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Energy Policy in Germany

Energiafoorumi ry
Energy Forum of Finland – FINNWEC

Press Release
May 8, 2002

Dr. Gert Maichel, Executive Vice President of RWE AG
President and CEO of RWE Power AG

Energy Policy in Germany

The energy policy of the EU member states is basically determined by the general European conditions. At the center is the liberalization of the European domestic market for electric power and gas as well as the climate-policy commitments of the individual member states. The liberalization of the electricity markets has led to considerable competitive distortions because of the different market openings, in addition to dramatic increases in efficiency and reductions of prices. More than 100 million customers in Europe still cannot freely choose their supplier. On the other hand, the monopoly companies thus protected use their domestic advantage to aggressively expand into the markets already liberalized. A rapid harmonization of the boundary conditions in Europe is therefore of the utmost importance.

Contrary to the Commission's report on implementing the domestic market, liberalization in Germany has been very successful. The Commission criticizes, among other issues, excessive electricity prices, inadequate unbundling and excessive system usage fees. Along with Finland, Sweden, the United Kingdom and Austria, Germany is one of the five EU countries where the electricity markets are 100% liberalized. The electricity prices have fallen dramatically by up to 50% for industrial customers and by about 25% for private customers. But the liberalization profits of nearly € 7.5 billion were nearly completely offset by state-related special costs amounting to over € 6~billion. The EU Commission's account is also not factually correct in view of the system usage fees, which are rather low by international comparison.

I am firmly convinced that the complete liberalization was and is the sole correct solution in view of the customers and the overall economic advantages. Since 1998, the German energy companies have consistently met the challenge of competition and are now competitive on the international level, too. Unfortunately, the same cannot be said of the German political sector. It quite willingly accepts the severe disadvantages for competition-oriented national energy companies caused by the competitive distortions due to the different market openings in Europe. From the perspective of the German energy industry, it is therefore essential that these competitive distortions be rectified as soon as possible _ that is, by 2005 at the latest.

Our customers and the German industry as a whole also suffer considerable disadvantages from the aforementioned unilateral special costs, however. Overall, we have a patchwork of separate, populist decisions. The most far-reaching of these decisions was beyond doubt the decision on the future role of nuclear energy.

The new Atomic Law went into effect on April 27. It is based largely on the agreement reached by the German energy utilities and the Federal Government in June 2001.

This agreement ensures that we as a company can operate our power stations with the necessary waste disposal, and thus allows us to have the necessary planning reliability for the coming years. The price of this assurance – the limitation of the kilowatt-hours to be generated at the nuclear power plants to a total of nearly 2,600 TWh – was high. The companies have thus gone to the limit of what they can reasonably ask of their employees and shareholders.

Here I would like again to emphasize the companies' steadfast conviction that the peaceful use of nuclear energy is economically and ecologically practical as well as safe and fully acceptable morally. That's why the companies have refused to approve the prohibition on the construction of new nuclear plants anchored in the Atomic Law amendment either in the agreement or at any other place. Unfortunately, given the current political climate in Germany, there was no alternative to an agreement with the Federal Government .

Politicians were relatively quick to decide on phasing out nuclear energy in our country. Nevertheless, the consequences of implementing this phase-out will be determining our energy policy in many respects for years to come and constricting our maneuvering freedom. We recognize more and more that the role of nuclear energy cannot be isolated from an integral overall energy policy concept. This holds true not only given the ecological challenges of the future, such as those concerning climate protection, but also in view of future supply security and the competitiveness of our energy supplies.

When I think of the goals of energy policy, then it quickly becomes clear again why, despite the nuclear energy compromise, we have always maintained that we have to keep the nuclear energy option open for future generations. This is true economically, ecologically and with respect to supply security.

Economically considered, nuclear energy is a competitive energy source. Anyone who keeps denying this is not aware that nuclear energy has the lowest generation costs in the base load range. In view of the drastic drop in electricity prices – especially in the industrial customer segment – in Germany and in Europe, this is a competitive factor not to be underestimated. Ecologically considered, Germans are sacrificing a climate-friendly as well as competitive energy supply on the political altar. The demand for a 40% reduction of CO2 emissions relative to 1990 is itself more than difficult even without the phase-out of nuclear energy already decided on. How the Federal Government's ambitious goals in climate protection fit together with the simultaneous phase-out of nuclear energy is a mystery. To make the problem clear, consider this one figure: last year alone, power generation from nuclear plants in Germany allowed us to avoid the emission of approximately 180 million tons of CO2. That's more than the emissions caused by all road transportation vehicles in Germany. Realistic proposals on how this enormous volume of CO2 alone can be avoided if we give up on nuclear energy are nowhere to be seen. Even further regulatory interventions would not take us to this goal. This is true in particular for the draft of a directive on introducing a European-wide system on trading emission rights, submitted last October by the EU Commission. We firmly reject this proposal not because we consider the basic idea of emission trading a bad instrument, but because the Commission's draft has been poorly crafted and has nothing to do with the flexible tools agreed on in Kyoto.

Also for reasons of supply security we must very quickly define the general conditions in Germany for the next few decades. The phase-out of nuclear energy was accomplished very fast on paper. But we could just as fast fall into a supply gap with open eyes. In the next 20 years, power station capacities of the order of 200,000 MW will have to be replaced in Europe for purely age reasons. If we accept the assumptions of the EU Green Book, which predicts increasing power consumption, then we must expect an additional new construction of plants generating 200.000 MW. If we consider the usual administrative and constructive planning periods of eight to ten years, we don't have much time to make the decisions on investment for the future generations of power stations. This decision-making presupposes a level of planning reliability in energy policy that I cannot find at present.

Today German companies are still competitive even by international standards. We want to secure and expand this position in the long term. To this end, we urgently need a non-ideological overall concept in Germany, which considers energy policy goals in a balanced and nondiscriminatory manner, and does not lose sight of the European aspects. Unfortunately, such an overall concept for energy policy seems not to be immanent for the foreseeable future.

Against this background, the German path is in no way exemplary for other EU countries, and I'm sure that it will not be a model on the international level. For a future-oriented energy policy, we must not flirt with short-term political majorities, but rather act according to responsible and technically informed decisions. That's what reason demands – economically, ecologically and for the sake of supply security.

Very informative and open discussions with leading representatives of the Finnish energy industry have shown me that Finland is more than a step ahead of Germany in this regard. I am very impressed with the way in which you are conducting this debate on the future of supply structures for the 21st century, an issue that is essential for any national economy. At the same time, I am confident that you will find the right answer for Finland.

Dr. jur. Dipl. Ing. agr. Gert Maichel
Executive Vice President of RWE AG
President and CEO of RWE Power AG