• Amid recession and war, German opposition parties are rising in the polls
  • The government is now pursuing a hydrogen energy dream
  • This might go over with voters as well as a lead balloon, quite literally

Part 1 of this series explored how poorly Germany’s decades-long rush into green energy had turned out even prior to the outbreak of the Ukraine war. Now we turn our attention to the political fallout. There is much Britain could learn from the mistakes, old and new, made by the former EU economic powerhouse.

From Energiewende to Politikwende

Recent polls show that the government is increasingly unpopular. Already a historically weak coalition when formed following the last federal election in 2021, the “traffic light” government of the SPD, FDP and Green parties faces an uphill battle to stay in power beyond next year.

It is not at all clear what coalition might replace it, however, as no party has a meaningful lead at present over the others. It is thus impossible to predict what the results are going to be and what they might mean for energy or economic policy.

Already this year there will be the next European elections for the EU Parliament. These might give some indication of what lies ahead for next year. But they might also result in the EU-sceptical and anti-war Alternative für Deutschland (AfD) party gaining more seats.

Recently, the leader of the AfD, Alice Weidel, praised Brexit and said that this set an example for what Germany might be able to do in future. As reported in the Telegraph and Financial Times:

Alice Weidel said Britain was “dead right” to leave the European Union and that Germany could hold its own vote.

Last month, she told the Financial Times: “If a reform [of the EU] isn’t possible, if we fail to rebuild the sovereignty of the EU member states, we should let the people decide, just as Britain did.”

Should Germany send more AfD members to the European Parliament this year, it would be an ominous sign. But is this really so surprising when the economy is doing so poorly, energy prices are so high and the highly unpopular war in Ukraine is still ongoing?

Dancing the “Lignite Limbo”

The government did try to buffer the twin energy shocks of the failing Energiewende and the outbreak of war by ramping up traditional, coal-based power generation. But trying to placate the climate lobby while turning back to dirty coal was really quite the “Lignite Limbo”: it was never going to last for long. The government had to find an expedient way to wean itself off its most prominent domestic if dirty energy source.

With Nord Stream gone and much land-based gas transit infrastructure damaged or destroyed due to the war, doing some sort of deal with Russia was rendered moot. So the government turned to its NATO partner, energy powerhouse and global naval superpower, the US, for assistance in ramping up production and deliveries of liquified natural gas (LNG) from abroad.

While not exactly “green” or “renewable” at least LNG power production is not dirty and toxic, as is the case with lignite. Global LNG capacity is an order of magnitude higher today than in the past, ensuring sufficient supplies. And global US naval supremacy implies that those supplies cannot easily be threatened by Russia or any of Germany’s enemies.

Thus with a new source of gas imports now in place, Germany is taking steps to ramp up gas power generation capacity to plug the many gaps in the highly sub-optimal Energiewende electrical grid. The government has announced a major new initiative to build out 10 gigawatts of new, gas-fired capacity at a cost of €16 billion.

The plan has already come under much criticism from the climate lobby. As reported by the Clean Energy Wire:

Germany is set to hold auctions to support the construction of new gas-fired power plants in the short term, which would then be converted to run on hydrogen in the mid-to-late 2030s, the ruling coalition said. The plants are considered crucial to guarantee electricity supply security as the share of intermittent renewable energy increases and coal is phased out. By 2028, the government wants to have a capacity mechanism in place, ensuring a business case for the power plants. Energy industry association BDEW welcomed the announcement, but called for clarity on funding volume, the timeline for the auctions and the location of the new gas units. The renewables industry and environmental NGOs criticised that converting the plants to use hydrogen would have to happen much sooner than planned by the government.

It seems nothing is ever quite good enough for the climate lobby. Like a petulant child, they want clean, green, renewable energy and they want it NOW!

The devil, as always, is in the details

Perhaps unsurprising is that the promise to eventually switch over to hydrogen lacks any supporting details. Where will the hydrogen be sourced? How will it be transported and stored?

Today, the most common and affordable way of producing hydrogen at scale requires nuclear power. By implication, Germany is going to become ever more dependent on nuclear power which, if not generated at home, is going to need to be sourced from abroad. Is the US going to be a primary source of that too? Will the US Navy ensure safe hydrogen transport across the oceans? Or will giant zeppelins carry the hydrogen by air instead?

There seems no other option. Nuclear is simply too unpopular. Russian gas is unavailable indefinitely. LNG is now on tap but not green or renewable enough for the hardcore climate cultists. And so, the government has decided to stake Germany’s energy future on the “Hydrogen Hindenburg”.

If that sounds like complete nonsense, you’re right. The only plausible explanation for the above series of unfortunate energy events is that they represent a triumph of geopolitics over physics.

And no, this is not going to end well for Germany. Britain should watch and be wary. Perhaps some key lessons can be learned and a different course plotted.

Failing by example

Perhaps Germany is actually doing us a big favour: providing a perfect example of how a large, prosperous, advanced, democratic country can run itself into the ground through pathological energy masochism. Britain can watch, learn and find a better way forward.

But if the continuing pursuit of climate folly is inevitable, what can investors do to take advantage?

The opportunities are vast. Misguided energy policies have distorted not only generation but also transportation. There are some who believe that the world’s modern cargo fleets can retrofit to the age of sail.

Yes, the wind is free. But as I have written before the wind is also unpredictable. Coal and diesel are far more reliable. Were that not so, the global transition away from wind-powered marine cargo transport might not have happened as quickly as it did following the invention of highly efficient marine engines in the early 20th century.

History demonstrates that, when politics clashes with physics, the latter ultimately wins. It might take a while, but smart investors can stay one step ahead of the energy masochism mayhem and potentially profit in the process.

John Butler
Investment Director, Fortune & Freedom