Rising electricity costs pose a growing challenge to Germany’s export-based economy, according to a new study by from IHS The Challenge to Germany’s Global Competitiveness in a New Energy World.
International competitiveness is particularly important to Germany and its standard of living, owing to the country’s high dependence on exports, the study says. Exports of goods and services made up 52 percent of German gross domestic product in 2012. But a rigid and inefficiently organized energy market with rising costs – which have jumped nearly 10 percent in the past 12 months – puts Germany’s international competitiveness and its economy at risk, says IHS.
Rising electricity prices in Germany and lower energy prices in North America are making German products less competitive and forcing firms to relocate to other countries, the study says. This “investment leakage” creates a ripple effect in Germany’s highly integrated and specialized economy as other companies in the supply chain follow suit and move out of the country, slowing overall economic growth and negatively impacting the standard of living.
The study examines potential paths forward for the German economy by comparing economic impacts across two different energy price scenarios.
The high-price scenario models the rapid development of renewables and the removal of exemptions from the Erneuerbare Energien Gesetz (EEG) — the Renewable Energy Act — surcharge and tax discounts that have partially shielded energy-intensive German industry from the rising cost of renewables support.
The competitive energy scenario considers a more moderate pace of renewables development and an increased role for thermal power generation, especially natural gas. Industrial exemptions are maintained in this scenario.
The contrast between these two potential future paths demonstrates that the high-price scenario leads to considerable economic losses with increases to electricity prices for large industrial consumers peaking at an increase of nearly 70 percent, while the competitive energy scenario generates both macroeconomic growth and industrial growth for the entire economy, according to IHS.
The study concludes that transitioning to a lower carbon energy policy can be compatible with maintaining German competitiveness.