26.09.2012
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Energy transition

Chemicals industry warns Merkel about renewables

Three German industry organizations representing chemicals firms have written a letter to Chancellor Merkel to express their concerns about the reliability and affordability of the country's power supply. But their worries are more about the future, not motivated by anything happening now.

The "joint declaration" entitled "Safe and affordable energy supply for the chemicals industry in Germany" (PDF in German) complains that the government has yet to come up with a political concept for "grid expansion, power plant construction, and the problems of potentially skyrocketing energy costs." The renewables sector would certainly agree with that sentiment, but it might disagree with what the joint declaration identifies as the main cause of these rising costs: "the massive growth of renewables."

Under that assumption, the declaration says that industry – which makes up eight percent of Germany's power consumption and 13 percent of its natural gas demand – will "continue to require exemptions" to remain competitive but adds that society is increasingly unwilling to shoulder the burden alone, another statement everyone agrees on.

 - Power prices for consumers continue to rise (blue line), but the extent cannot be explained by the cost of renewables (red line). Furthermore, the price of power for industry (green line) peaked in 2006 and has actually dropped since.
Power prices for consumers continue to rise (blue line), but the extent cannot be explained by the cost of renewables (red line). Furthermore, the price of power for industry (green line) peaked in 2006 and has actually dropped since.
FVEE

But while the declaration says that "more and more parties, such as the German Network Agency at the beginning of May 2012, are voicing their concerns about grid stability and power supply," it does not point out that grid stability was the highest ever in 2011.

Furthermore, the declaration does not point out that the largest firms in the chemicals sector are not even dependent upon the German grid for a lot of their power. For instance, BASF – the largest chemicals firm in the world – explains on its website (in German) that it gets 70 percent of its power in Germany from its own combined-cycle gas turbine. Clearly, such firms are far more exposed to changes in the price of natural gas than to the cost impact of renewables.

The declaration does not have any proposal to solve the conflict between industry's need for exemptions and the growing unwillingness of consumers to foot the entire bill, but elsewhere it does call for a central authority for the energy transition; Germany has no energy ministry, with responsibility spread across the three ministries of the environment, industry, and transport.

In addition, the chemicals sector says it needs reliable baseload power around the clock, with "less than 10 percent" of the installed wind & solar capacity being "permanently available" (a figure that is perhaps even too generous; for more details, see our recent report). However, the declaration defines baseload as either gas turbines or storage, whereas baseload is generally understood as nuclear and coal – yet another sign that everyone in Germany has written off these two technologies. Proponents of renewables in Germany would agree that both natural gas turbines and power storage are needed, but the declaration says that power from natural gas is "very expensive." (Again, there is no mention of BASF’s strategic reliance on natural gas for power.) Here, the declaration merely complains without proposing any solution.

Further efficiency "not physically possible"

The chemicals sector then claims that "efficiency is approaching what is technically feasible according to the laws of physics; it cannot be further improved indefinitely." But the example given is unconvincing: "In the crisis year of 2009, power demand dropped by 12 percent, but the ‘price’ paid was a 16 percent drop in production." Of course, 2009 was a classic outlier, with the global crisis drastically reducing demand; it is therefore difficult to demonstrate that lower power consumption necessarily goes hand-in-hand with lower production based on such an obviously exceptional year.

 - Large chemicals firms make a lot of their electricity themselves and are thus more exposed to the cost of conventional fuel than the cost of power from the grid.
Large chemicals firms make a lot of their electricity themselves and are thus more exposed to the cost of conventional fuel than the cost of power from the grid.
DuPont

The situation is further complicated when we consider that energy-intensive industry is exempt from grid fees. Ironically, the firms that consume the most power from the grid pay nothing. According to online consumer portal Verivox, the number of firms with this exemption has nearly tripled this year alone at 178, with 277 firms having applied – and only one was rejected (the others are still being reviewed). The list was leaked to German television. A great number of large chemicals firms are included.

The rules for exemptions from grid fees specify that a firm has to consume at least 10 gigawatt-hours per connection point spread across 7,000 hours per year. In practice, some firms that do not quite run for 7,000 hours a year now leave their systems running a bit longer so they can reach that target – a clear case of waste, and a clear opportunity for greater efficiency. But the declaration does not call for the exemption of grid fees to be redesigned.

The threat of relocation

Inevitably, the declaration says the chemicals industry faces international competition and cannot simply pass on local increases in power prices. It also says that power prices in Germany are "among the highest in Europe and the world, with every increase of one cent per kilowatt-hour increasing production costs by 500 million euros per year for the chemicals sector." The proposed solution?  "The cost of renewables, emissions trading, and grid infrastructure must be kept in check" for the chemicals industry.

 - A comparison of industry power prices in the EU shows that Germany was near the top (in 2009), but actually competitive with countries like the Netherlands and the UK.
A comparison of industry power prices in the EU shows that Germany was near the top (in 2009), but actually competitive with countries like the Netherlands and the UK.
BDEW

But the declaration does not point out that renewables have actually lowered wholesale prices – which such firms pay – by around 15 percent this year, nor does it mention that prices on the spot market in Germany now regularly fall considerably below the rates in France; rates in Switzerland have even been lowered because the two countries' grids are so interwoven. The trend in Germany is therefore currently towards lower power prices for industry, which is why Germany is currently attracting energy-intensive industry – not scaring firms away.

Surprisingly, the declaration claims that "most chemicals firms pay a renewable power surcharge of 3.5 cents per kilowatt-hour," which is probably incorrect in two respects. First, the current surcharge is 3.59 cents; and second, the largest firms are largely exempt from this surcharge, and the number of exempted firms has tripled.

The energy transition – a done deal

The declaration is especially interesting for the international audience in the way it portrays the energy transition as a done deal. For instance, the declaration clearly accepts the nuclear phaseout as irreversible and recognizes that coal will also be marginalized in the process: "The transition from nuclear and coal power to a 100 percent supply of renewables supported over the long interim period by natural gas and coal is a megaproject for the next few decades, and the path towards greater energy efficiency that we have started to go down must be further pursued."

Essentially, the firms are warning about impending price hikes brought about by renewables even as renewables bring down the prices they pay. If firms like BASF have to pay more for energy, it will be because their energy costs overwhelmingly depend upon the price of natural gas. (Craig Morris)

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