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Merkel’s no-nuke stumble may erode re-election hopes

Chancellor Angela Merkel’s sweeping plan to transform Germany into a green-energy giant almost destroyed Nordseewerke GmbH, one of the country’s leading makers of wind-turbine foundations.

Nordseewerke, which produces Statue of Liberty-sized foundations, ramped up its manufacturing capacity and head count in 2011 after Merkel declared that Germany would begin a massive project to install 25,000 megawatts of offshore wind power by 2030.

More than two years later, the chancellor’s wind farms have been slow to appear, stymied by the difficulty of planting towers in deep ocean waters, an outmoded electrical grid and investors who are losing faith in the project. The delays hammered 110-year-old Emden-based Nordseewerke, which filed for bankruptcy before DSD Steel Group GmbH bought it in February, retaining only a third of its 750 employees, Bloomberg Markets will report in its May issue.

“Three to four new offshore wind farms should be up and running in the German North Sea by now, but there’s not a single one,” says Tomas Marutz, Nordseewerke’s managing director. “German politicians want offshore wind power, but they failed to provide investors the progress and security they need.”

Merkel, a physicist by training, is attempting to lead the biggest transition to renewable energy of any developed country in history. In 2010, she announced that Europe’s largest economy would more than triple its share of renewable power by 2050 to 80 percent of the nation’s total consumption. The sea-based wind farms alone could cover an area six times the size of New York City.
Fukushima Disaster

Half a year later, the nuclear disaster in Fukushima, Japan, spurred another bold move from the German leader. She decided to hasten by about a decade, to 2022, the shuttering of the country’s 17 nuclear reactors, which at the time produced about a fifth of Germany’s electricity.

The chancellor’s Energiewende, or energy switch, is one of her biggest gambles in eight years in office. As Merkel, 58, runs for a third term in September, political opponents and industry groups are attacking her for bungling the transformation, which helped push up household electricity costs 21 percent from 2008 to 2012.

In December, at a summit for her Christian Democratic Union in Hanover, she said that the 550 billion euro ($717 billion) effort is the most ambitious, complex and difficult project in Germany’s future.
Merkel’s Subsidies

“If Germany succeeds, it could be a role model for economies all over the world,” says Claudia Kemfert, who heads the energy unit at the DIW economic institute, a research group, in Berlin. “If it fails, it will be a disaster for Germany’s politicians, society and economy.”

Merkel’s subsidies to renewable-energy producers are fueling runaway electricity costs and posing a threat to the stagnant German economy. Consumers pay for the subsidies through a surcharge on their bills. The fee had surged 47 percent on Jan. 1 from a year earlier. In three years, it had more than doubled.

The Bundesbank, Germany’s central bank, said in December that it expects the economy to expand by as little as 0.4 percent in 2013 as the three-year sovereign-debt crisis continues to exact a toll on exports. German industry has been hit hard by power prices, which in 2012 were about 40 percent higher than in France and the Netherlands, according to a February report by the Cologne-based IW economic institute, a research organization.
Economic Drag

Saddled with these costs, some companies are holding back on making investments in Germany. Worlee-Chemie GmbH, a family- owned business that has produced resins in Hamburg for almost a century, will pay about 465,000 euros this year to finance the country’s renewable-energy expansion, the equivalent of 10 full- time salaries. So Worlee-Chemie is expanding into Turkey, where in March it was preparing to start producing a new type of hardening agent.

“Higher power prices eventually weigh on the entire German economy,” says Michael Huether, director of the IW institute.

Merkel’s main opponent in the election, Peer Steinbrueck of the Social Democratic Party, is capitalizing on discontent with the energy switch. In December, he said at an SPD summit that Germans now live in fear of power outages because of government missteps. One month later, the SPD beat Merkel’s CDU in a vote in Lower Saxony – the third straight regional defeat for the incumbent party and a sign that its lead in the national election may be eroding.

“Merkel is showing poor leadership on energy policy, and that could hurt her in the September elections,” says Carsten Nickel, a London-based analyst at Eurasia Group, a political- risk research and consulting firm.
Closing Reactors

Merkel shocked Europe when she announced her plan to speed up the closure of Germany’s reactors. It was an about-face for the German leader, who has often moved cautiously, such as in her refusal to rush bailouts for Greece without guarantees of budget austerity.

The prior government of Gerhard Schroeder first decided to decommission the reactors, setting the 2020s as a target. Merkel in September 2010 said she would extend their operation into the 2030s, citing their economic viability and safety record. Then the meltdown of three reactors at the Fukushima Dai-Ichi nuclear plant in March 2011 helped the anti-nuclear Green Party that same month win control of the state of Baden-Wuerttemberg, which the CDU had ruled for 58 years. Three months later, Merkel and her cabinet decided to permanently switch off the country’s eight oldest reactors and moved up the closing date of the remaining nine plants.
22% Renewable

“We all want to get out of nuclear power and switch to a renewable-energy supply as quickly as possible,” Merkel told reporters in Berlin a month after the Fukushima tragedy began unfolding.

Germany was one of the first countries to kick-start its wind and solar industry with uncapped incentives starting in 2000. Today, it’s the world leader in solar power, with 1.3 million panels installed at homes and businesses.

More than 23,000 turbines turn across the country, mainly in the windy north, making it the third-biggest producer of wind power, behind China and the U.S. By generating about 22 percent of its power from renewables, almost double the U.S. share, Germany saves more than 5 billion euros a year on energy imports. Its companies benefit too: Engineering giant Siemens AG (SIE), which makes wind turbines, and SMA Solar Technology AG (S92) have boosted sales because of the energy switch.

“Almost a quarter of our power comes from renewables, and we’re still one of the most successful and competitive economies worldwide,” Environment Minister Peter Altmaier says.
Great Pyramids

Merkel’s expansion plan requires companies to add about 5,000 sea-based turbines by 2030 – an effort that’s been dogged by technical stumbles. To build the wind farms, ships carry steel foundations for turbines from the port of Bremerhaven to about 125 kilometers (78 miles) offshore, where cranes lower the 550-ton structures onto the seabed. They will support windmill towers taller than the Great Pyramids of Giza as part of a giant renewable-power plant in the middle of the North Sea.

Completion of the North Sea wind farm and at least four others has been delayed as crews grapple with the demands of installing equipment in seawater as deep as 40 meters (130 feet). And grid operator TenneT TSO GmbH has warned it wouldn’t be able to connect several wind farms under construction to the mainland network on time, citing problems with transformer stations. These setbacks have caused the nation’s second-biggest utility, RWE AG (RWE), and Denmark’s Dong Energy A/S to delay investments in new offshore wind farms in Germany.
Energy Jobs

“The German energy transformation is as challenging as the first moon landing,” RWE CEO Peter Terium says.

These snafus are threatening jobs in cities such as Bremerhaven. In this former shipbuilding hub, unemployment dropped from 26 percent in 2005 to 14 percent in 2012, thanks to investments from alternative-energy firms. Areva SA (AREVA), a French company that makes atomic reactors as well as renewable-energy technology, assembles 5-megawatt offshore wind turbines in Bremerhaven.

“The energy switch is so important to us because the offshore industry replaces the jobs lost in shipmaking,” says Melf Grantz, the mayor of Bremerhaven.

The wind industry employs some 3,000 in Grantz’s city, about a third of them at WeserWind GmbH. This maker of windmill foundations needs new orders by midyear or it may have to cut personnel, Dirk Kassen, its managing director, says. Repower Systems SE (RPW), a Hamburg-based wind-turbine maker owned by India’s Suzlon Energy Ltd., will this year let go most of the 400 temporary workers at its PowerBlades GmbH unit in Bremerhaven, says Rebecca Lange, a company spokeswoman.
Grid Update

Merkel is also struggling with hang-ups on another massive piece of her energy switch – updating Germany’s grid. Today, the country depends on lines in the neighboring Czech Republic, France and Poland to reroute power from its wind farms in the north to the south, a manufacturing hot spot, where automaker Bayerische Motoren Werke AG (BMW) runs factories. The Czech government last year complained it was close to a blackout because the German wind farms overloaded its grid.

On a December morning in a makeshift tent in the northern city of Schwerin, Merkel conducted a ceremonial opening of a long-stalled power line that had taken about a decade to plan and build. She pushed a plug the size of a soccer ball into a socket, and the line began dispatching electricity across the country.
Power Autobahns

It’s part of an effort to construct three north-south so- called power autobahns to ship electricity. Within a decade, Germany aims to build or upgrade some 5,700 kilometers of power lines, the distance from London to Kabul. As of August, 15 of 24 grid projects identified as key by the government were behind schedule, mainly because of public opposition to construction projects in neighborhoods.

If reactors close before the grid improvements are completed and no new fossil-fuel stations are added, Germany could suffer blackouts, Bavarian Economy Minister Martin Zeil said in February.

“We’re not yet where we want to be,” Merkel told business leaders in February in Mainz. Eager to prevent a voter backlash in September, Merkel has pledged to contain power prices. The government has increased cuts to clean-energy subsidies during the past three years, and Altmaier in January proposed freezing the related surcharge to consumers in 2014 at the current level.

He said any increase thereafter should be limited to 2.5 percent a year. If the government can control prices, Merkel said, other countries will follow Germany into renewable energy, giving the economy a chance to create a new export industry.
Germany’s Reputation

“It’s not just Merkel’s reputation that’s at stake here,” Eurasia Group’s Nickel says. “Germany wants to be a leader in exporting these green technologies around the world. But if the project doesn’t work at home, then no one will copy it.”

Meanwhile, Marutz of Nordseewerke is losing patience with government officials who say the wind farm mess will be fixed.

“We’re still being told that installations will pick up,” he says, “but the question is when.”