Germany’s power grid is getting greener as its industry weakens.

Germany’s power grid is getting greener as its industry weakens.
Germany’s power grid is getting greener as its industry weakens.

Germany is making progress in increasing the share of renewable energy sources in its power supply, but this progress should be applauded with caution because most of it is due to lower electricity demand due to low industrial activity.

Energy providers have sharply reduced their total electricity production from fossil fuels so far this year. However, this reduction has not been offset by a similar jump in generation from renewable energy sources, suggesting that weak energy demand is the factor that has led to a decline in total energy production and a reduction in fossil fuel generation in Europe’s largest economy.

German power producers saw electricity output from fossil fuels decline 19% in the first half of this year compared with the same period in 2023, according to LSEG data cited by Reuters columnist Gavin Maguire.

However, renewable energy generation increased by only 2.1%.

The large reduction in fossil fuel-based power generation was mainly due to lower total energy production, which fell by 6% year-on-year between January and June 2024 due to lower electricity demand with weak industrial activity.

A recovery in such activity would boost energy demand in Germany, and its energy companies may have to resort to more natural gas generation, offsetting some of the progress in supplying clean energy to the grid.

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Last year, wind power overtook coal to become Germany’s largest source of electricity, according to clean energy think tank Ember.

Germany relied on fossil fuels for 46% of its electricity last year; however, the largest single source of electricity was wind, at 27.2%, ahead of coal at 26.8%.

Since 2015, declines in Germany’s nuclear generation, which is phased out by 2023, and coal generation have been mostly covered by higher wind and solar generation along with net electricity imports and gas generation, Ember’s European Electricity Review 2024 showed earlier this year.

Germany installed record power capacity from solar and wind in 2023, but only solar additions met government targets while wind installations fell short of goals. New solar capacity is on track to meet government 2030 targets. Wind also saw a surge in wind power tenders, which awarded a record 6.4 GW total capacity last year, data from wind energy association BWE showed at the end of 2023. Unfortunately, these were below the annual target of 10 GW.

Although the share of renewable energy sources in Germany’s gross electricity generation reached 53% in 2023, up from 44% in 2022, the country needs to accelerate installations of solar, wind and battery capacity to achieve renewables accounting for 80% of its electricity generation by 2030.

The grid is becoming greener and power sector emissions are falling, but these developments have been driven mainly by weak economic growth and weak industry in Europe’s largest economy.

High energy costs have been a key reason for weak manufacturing and industrial activity in Germany over the past two years. Energy-intensive industries, especially chemicals and fertilizers, have been hardest hit.

“No other sector has been hit harder by the ‘new energy world’ (lower absolute gas imports and higher energy prices compared to pre-war levels and compared to the US and China) than the chemical industry,” Deutsche Bank Research said in February this year, stating that the decline in Germany’s industrial output “is not yet over.”

The German Federation of Industries, BDI, is also not optimistic in the short term.

Germany’s manufacturing output fell by more than 7% in the fourth quarter of 2023, compared with the end of 2019, before the pandemic broke out, according to a report by the industry body published in May. The BDI expects industrial output in Germany to continue to decline and contract by another 1.5% in 2024 compared with the previous year. In the previous two years, industrial output had fallen by 0.5% annually.

“German industry has lost almost a decade of production growth,” the BDI said.

This weak industrial performance, partly due to high energy costs, has contributed to declining electricity consumption in Germany. When industrial activity recovers, German power producers may be forced to increase power generation from fossil power plants to meet demand.

By Tsvetana Paraskova for Oilprice.com

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