The Dark Doldrums: Has Germany’s Energy Transition Reached a Dead End?

Pedaling Forward, and Back

When the dunkelflaute strikes, Germany relies on gas or coal for its electricity, or it must import nuclear power and/or hydroelectric power from France and the Scandinavian countries, respectively. ⁴ Does replacing coal and gas (which currently provide, respectively, 23 and 15.5 percent of Germany’s electricity) with intermittent wind and solar mean that dunkelflaute periods will become more frequent and their impact more severe? ⁵ And what if other E.U. countries also pursue a high renewables future? Over the past few years, several dunkelflaute events have been reported in the Netherlands, Belgium, and Denmark, during periods of extremely weak wind, persistent high-pressure systems, and overcast conditions that have a tendency to darken several countries simultaneously. ⁶

The dunkelflaute will therefore not be a German problem, it will be an E.U.-wide winter phenomenon that could have devastating economic impacts. No one seems to know what all of this means. Some electrical engineers believe that an E.U.-wide interconnected power system where wind and solar generation are pooled can “decrease the occurrence of Dunkelflaute events considerably.” ⁷ But “considerably” is not that reassuring, especially when there is no E.U.-wide interconnected power system currently in place, and 2030 is just around the corner.

This and similar technical uncertainties have contributed to rising opposition to the energiewende (transition to renewable energy) in Germany. In the June 2024 elections to the E.U. parliament, the far-right Alternative für Deutschland (AfD) made big gains, becoming the second largest party and ahead of all three parties in the ruling coalition government. ⁸ Anxieties about energy security, rising costs, and concerns about Germany’s competitiveness have fueled a right-wing nationalist surge that wants to slam the brakes on the energiewende in order to save Germany. ⁹ According to one domestic critic, Germany is “impressively showing the world that the green craze is doomed to failure . . . The people of Germany do not want to sacrifice their quality of life and their jobs to some utopian goals.” ¹⁰

Opposition to the E.U.’s climate goals is now one of the key drivers of European populism . . .

The implications for the European Union’s plans (themselves largely German-designed) to become “the first net zero continent” by 2050 are potentially disastrous. ¹¹ Opposition to the European Union’s climate goals is now one of the key drivers of European populism, with Italy, the Netherlands, and Poland among a group of countries leading the effort to obstruct the European Union’s ambitious European Green Deal that was adopted in 2019. ¹² Germany will likely be joining their ranks, having already opposed the European Union’s decision to have E.U. Member States phase out the sale of internal combustion engine (ICE) cars by 2035. ¹³

Brighter Times

A decade ago, Germany’s energiewiende was considered to be a model for the rest of the world. The country’s deployment of wind and solar power was already way out in front among the major economies; it was steadily winding down coal use and creating “green jobs.” Confident that renewables were the future, in 2011 Chancellor Angela Merkel’s government decided to close down the country’s nuclear fleet. ¹⁴ The energiewiende appealed to climate-concerned progressives because it appeared to be driven by citizens, either as producer-consumers (“prosumers”) of energy or as members of a cooperative or “energy community.” Impressed, many countries embraced the German model as a way of meeting their international climate obligations under the Kyoto Protocol and, later, the Paris Agreement. ¹⁵

Fast forward to the present: Germany’s energiewiende has fallen into a deep depression, from which it may never recover. Once a source of national pride and a presumed harbinger of robust “green growth,” Germany’s energiewende is increasingly depicted as a millstone around the neck of the country’s economy. The ruling coalition has been severely criticized for their decision to phase out nine gigawatts (GWs) of coal-fired generation capacity by 2030 (2038 at the latest) and for going ahead with the closure, in April 2023, of the country’s last three nuclear reactors. In 2011, in the wake of the Fukushima disaster, 54 percent of Germans supported the nuclear phase out; by 2022—with Russia having cut its gas supplies to Germany—a large majority (65 percent) of Germans wanted to keep the remaining nuclear plants operational. ¹⁶

Both decisions bolstered the right-wing narrative that the current government’s zeal for renewables is compromising the country’s energy supply. Unfortunately, the facts suggest that the accusation is probably true. In 2023, Germany became a net importer of electricity, thus further heightening energy security concerns. ¹⁷ A 2024 Federal Audit Office (Bundesrechnungshof) offered a blunt assessment:

The energy transition is not on track when it comes to electricity supply: security of supply is jeopardized, electricity is expensive and the Federal Government is unable to comprehensively assess the impact of the energy transition on the landscape, nature and the environment. ¹⁸

Not a Good FiT

Energy supply concerns have been accompanied by anxieties about the current and future costs of the energiewende, particularly for the working class. Pushed by the Green Party and the Social Democrats (SPD), the wind and solar boom began in year 2000 when Germany introduced a subsidy known as the Feed-in Tariff (FiT) for producers of renewable energy. The policy put no restrictions either on who could produce power or on how much power could be produced. It allowed homeowners, farmers, and businesses to “feed” power into the grid at a pre-agreed above-market price. FiT contracts typically lasted for twenty years or more, thus locking in high levels of prosumer remuneration.

With their eyes on monetary gain (why not profit from saving the planet?), communities and farmers clubbed together to set up more than 800 energy producer cooperatives. The FiT subsidy appeared to be working—it created jobs, deployment levels were impressive, and the policy enjoyed broad popular support. By 2012, Germany—not exactly the sunniest country on earth—accounted for one-third of the world’s total installed solar capacity. Greens talked (and they still do) about wind and solar generation being a source of local wealth creation for communities and municipalities when, in fact, it was the subsidy that was the source of wealth, not the technologies themselves. ¹⁹

Either way, Germany’s rapid deployment of wind and solar meant that the FiT policy quickly spread across Europe. ²⁰ By 2015, wind and solar provided 15 percent of the European Union’s power, over three times what was then the regional average. ²¹ The energiewende became the undisputed model for wind and solar deployment globally. By 2015, seventy-five countries had adopted the FiT. ²²

Greens [talk] . . . about wind and solar generation being a source of local wealth creation . . . when, in fact, it was the subsidy that was the source of wealth, not the technologies . . .

However, Germany and other E.U. Member States chose to recover the cost of FiT payments to property owners by adding a renewable energy surcharge to the electricity bills of all consumers. The energiewende’s designers were never comfortable describing the FiT as a public subsidy, because doing so would have invited criticism from Germany’s fiscal conservatives who had designed E.U. laws in ways that would limit the budget deficits of E.U. Member States. Because end users were paying for the subsidy, the FiT was not calculated as public debt and therefore did not violate E.U. state spending rules. ²³

. . . [I]n 2019 roughly 50 percent of residential users’ bills consisted of taxes and levees, and the largest portion . . . was used . . . to cover the cost of the [renewable energy subsidy].

This meant that for every Euro that found its way into the hands of a “prosumer” homeowner, farmer, or business, a Euro was recovered from the electricity bills of those who did not own property and could therefore not take advantage of the FiT. And the more renewables came into the system, the larger the renewable energy surcharge became. In Germany’s case, in 2019, roughly 50 percent of residential users’ bills consisted of taxes and levees, and the largest portion of that 50 percent was used, until recently, to cover the cost of the FiT. ²⁴ The FiT was a good deal—for some. But not so good for the 53.5 percent of Germany’s less well-off population who live in rented accommodation, which is the highest share in the European Union. ²⁵

Taping the Package

Reeling from the June 2024 electoral setbacks, Germany’s ruling coalition will now struggle to stop the 2022 Easter Package from disintegrating and thus keep the energiewende moving forward. The need to replace Russian pipeline gas with expensive (and mostly U.S.-supplied) liquefied natural gas (LNG) was, the government maintains, sure to raise electricity prices. But now that gas prices have begun to fall, electricity prices will too. ²⁶

But Germans know that the renewable energy surcharge had made Germany’s electricity prices the highest in Europe before the sharp increase in imported gas prices. Between 2007 and 2022, residential prices rose 250 percent, due in large part to the decision to recover FiT payments made to property owners and to cover the “system costs” (such as grid upgrades) needed to integrate highly distributed sources of power. ²⁷ When compared to the other twenty-six countries of the European Union, in 2023, Germans paid 47 percent above the E.U. average. ²⁸ In 2021—before the invasion of Ukraine—Chancellor Olaf Sholz’s new government sought to contain the backlash against wind and solar by removing the renewable energy surcharge on customers’ monthly bills, a measure that immediately cut residential electricity charges by 20 percent. But the government financed the removal of the surcharge from a special €177.5 billion Climate and Transformation Fund (KTF). Due to expire in 2026, the KTF was set up as part of the federal government’s Covid-19 relief spending. ²⁹ Right wing critics say the money could have been used to reduce taxes, and not line the pockets of high-income property-owning prosumers or renewable energy investors.

Under the Rainbow

The coalition government nevertheless maintains that the energiewende is going according to plan, and the Easter Package is helping to accelerate the deployment of wind and solar. Germany’s installed onshore wind capacity is currently the third largest globally, and fifteen GW of new onshore wind power will, the industry claims, be added in 2024. If accurate, these additions will be higher than the EU27 countries combined. ³⁰ Offshore wind is expected to grow by eight GW by the end of 2024, which is impressive. ³¹

Solar, too, continues to grow. In 2023, 1 million photovoltaic systems, accounting for more than fourteen GW of new capacity were added. ³² Germany may no longer be the world leader in solar deployment—it stood in fourth place in 2022—but that’s partially the result of other countries (China, the United States, and Japan) also pivoting toward solar. ³³ And gas consumption has fallen by at least 12 percent since Russia cut off its supply. ³⁴

Germany’s pace-setting deployment of renewable energy is, however, a two-edged sword for the government. The renewables sector is still sustained by public subsidies that benefit private developers who increasingly import technologies from abroad. ³⁵ Therefore, when Chancellor Sholz said in March 2023 that Germany would install “4 or 5 wind turbines per day” to reach the country’s 2030 targets, the AfD’s response focused on the cost of the subsidies to German consumers. ³⁶

The renewables sector is still sustained by public subsidies that benefit private developers . . .

And more subsidies to private interests are in the pipeline. The expansion of electricity grids to accommodate new wind and solar power is expected to cost Germany €460 billion by 2045, and grid congestion management an additional €136 billion. Battery storage systems are also subsidized, with the government covering 30 percent of the costs. ³⁷ Over half of Germany’s solar photovoltaic installations are accompanied by stationary batteries (“solar-plus-storage systems”) and the government wants batteries to be deployed at a much faster pace to catch up with renewables. ³⁸ Alongside high gas prices (which remain well above pre-invasion levels), these “system costs” are helping to keep electricity prices high. ³⁹

Crossing the Rhine

High electricity prices are also turning large business interests against the energiewende. They note that, compared to German manufacturers, Chinese competitors pay two-thirds less for electricity, thus putting German competitiveness at risk. ⁴⁰ According to Forbes, “Germany serves as a canary in the coal mine for other leading industrial nations.” High energy costs means that Germany’s core industries “struggle to compete on the world stage” and several (chemicals, for example) “are now in rapid decline.” ⁴¹

Economy-wide, German industrial investment levels are clearly languishing. ⁴² Indeed, stories of German manufacturers shutting down operations and relocating abroad have made headlines. In March 2022, Martin Brudermüller, CEO of BASF (the world’s largest chemical producer) asked, “Do we knowingly want to destroy our entire economy?” ⁴³ In February 2024, BASF announced the closure of its facility in Ludwigshafen, and 700 workers lost their jobs. ⁴⁴ A month later, Meyer Burger, a solar manufacturer, closed its plant in Freiberg, in Germany’s less prosperous East, with the loss of 500 jobs. According to Reuters, the company was on

a growing list of European renewable energy manufacturing factories shutting down or moving . . . The closure, which in one sweep reduced European solar panel production by 10 percent, comes despite a boom in wind and solar energy in Europe. ⁴⁵

The picture emerging across Europe is similarly worrying. According to the European Commission (EC), Europe’s competitiveness in the production of “net zero technologies” has grown progressively weaker, with China emerging as the clear market leader in solar panels, electric vehicles (EVs), heat pumps, stationary batteries, and so on. ⁴⁶ A March 2024 Commission study noted that “about one-quarter of electric cars and batteries, and nearly all solar PV modules and fuel cells” are imported. ⁴⁷ The European Union is still the market leader in wind turbine components, but how long will this last?

Subsidy Wars

The energiewende’s crisis has changed the narrative across the rest of Europe. Adopted in 2019, the European Green Deal sought to position the European Union’s entire industrial policy around economy-wide decarbonization, believing that ambitious commitments would allow the European Union to remain a “climate leader.” But it’s not working out. In a seemingly desperate move to salvage their threatened green industries, both Germany and the European Union have taken measures to introduce trade restrictions on China’s green exports. ⁴⁸ For example, in June 2024, the European Union slapped a 48 percent tariff on EVs made in China. ⁴⁹ The Biden administration has gone further, introducing a 100 percent tariff on Chinese EVs. The average price of an EV in China is $12,000; in the United States, the average price is over $50,000. ⁵⁰ A German-made mid-range EV (such as the Volkswagen ID.3) costs between $37,500 to $48,000 (or €35,000 to €45,000). ⁵¹

[T]he European Green Deal . . . believ[ed] that ambitious commitments would allow the E.U. to remain a “climate leader.” But it’s not working out.

The European Union has also criticized Biden’s Inflation Reduction Act (IRA) for granting larger subsidies to companies that source components that are U.S.-based. ⁵² The $369 billion package of tax credits and subsidies extended to private wind, solar, and other green investors under the IRA is so generous that suppliers are ready to abandon Europe and pivot toward the U.S. market. ⁵³

Avoiding the Great Leap Downward

Germany’s recent shift to the right means that the country’s ambitious renewable energy and emissions reduction targets are in danger of being abandoned altogether. But the danger was already evident before the AfD and other right-wing forces came onto the scene. Germany’s attempt to go all out for renewables, electrify transport, and decarbonize heating in buildings was always going to be a giant leap into the unknown.

As previous editions of this column have attempted to explain, trying to reach ambitious climate targets with generous subsidies was never going to succeed—especially when the costs of the subsidies are passed down on to consumers. This is what the struggle of the Yellow Vests in France in late 2018 was all about, as was the more recent farmer protests over regulations to limit the emissions from nitrogen use in agriculture. The goals of these regulations deserve support, but the means of reaching them invariably mean workers and small farmers lose out. ⁵⁴ In another setback, in mid-2023, Germany’s ruling coalition was forced to rethink a law that would phase out gas and oil heating systems, replacing boilers with electric heat pumps. ⁵⁵ Many homeowners were worried about the financial implications of the mandatory installation of heat pumps, including the initial investment and potential increase in maintenance costs. Renters feared that landlords would pass on the costs of compliance through higher rents. ⁵⁶

[T]rying to reach ambitious climate targets with generous subsidies was never going to succeed—especially when the costs . . . are passed down on to consumers.

German workers also fear that they will be forced to buy a high-priced EV, and they have supported German car makers’ efforts to stop the European Union’s plans to ban conventional vehicles sales by 2035. ⁵⁷

Energiewende 2.0: The Public Pathway

The energiewende’s Icarus-like descent brings with it huge global consequences. If Germany and the European Union abandon their climate commitments, it will likely trigger a cascade of policy changes in other countries that could render meaningless national commitments to address climate change made under the 2015 Paris Agreement.

As this column noted as far back as 2018, Germany’s energiewende would provoke a backlash if the costs of the transition continued to fall on the shoulders of those least able to afford it—namely, working-class Germans and small businesses. The June 2024 election results confirm that the backlash is well and truly here. ⁵⁸

In Germany and elsewhere, the left has two main options. The first option is to blame the far right for being climate change denialists and then close ranks behind the current approach to energy transition on grounds that the energiewende is crucial to achieving the European Union’s ambitious climate targets. This political recycling would require supporting, increasing, and extending indefinitely subsidies to private companies in renewable energy, storage batteries, electric vehicles, charging infrastructure, and so on.

The second option would be to accept that the problems facing Germany’s transition are the consequence of a series of major policy errors that were entirely avoidable. In the electricity sector, the massive giveaway of public money to private “green” interests, coupled with the decision to add the cost of the subsidies to consumers’ electricity bills (in the name of “fiscal responsibility”) have turned large sections of the working class against all things green. ⁵⁹ As this column has consistently argued, the left must get serious about developing an alternative that is anchored in public ownership of energy and extending public control over vital supply chains. The financial, technical, and social case for this alternative is compelling. ⁶⁰

Too radical? Perhaps. But the public pathway option is probably the only viable way of rescuing the energiewende. However, it will depend on the left’s capacity to show that the costs—both monetary and social—of reducing fossil fuel use need not fall on the shoulders of the working class, but can be part of a long-term effort to rebuild state assets and drive the transition to a truly sustainable political economy that is based on the notion of E.U.-wide and global public goods.