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The German Renewable Revolution

by | published March 19th, 2012

The moment Germany announced its highly publicized decision to phase out nuclear energy in the wake of the Japanese triple disaster, observers began to ask one very important question.

Just what energy source would replace such a huge swath of power in Eus dominant economy?

The short-term solution had to be natural gas.

But this would make Germany more dependent upon imported energy, especially from Russia.

In that sense, the nuclear phase-out made the Nord Stream pipeline – from Russia, under the Baltic Sea, to northern Germany – absolutely essential.

Today, the first line of the twin pipeline is already in operation. The second should be on line at the end of next year (if not sooner).

Then there is the other Russian project – South Stream. This one intends to move Russian and Central Asian gas into Southern and Central Europe.

Much of that will also reach Germany.

In addition, several pipeline projects are vying for the excess production from the second phase of the Azerbaijani Shah Deniz offshore development in the Caspian Sea. Included among these is Nabucco, a venture to bypass Russia and transport gas into the Baumgarten hub in Austria for ongoing distribution. 

Nabucco has long been the European Union favorite, but it has been unable to attract sufficient supplies. Three other pipeline proposals also are attempting to secure the Caspian gas for transit to Europe.

But there is a problem for Germany in all of this.

It does not want to form an increasing dependence upon imported gas to power its economy.

And this sentiment is driving one of the biggest alternative energy revolutions in in recent memory.

The 17 currently operating nuclear reactors in the country provide about 20% of the national electricity needs. Any replacement of those plants (where capital expenses are already sunk) will add significantly to the end costs of energy. 

That means a political decision following the Fukushima Daiichi disaster one year ago ends up costing the average German citizen even more to secure what is already among the most expensive electricity in the world.

Germany does have shale gas.

But the furor over nuclear power is paralleled with a similar environmental concern regarding the dangers of fracking, a process of pumping water and chemicals under high-pressure to break open the rock and free the gas.

There are now four U.S. examples of seismic anomalies resulting from the combination of fracking and deep horizontal drilling. An they have not instilled much confidence for the markets.

Instead, what the Germans are deciding to do is already being called the biggest restructuring of the national energy landscape since the end of World War II.

The government will initiate a campaign valued at more than $260 billion to harness wind and solar power.

The price tag is staggering. It is already pegged at more than 8% of the nation’s entire Gross Domestic Product (GDP). And it could move even higher.

This will involve huge wind farm areas in the Baltic and massive new high-power transit lines nationwide. The goal is to have at least 35% of the nations power needs generated from renewable sources by 2020.

However, the developments of this massive policy shift are even more exciting.

All Eyes on Germany

Germany has become the first nation to really tackle the rising energy crisis. To succeed, the country will requires new technologies and fresh approaches, some not even yet on the drawing board.

The most important European market will transform into a massive energy laboratory. But success is hardly certain.

Either way, all eyes will focus on this huge German experiment.

It will cost German consumers even more than they pay now – some analysts say as much as 60% more. It holds captive the survival of a government, political careers, industrial prospects, and continental-wide financial policy.

As the euro zone wrestles with debt contagion and questions the strength of cross-border banking, the main lynchpin of that zone – Germany – is embarking on a very ambitious and risky path. 

For those accustomed to seeing renewable energy sources such as solar, wind, geothermal, and even biofuels dependent upon heavy government subsidies, the German experiment will be a significant change.

The large public sector injections of tax revenues and credits will still be there.

Germany will have to increase taxes to pull off this grand departure. That could make it the most expensive government debacle in recent memory.

What changes is this.

A Solid Market for Alternative Energy

For the first time, a huge, guaranteed market will be opening up for alternative energy.

It will require new developments, infrastructure, improvements, and breakthroughs to make it work.

In short, there will be a new playing field for well-focused, forward-looking, entrepreneurially driven energy firms.

Unlike any other alternative energy push in memory, this one will have both government support and an assured, expanding need.

In the months ahead, wind power pioneered in Denmark and major advances in solar from China, along with a number of other ingredients introduced geographically in between, will converge on Germany.

That will translate into some huge profits over the next decade, both from new applications in Germany and the export potential to other countries.

A brave new world is underway for retail investment’s next big return sector.

Sincerely,

Kent

[Editor's Note: We are going through the greatest technological transition in the history of the energy markets. But few politicians, reporters, or analysts really understand where we're headed.

That's why people all over the world are turning to Kent.

Kent's uncovered the biggest - and most profitable - trend in the markets. Seriously, this is the story of the summer.

To see Kent's latest research, go here now.]

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  1. Penny T.
    March 19th, 2012 at 13:37 | #1

    Kent, today you recommended we sell CQP but in doing so aren’t we going to lose the 11.9% dividend we currently have and have to settle for a much lower dividend when we repurchase later?

  2. Don Giles
    March 19th, 2012 at 14:32 | #2

    Regarding Germany’s venture into “renewable” energy. I think this is great. Let Germany spend billions figuring out how to come out at the other end with a practical, economic, cost-effective solution. They are not sitting on enormous energy supplies as we are so perhaps it is acceptable, maybe even necessary, for them to be the world’s guinea pig. Rather them than us.

  3. gerald kuennen
    March 19th, 2012 at 15:26 | #3

    how does this bode for Saur “SENY” eng?

  4. Atty. Bob Carnevale
    March 19th, 2012 at 17:36 | #4

    $260 billion – Grrmany has committed to – in solar & wind energy? Can Thisbe right? I thought they just cut back on solar subsidies.

  5. Chuck S
    March 19th, 2012 at 20:50 | #5

    Too bad it couldn’t be some country hostile to the US to throw way it’s resources.
    One investment opportunity might be small electric generators that a lot people may buy when the wind doesn’t blow or the sun shine. Too much wind may also shut down wind turbines.
    I hope they carefully consider all the costs, including costs of not having the power when needed, or backup generators that still use fossil fuel.

  6. eric taylor
    March 20th, 2012 at 03:00 | #6

    Germany would rather purchase gas at market prices, as there have been
    many negotiations going on, with Russia even using gas pricing to
    gain leverage into buying European pipeline interests and utility
    investments in Europe proper. This may offend many German’s, as well
    as the poor reliability of gas delivery this 2011-2012 winter.

    It is interesting that Daimler is targeting building hydrogen fuel
    cell automobiles, buses and trucks, starting circa 2015. Hydrogen
    batteries for energy distribution are also being planned. The entire
    European Union is involved in futuristic green infrastructure planning, using both proven and experimental green technologies.

  7. PT
    March 20th, 2012 at 06:34 | #7

    Sounds like a great idea – Germany should spend all it’s money quickly before the rest of Europe steals it from them … , I mean, before the rest of Europe restructures it’s debt …

  8. Chuck S
    March 20th, 2012 at 22:31 | #8

    We should urge Iran to do this to protect them from dangerous nuclear energy. Everyone would love them then. I’m not sure ther’re that dumb, however.

  9. LDJ
    March 22nd, 2012 at 01:31 | #9

    Don’t be too smug. At least they have an energy program; we do not. We have too much legacy baggage, and they are likely to kick our butts.

  10. kocherg
    March 28th, 2012 at 17:44 | #10

    I am reminded of the situation in the ’60s when air pollution regulations were causing quite a bit of foaming and spitting here in the US. “Too expensive” “Won’t work” etc. So Germany got to work and developed a good bit of pollution technology which they were then able to sell to the latecomers to the game.

  11. enthusceptic
    March 29th, 2012 at 11:24 | #11

    Germany is the only large country rich enough to conduct a great experiment like this.
    We must follow the development of battery technology, Maybe Germany needs NG as backup?

  12. enthusceptic
    March 29th, 2012 at 11:30 | #12

    Yes, LDJ, it seems that Germany is winning this economic “war”, and the USA is losing.

  13. RealityCheck
    March 30th, 2012 at 17:30 | #13

    Watch out, Kent will get you all excited about ‘alternative’ … then backpedal when it crashes. He’s done it before.

    Kocherg, what the hell are you talking about? The U.S. auto industry and fuel industry came up with ALL the technologies for clean cars. I was in Europe in the late 80′s and the cars were filthy and FAR behind U.S. standards … no doubt they’ve caught up, but AFTER it was developed here.

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