to match the factory’s demand to supply.
How the hell are they going to do that? They don’t know real-time supply, and they can’t adjust a factory’s output up and down each 15 minutes.
Where do you get the idea that Robert Habeck is asking every firm to employ people to match the factory’s demand to supply? He’s proposing nothing of the kind. He’s talking about setting prices for electricity. That’s all.
If you get past the headlines in Bild to the actual substance they do report on what the issue is. German firms in energy-intensive industries complain (rightfully) that they are at a competitive disadvantage compared to their foreign competition. They get lower rates and subsidies from the German government to encourage them to decarbonize yet stay in the country.
The companies want sweeter subsidies and the government wants to limit them. One idea is to try other electricity market structure mechanisms to try and encourage companies that can be flexible to not use electricity when supply is tight. That may or may not work, but the idea should not be dismissed out of hand like you do. It’s not a stupid idea.
I’m writing a book on how to make the carmaking industry more innovative and a chapter I will write in a month or two will talk about how Germany and the United States (particularly my home state of California) have squandered hundreds of billions of dollars on subsidies that have produced only meager benefits in beefing up the supply of electricity while moving away from carbon fuels. It’s good to see a politician trying a market-oriented solution instead.
Sounds like a worthwhile book, Carlos. I’d read it!
Have you come across economist Mariana Mazzucato in your reading? It occurred to me you might find some of her stuff interesting. My favourite is The Entrepreneurial State, which I think may have relevance to your subject, and certainly to the one discussed here (not to mention The Mission Economy). She also wrote The Value Of Everything, and The Big Con.
Great minds (you and I) do think alike! Yes, I have run across Mariana Mazzucato’s books. Indeed, I will discuss her work in the very chapter I mentioned.
Though I read it a decade ago, I thought The Value of Everything had a lot of value, and I thought The Big Con was a bit of a rant but a justified one. But while I thought The Entrepreneurial State and The Mission Economy were insightful and well-written, I’m leery of the state acting an entrepreneur. So when I write the chapter I will be a little critical of her “moonshot” thinking.
Still, I don’t think there are any silver bullets for any of this, and we should consider all approaches. She and Bill Janeway (a private equity investor and economist who wrote Doing Capitalism in an Innovation Economy: Markets, Speculation and the State) do make good arguments for a government role in innovation. When I was doing the research for that chapter, I tried to interview both of them, but was unable to talk to either.
Interesting! Well, forge on and good luck!
‘Die Industrie soll ihre Produktion an das unsichere und variable Energieangebot aus Solar- und Windkraft anpassen. Das geht aus einem jetzt beschlossenen Strategiepapier von Robert Habeck zum „Strommarktdesign der Zukunft“ hervor.’
‘Industry should adapt its production to the uncertain and variable energy supply from solar and wind power. This is the conclusion of a strategy paper recently adopted by Robert Habeck on the “electricity market design of the future”.’
https://apollo-news.net/habecks-bizarrer-plan-die-industrie-produziert-nur-noch-wenn-der-wind-weht/
Oh, you don’t like Bild?
How about ‘Die Suddeutsche Zeitung’? Respectable enough for you?
https://www.sueddeutsche.de/wirtschaft/energiewende-umbau-des-deutschen-stromsystems-wie-es-aussehen-koennte-dpa.urn-newsml-dpa-com-20090101-240802-930-192371
‘„Das Elektroauto wird die Mittagszeit nutzen, wenn das Angebot an PV-Strom hoch ist und das Auto ohnehin steht.“ ‘
Or the Munchner Merkur :-
‘„Während früher die Erzeugung der Nachfrage folgte, orientiert sich im dekarbonisierten Stromsystem die Nachfrage stärker am Angebot.“’
‘“While generation used to follow demand, in the decarbonized electricity system demand is more closely aligned with supply.”’
https://www.merkur.de/wirtschaft/habecks-strom-plan-der-vorschlag-fuer-ein-stromsystem-mit-mehr-waermepumpen-und-autos-zr-93223244.html
You’re forgetting that the sun always shines in German and the wind blows hard,
The German federal election is next year. There will be change in the government. This weekend Saxony and Thuringen go to the polls. If they go as expected, there should be a coalition of AfD and BSW. If these two can actually make it work and somehow manage to not stuff things up, next years federal election will be very interesting indeed.
Only when Germans are as poor as Southern Europeans will sanity return to Berlin. That’s the thing about the left, they want to spread the misery rather than the prosperity.
Well, that is because the Left considers poverty to be a State of Grace.
Green energy policies are simply virtue-signalling via industrial policy. And no people are more anxious to virtue signal than the Germans who are still trying to make up for their 1930-40’s mistakes.
“will voters continue to go along with it?”
Of course, they won’t. On Sunday, there are two Landtag elections in Sachsen and Thüringen, which will result in a landslide collapse of support for the current “traffic light” coalition, with a realistic chance of the right-wing AfD to emerge as strongest party. From then on, Germany’s government in its nominal last year will be a corpse-on-vacation. No middle and long term “ecological” project of the current government will survive the year of 2025.
This almost reads like an Onion article.
And it’s about as accurate.
This sort of thing is already happening on a micro scale in the UK. a friend who works for a construction company has an electric company car and must visit multiple sites on a typical day. His schedule is entirely dictated by vehicle re-charging opportunities, rather than by the priorities of where he is most needed.
The fundamental question remains, should Germany (or the UK for that matter) optimise for cheap and abundant energy, or for reducing CO2 emissions? I think the former, especially given that the marginal benefit of a local reduction even to zero will be insignificant (the UK currently emits 1% of global CO2 and Germany 1.8%)
The idea is to overbuild solar and wind capacity by a large enough factor that, with long distance power transmission and a little energy storage, high priority needs are covered. Under such a system there will usually be a lot of extra electricity available, so a demand response regime to soak it up makes sense. The benefit for industry is very cheap power, with the proviso that less critical uses will sometimes have to be delayed. As more solar and wind capacity are installed, power guarantees cover more uses.
Trouble is, that works in theory, but not (so far, at least) in practice. Lots of problems need to be worked out first, and they may not be workable. Politicians refuse to accept that, and you get what Germany’s energy policy has delivered. Lots of disruption, high prices, and no real climate benefit.
How is power very cheap when you’ve had to install a ton of additional capacity and thousands of km of transmission? Those capital costs need to be recouped.
A headbanger is a headbanger and the voters will soon spot that. Shutting down nuclear, however, was a rational (and science-based) decision made by Merkel, who is a a scientist trained to PhD level. She realised that Germany could not risk a nuclear accident. No country can but they don’t all have scientists as heads of Government. The pre-2022 weakness in the economy, which the author of the piece correctly identifies, is the result of the replacement of the DM by a weak DM (the euro), which made exporting too easy and made Germany complacent. An excessively weak currency is as damaging in the long term as an excessively strong one, Britain being an example of the latter where City interests kept the pound higher than it should be, which contributed to the decline of manufacturing industry.