• Germany is headed for yet another Energiewende
  • This one might be even more disastrous
  • Will Britain follow a similar (misguided) course?

The economy is in recession. Energy and food prices have surged. Commercial and residential real estate markets have largely seized up. The government has lost much public support and faces the prospect of losing power at the next election.

No, I’m not talking about the UK. I’m talking about Germany.

Although not German myself, I speak the language fluently. I lived, studied and worked in the country for about five years. In my youth, I also studied German history and philosophy as elective topics alongside my core focus on international economic and financial history.

While this hardly qualifies me as a German “expert” I have remained a keen observer of the country ever since I left and settled in the UK in the early 2000s. I have also remained in close contact with a handful of German business executives and their families.

And so, when I claim that no other major Western country is currently going through more economic and political upheaval than Germany, I am not just making some wild, unfounded assertion.

Germany, the “unfit” man

Let’s start with the poor state of the economy, which has been in or near recession for the past two years. As the Telegraph recently reported:

Germany is not the sick man of Europe, but an unfit man in need of structural reforms to strengthen its competitiveness, German Finance Minister Christian Lindner said on Monday.

“Some say Germany is the sick man of Europe, I don’t think so,” Lindner said at an event at the London School of Economics. “We are an unfit man.”

The economy, Europe’s biggest, was the weakest among its large euro zone peers last year, as high energy costs, feeble global orders and record-high interest rates took their toll.

That led some economists to call Germany “the sick man of Europe.”

At 0.9%, German economic growth is expected to remain well below the average of 1.4% for advanced economies in 2024, according to the forecasts of the International Monetary Fund.

The minister said the German economy is “healthy, but not in the best shape,” comparing it with the British economy. “Both economies are in a downturn.”

A large part of this is due to a lack of affordable energy. Although never a nuclear power producer on par with neighbouring France, Germany did have a meaningful nuclear power capacity for years before it decided to eliminate nuclear generation altogether following the Fukushima accident in 2011.

The Energiewende, or energy transition to green and renewable power, was expected to compensate for the loss of nuclear. Well, it hasn’t. For one, the weather has refused to cooperate. There has been more cloud cover, rain and snow than expected, resulting in less solar output than forecast. There has also been a lack of wind, resulting in less wind farm output.

Most are well aware that the weather can be unpredictable, especially when looking days or weeks into the future. Apparently those planning the Energiewende didn’t take the chronic unpredictability of the weather into account.

Some say the disappointing lack of sun and wind is due to “climate change”. But hold on now: those tend to be the same people who have been pushing for an increase in wind and solar power all along. Are we to believe that they failed to plan properly for their own climate change forecasts?

Certainly this wasn’t due to a lack of funds. The amount of money that has been thrown at the Energiewende has been colossal:

In 2019, Germany’s Federal Court of Auditors determined the program had cost €160 billion over the last 5 years and criticized the expenses for being “in extreme disproportion to the results.” Despite widespread initial support, the program is perceived as “expensive, chaotic, and unfair”, and a “massive failure” as of 2019.

Russian fossil gas was perceived as a “safe, cheap, and temporary” fuel to replace nuclear power in the initial phase of Energiewende, as part of the German policy of integrating Russia with the European Union through mutually beneficial trade relations. German dependency on Russian gas imports was presented as “mutual dependency.”

From “mutual dependency” to simple “dependency”

Well, we know how that “mutual dependency” has worked out. Russia invaded Ukraine in 2022. Sanctions were imposed on Russian exports, including energy. Some months later, the Nord Stream gas pipelines from Russia to Germany were blown up.

But it is important to note that the Energiewende had demonstrably failed to deliver on its promises prior to the onset of war. As reported by the IEEE in 2020:

The initiative has been expensive, and it has made a major difference. In 2000, 6.6 percent of Germany’s electricity came from renewable sources; in 2019, the share reached 41.1 percent. In 2000, Germany had an installed capacity of 121 gigawatts and it generated 577 terawatt-hours, which is 54 percent as much as it theoretically could have done (that is, 54 percent was its capacity factor). In 2019, the country produced just 5 percent more (607 TWh), but its installed capacity was 80 percent higher (218.1 GW) because it now had two generating systems.

The new system, using intermittent power from wind and solar, accounted for 110 GW, nearly 50 percent of all installed capacity in 2019, but operated with a capacity factor of just 20 percent. (That included a mere 10 percent for solar, which is hardly surprising, given that large parts of the country are as cloudy as Seattle.) The old system stood alongside it, almost intact, retaining nearly 85 percent of net generating capacity in 2019. Germany needs to keep the old system in order to meet demand on cloudy and calm days and to produce nearly half of total demand. In consequence, the capacity factor of this sector is also low.

It costs Germany a great deal to maintain such an excess of installed power. The average cost of electricity for German households has doubled since 2000. By 2019, households had to pay 34 U.S. cents per kilowatt-hour, compared to 22 cents per kilowatt-hour in France and 13 cents in the United States.

No doubt the hardcore climate lobby and others who stand to profit from taxpayer-subsidised power generation will keep pushing the Energiewende forward regardless of cost. But the push-back from the public against rising energy bills and the generally weak economy has grown dramatically over the past two years and is now having major political effects, as we will explore in part 2 tomorrow.


John Butler
Investment Director, Fortune & Freedom