Despite ongoing talk across Europe about weaning off coal, European coal-generated power production grew by around 9% in September. With winter cold approaching and Europe’s energy crisis far from over, that growth may well continue, and Germany, specifically, is once again turning to its coal fleet as an energy security failsafe. Germany’s cabinet has decided, for the second year running, to bring several mothballed coal plants back online to buttress the rest of the nation’s coal fleet to replace scarce natural gas and moderate prices during periods of peak demand. Germany’s ongoing energy crisis has entered a new phase. Concern is less about will there be physical gas shortages but rather the extraordinary cost of gas and electricity prices and the related economic impacts.
While European gas and electricity prices have come down from their peaks during the height of the energy crisis, thanks largely to cratering demand, prices remain bitingly high. Wholesale electricity prices are more than triple what they averaged between 2010 and 2020.
And these high prices have walloped German industry. In little more than a year, the German economy has gone from powerhouse to slug. Germany is now the world’s worst-performing major developed economy with the expectation that years of growth will be replaced by at least a year of economic contraction.
Picking the Wrong Bridge
German energy policy, which embraced cheap Russian gas in lieu of existing coal and nuclear capacity, created an extraordinary economic vulnerability.
In Germany’s race to an idealized green future, it simply picked the wrong bridge with disastrous consequences. How different German and European energy security would have been if they had prioritized dispatchable fuel diversity, using some of the world’s newest and cleanest coal capacity, instead of prematurely closing it and binging on Russian gas.
Coal rose to the occasion during Germany’s hour of need, at times meeting nearly half of German power demand last winter. But the country seems determined once again to abandon energy pragmatism.
The Germans remain committed to completely phasing out their coal fleet by 2035, with significant retirements coming much sooner. Astonishingly, they have proposed building 25 GW of natural gas generating capacity in its place to backstop renewable intermittency. Instead of working to disentangle themselves from the volatility and energy insecurity of global gas markets, the Germans are proposing to deepen their reliance.
Germany is already facing deindustrialization from a year and a half of sky-high energy prices with energy-intensive manufacturers shuttering or openly talking of relocating. And now the policy path forward seems to promise more pain.
American policymakers must learn from Germany’s ongoing energy missteps. Energy security and affordability, underpinned by dispatchable fuel diversity, cannot be taken for granted. Or, worse yet, torpedoed by extraordinary short-sightedness and environmental zealotry.
Through its own policy miscalculations, the U.S. is racing towards energy supply shortages, overreliance on natural gas for dispatchable power and price shocks that could freeze any efforts to re-shore industry and rebuild our manufacturing base.
The stakes are enormous. Just ask German industry.
Conor Bernstein is a spokesperson for the National Mining Association, the industry’s trade group based in Washington, D.C.