This article was originally published on the City AM website.
The future for German energy supplies is becoming more uncertain.
As I wrote last week, the early retirement of the nuclear fleet, the necessity to phase out heavy emitting fuels like lignite and coal from the mix, and a heavy reliance upon gas imports from Russia have backed German policymakers into a corner.
While there is no doubt that Germany’s dash for renewables has made it somewhat easier, solar and wind still only account for 12 per cent of generation within the mix, according to AG Energiebildanzen.
And with the heavily industrial German economy still growing at a healthy rate, in part assisted by the weak euro, it is clear that that problems lie ahead.
One solution for this is the EU’s Energy Union, with its projects of common interest (PCIs). These PCIs are intended to increase competition and enhance EU energy security, for the whole of the bloc. PCIs enjoy preferential treatment, and are funded via the European Fund for Strategic Investments (EFSI), recently expanded to €500bn.
Of the 196 PCIs underway, over 30 involve projects in Germany – including transmission cables known as interconnectors, which are able to import electricity from Austria, Belgium, France, the Netherlands, Norway, and Poland.
While the direction of the flow of power will necessarily be dictated by price, a shrinking energy sector in Germany is likely to draw power in, rather than out.
With the UK leaving the EU, it is almost certain that the 16 or so British PCIs will be cancelled.
This will free up funding within the EFSI to finance more projects in continental Europe, with even more likely to be in Germany.
Under the terms of the revised EU Energy Efficiency Directive, member states will be forced to provide at least 15 per cent of their power production for export.
Germany will thus be able to import much more electricity from its neighbours than it currently does, handing the country a huge advantage.
Not only can it to continue to expand its heavy industrial base, but it will also be able to do so without breaching its carbon emissions limits, as the fuel will be burnt in other member states.
The availability of power generated in other member states also helps Germany plug the gap when its own renewables are unavailable, due to the lack of wind or sun.
There is plenty of justification for Germany to be the largest recipient of funding via the EFSI – it is, after all, the largest contributor to the EU budget, and has the largest economy. But the vast amount of these soft loans to Germany will widen the wealth gap between it and the other EU members even further.
At the same time, while Germany industry will profit from the ability to import electricity from its neighbours, this could severely impair their economies.
It is questionable why the vast and wealthy German energy sector should receive soft loans in the first place. With a healthy credit rating and, presumably, economically attractive projects, why is the country not paying market rates for its loans?
Nor is this the first time that German heavy hitters have taken advantage of EU funding.
Volkswagen was able to borrow €4bn from the European Investment Bank at preferential rates to invest in clean technology research, despite the company having a solid A credit rating. And we know all too well what happened with that particular slice of research: the “dieselgate” emissions fraud scandal.
It is easy to say all things EU are bad – words often heard from several of my pro-Brexit colleagues. But that is not the reality. Many programmes emanating from Brussels have noble ambitions, from encouraging investment to protecting the environment.
But all too often, these ambitions become dominated by German muscle.