Germany’s power grid is becoming greener, despite weakening industry

Germany is making progress in increasing the share of renewable energy sources in its electricity supply, but this should be praised with caution, as most of this progress is due to weaker electricity demand against the background of the economic slowdown.

Electricity suppliers have drastically cut their total electricity production from fossil fuels this year. But that reduction has not been offset by a similar jump in renewable energy production, suggesting that weak energy demand is driving lower total energy production and reduced fossil energy production in Europe’s largest economy.

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

However, energy production from renewable sources increased by only 2.1%.

The large reduction in fossil fuel generation was mainly due to a decrease in total energy production, which fell by 6% year-on-year in the period from January to June 2024, due to lower electricity demand and weak industrial activity.

A revival of this activity would boost demand for electricity in Germany, and its energy companies might have to switch to generating power using natural gas, undoing some of the progress made in supplying clean energy to the grid.

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Wind power overtook coal last year to become the largest source of electricity in Germany, according to clean energy think tank Ember.

Last year, Germany relied on fossil fuels to generate 46% of its electricity, but the single largest source of electricity was wind power with a share of 27.2%, ahead of coal with 26.8%.

As published earlier this year, Ember found that since 2015, declines in nuclear (phased out in 2023) and coal-fired power generation have been mostly offset by growth in wind and solar power, as well as net electricity imports and gas-fired power generation.

Germany installed a record high amount of solar and wind power in 2023, but only solar installations met government targets, while wind installations fell short of the targets. The new solar capacity is on track to meet government targets for 2030. Wind power also saw a rise in wind tenders, with a record 6.4 GW awarded last year, data from the BWE wind energy association showed in late 2023. However, this fell short of the annual target of 10 GW.

The share of renewables in Germany’s gross electricity generation will reach 53% in 2023 (up from 44% in 2022), but the country needs to accelerate the installation of solar, wind and battery power plants to ensure that renewables account for 80% of electricity generation by 2030.

The grid is greening and emissions from the power sector are falling, but the main reason for these changes is anaemic economic growth and weakness of industry in Europe’s largest economy.

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

“No other sector has been hit harder by the ‘new energy world’ (lower total 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, adding that the decline in industrial production in Germany “is not over yet”.

The German Industry Association BDI is also not optimistic about the near future.

Germany’s industrial production fell by more than 7% in the fourth quarter of 2023 compared with the end of 2019, before the pandemic struck, the industry body said in a May report. The BDI expects German industrial production to continue to fall and shrink by another 1.5% year-on-year in 2024. In the previous two years, industrial production fell by 0.5% annually.

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

Weak industrial performance, partly due to high energy costs, has contributed to falling electricity consumption in Germany. As industrial activity recovers, German power producers may have to turn on fossil-fuel-fired power plants to meet demand.

By Tsvetan Paraskov for Oilprice.com

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