Renewable energy is more expensive; Look at Denmark and Germany

by / Thursday, 15 May 2014 / Published in Smartgrid-CI Blog

Denmark and Germany have the highest electricity prices of all OECD countries but does it matter?

Denmark started to switch to wind energy about 15 years and has reached a point where off shore wind covers around 30% of its needs; a world record. Originally, the Danes made this decision because back in the late 1990’s, they were among the biggest CO2 emission nation on the planet and primary energy was very heavy on their trade balance. This small Northern European nation has no natural resources and all its electricity was generated from imported coal and oil. A massive switch to renewable was also the only way Denmark had a chance to reach its Kyoto protocol commitment.

The Danes are paying a very high price for this transition, according to a new report by the Hamburg Institute for International Economics (HWWI). Their electricity is the most expensive of all OECD countries; twice as expensive as what the French pay (Thanks to their choice for all nuclear power) or three times as expensive as what the Americans have to shell out for their electricity (thanks to low gas prices). Germany with its extensive solar PV infrastructure is a close second in terms of electricity prices.

A lot has been written about the Energiewende (Energy Transition) in Europe’s biggest economy but a recent Polish report published by OSW focuses on the impact of this “turning point” on the whole German economy and society that goes way beyond the cost of energy: “The impact of the Energiewende is not limited to the sphere of energy supplies. In the medium and long term, it will change not only to the way the German economy operates, but also the functioning of German society and the state”, the report says.

In Denmark, the transition to offshore wind comes with unexpected consequences as more and more nuclear power is used in order to make up for renewable energy intermittency and maybe for its cost. In 2012 no less than 14% of the electricity used by the Danes came from nuclear sources and since Denmark does not have any nuclear power plant, all this energy was imported from Sweden.

So why persisting with an energy that cost more and that is not able at this point fulfill all population’s needs? The Danes have decided to use their own country as a giant research laboratory on offshore wind energy. Almost half of all the smart grid projects launched in Europe are taking place in Denmark (Germany being a distant second).

For the Danes, offshore wind is a strategic industrial policy move very similar to what the Japanese MITI did with electronics industry in the 1980’s. The goal is to become a global wind energy industry superpower. Germany’s intention is not as clearly stated but according to the OSW report: “Germans believe that investments related to the Energiewende will enable Germany to maintain its high position in international trade (as a leader in green technology), adding to the country’s strong standing in traditional industry sectors”. After all, maybe energy transition is more about long term vision and strategy. For now, the Energiewende does not seem to impact the German economy too negatively. Despite the Energiewende, the country’s trade balance has never been so strong.

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