2013 GERMAN POLITICAL DIARY

F R O M T H E E X P E R T S I N A P C O S G E R M A N T E A M

German Elections 2013 Energy Policy

Commentary by Maximilian Knoth, consultant, APCO Worldwide in Germany (September 2013)

Flipping Over Energy Few countries have witnessed such radical changes to their energy policy as Germany has in recent years. When Chancellor Angela Merkels current government of Conservatives and (Market-)Liberals took office in 2009, described by the parties as a dream coalition, there were no indications that the government would decide on a quick phase-out of nuclear energy and start promoting a yet more rapid energy transition, now commonly referred to as Energiewende. Both decisions were presented as a result of Fukushima, but they were perhaps equally influenced by public opinion. While the German public is generally in favor of everything sustainable, mostly irrespective of the actual effects, energyintensive industries were successful in obtaining an exemption from additional charges for energy as defined in the Renewable Energy Law. At the same time, however, traditional large energy providers are struggling, supposedly paving the way for municipal providers. German energy policy is perhaps unsurprisingly a complicated matter. Those willing to get involved in the German energy business need to take a careful and well-prepared approach. Election Mode: Your Promises, Please! Debates on energy during the current election season have proven to be superficial (largely consisting of the opposition claiming government policies have failed and that they offer a greener or more effective alternative). Parties like to complain that companies receive a free ride while voters are paying for the energy transition or that ordinary folks are paying too much for energy. This is not entirely incorrect, but all parties essentially support the current policy and voters (at least in theory) do so as well so why the outrage? When one considers past domestic arguments or international comparisons, it is actually quite striking how much agreement exists regarding energy policy in Germany. All parties (although sometimes reluctantly) support the phase-out of nuclear energy. All parties state that the energy transition can be exported abroad, and that it will benefit Germany in the long-run. And, finally, all parties believe that there are problems with the current system which must be resolved. The Social Democrats, currently Germanys largest opposition party (although still far behind in the polls) are not proposing to entirely alter current energy policy; however, they do suggest that they can manage it more effectively. They make several key proposals. Firstly, comprehensive national responsibility for the energy transition, which is hard to do as it is close to impossible to achieve both legally and politically. German states play a key role in many issues related to the advancement of renewables. The second proposal is the creation of a single energy ministry - rather than the current situation of having two ministries fight about responsibilities in this field. This is a call that has been made before but which has never been implemented. Finally, the Social Democrats propose an energy committee in the Bundestag, plus a German Energy Council based in a future energy ministry which would coordinate efforts between all political and societal players. Both seem like feasible ideas but the effectiveness of these new bodies depends on the actual setup.

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In addition to this, the SPD has raised several issues which are undoubtedly important including the need for reform of the renewable energy law, renewing networks, and fostering research on energy storage. While offshore wind energy seems to be the preferred energy source, the SPD underlines that energy security is key and also advocates for the continued use of conventional energy such as coal and gas. The party calls for the construction of new gas plants, yet is more reluctant to embrace domestic shale gas production. The Green Party (a potential junior partner to the Social Democrats) has always been more skeptical of conventional energy sources (except gas as bridge energy) and is pushing for renewables to be developed more rapidly. Their set objective is that by 2023, 100 percent of electricity will come from renewables. They want the same to be true for heat supply and transportation by 2040. The Green Party regularly criticizes the four large German energy giants, while praising private citizens and public utility companies for their role in fostering renewables. The Liberals, Merkels current junior partner, are also calling for the renewable energy law to be reformed. They emphasize the importance of making the energy market an actual market. Rather than having the government pay a buy-back price for renewables, they would like to see the direct commercialization of this energy. They defend the exemptions made for energy-intensive industries, citing international competitiveness and the protection of growth. To them, energy efficiency should be a matter of incentives rather than coercion. In reality, however, they have shared the responsibility for energy policy over the past four years yet have been unable to bring about these changes. And, if they are part of a new government (which currently seems far from certain), there is no chance they will have more influence this time around. Angela Merkels CDU seeks to cut primary energy consumption in half by 2050. Moreover, they have set the target of increasing the share of renewables for electricity production to 80 percent by this date, compared to 22,9 percent in 2012. Lastly, they are pushing for greenhouse gases to be cut by 80 percent when compared to 1990 levels this target is also set for 2050. The party wants a balance between economic necessities and environmental needs. This is, generally speaking, good news for energyintensive industries facing international competition. Network extension is a big concern; the conservatives believe that the foundation has already been created. Other government policies on building restoration or energy savings infrastructure will remain in place if the party wins the largest share of the vote from the German electorate. Right now, all the signs indicate that this is the most likely outcome.

2013 GERMAN POLITICAL DIARY

F R O M T H E E X P E R T S I N A P C O S G E R M A N T E A M

KEY DECISION MAKERS

Angela Merkel (Conservatives): Chancellor, monitors developments carefully and understands that energy is a crucial field. Future: likely to be re-elected Peter Altmaier (Conservatives): Federal Environment Minister, is co-responsible for energy policy in the cabinet, but is also regarded as the driving force behind the energy transition. Future: has a good chance of keeping office if the Conservatives regain power Dr. Philipp Rsler (Liberal Party): Federal Economics Minister, shares energy responsibility with Altmaier. However, he would like to introduce further free market mechanisms to help manage the energy transition. Future: uncertain Jochen Homann: Head of the Federal Network Agency, plays a key role in network planning and network extension. Future: in power until 2015 MPs with energy focus in Bundestag: Pursuing leverage to influence government policy and are helping define party positions on the issue. German states: The premiers and state energy ministers play a key role in the Bundesrat, Germanys colegislative body. This holds particularly true for the larger states like North-Rhine Westphalia, Bavaria or Baden-Wrttemberg. Future: currently dominated by Social Democrats A Fool to be Entangled in Energy? Realizing that the Energiewende is a project that will endure irrespective of party politics, companies in the German market are either in a state of adjusting or eyeing new domestic opportunities. The four largest energy providers in Germany are trying to defend their market share by increasing renewables while simultaneously trying to maintain profitability. They are also trying to handle the nuclear phaseout. This is in no way an easy task. One of the most worrying scenarios for these companies is the rapid and extensive development of a more decentralized energy solution as strongly advocated by the Green Party. While technology companies have been very successful in getting more than one foot in the door for some of the larger new projects (such as network expansion or large renewable energy parks), investment opportunities still exist in many fields and many more will arise over the next few years. Energy efficiency solutions will still be in demand as public funds try to motivate individuals and companies into modernization projects. Furthermore, intelligent IT solutions to optimize energy use will be needed and LNG imports (along with the respective infrastructure) can probably become a booming enterprise. Finally, there exists a contentious debate regarding the storage of renewable energies. For this, research and development will receive federal funding; however, market-ready solutions are urgently needed. With regard to domestic gas production, much will depend on the political framework
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which is likely to be clarified after the elections with very different policies depending on who ends up winning. The German energy market is currently heavily regulated and thus is largely characterized by government planning. This essentially means it is dominated by a few well-established companies. Entering the market or expanding existing business is only really possible for those companies which offer truly innovative products and solutions. Understanding how to navigate the political process to ensure the advancement of meaningful products and services is challenging. However, when successful, there are good opportunities to build a long-term business in what is clearly a vital and promising market. Much depends on first understanding and then engaging the stakeholder environment, which often ranges from local authorities to state governments and national policymakers. Bypassing seemingly non-crucial players can end up creating severe additional costs in the long run, not just in an economic sense. Creating support networks within media and especially society for specific enterprises has proven to be a key aspect of creating momentum for energy projects. Energiewende has become a buzzword in Germany, but one should not overlook the fact that its fate depends on private enterprises and their solutions. The energy transition challenges more traditional approaches to energy, but it also creates opportunities for innovators. Yes, there are policy differences among German parties and yes, they do matter. But the direction of travel has been set and, for the right companies, the environment is consistent enough to become a good opportunity. ***
For more information on the German election campaigns or APCOs services in Germany please contact: Maximilian Knoth consultant APCO Worldwide Poppelsdorfer Allee 114 53115 Bonn - Germany Tel: +49 228.604.8514 Email: mknoth@apcoworldwide.com

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