First of all, to understand the nature of our discussion, let's have a look at the Germany's energy mix (in 2010) presented below:
In 2010 renewables accounted for 16% and nuclear for 22% of German energy mix. According to recent report by German Association of Energy and Water Industries (BDEW) renewables-produced energy accounted in the first half of 2011 for 20.8% (57.3 billion kWh) of energy consumed in Germany - increase of 4.8% within 6 months! Nota bene Ms Merkel's ambitious but seemingly achievable aim is to get to 35% level by 2022. Renewables structure for the first half of 2011 breaks down as follows:
In the first half of 2011, after introduction of Merkel's plan, Germany's energy mix changed as presented by this graph:
Nuclear's share will of course continue to decrease. Let me just remind you about recent commitment (influenced by Germany's government) by energy (and especially nuclear) mogul Siemens AG to stop its expansionary nuclear plans. Instead they will bet on solar and wind.
Coming back to our discussion with Michael, it focused mostly on his specialty -- on-shore windmill farms. The scheme of energy pricing for onshore farms-produced electricity in Germany is as follows. Investor who decides to build a farm has guaranteed fixed price from government to buy his or her energy. This price is being fixed each year on a simple basis: price for year to come is 10% lower than the current one. For 2011 it's fixed at 0.09 EUR (9 euro cents) per kWh of energy produced. Conversely -- in 2012 it will be 0.081 EUR. Just to compare it with other major energy sources -- according to Michael and my modest research -- kWh of electricity produced in Germany by coal plants costs around 0.045 EUR (4.5 euro cents) and by nuclear plants, slightly less, around 0.04 EUR (4 euro cents).
Having this information, we can plot a simple chart presenting scheme described above. There is one important assumption: the prices of energy produced by nuclear and coal plants are constant over time. This assumption is hardly defendable taken into account Brussels' plans of CO2 emissions reduction which will surely lead (in long-term) to lowered demand for coal on European market. In case of nuclear energy scenario may be very similar with Fukushima catastrophe and German decision in the back. The recent accident at a nuclear plant in France doesn't help either. Now let's have a look at it:
As may be clearly seen -- government fixed prices for windmill-produced electricity will equal the price of coal and nuclear energy relatively soon -- in 2018/2019. Without our assumption it may be, say, 1-2 years later.
The big question now is: Will windmill farms in Germany manage to increase their profitability in time? I don't know. Michael when asked if his company would still invest in onshore farms with electricity prices set by market, answered straightforward:" Nein."
According to UK estimates cost of 1 kWh produced by onshore windmills there is around 6-7 euro cents. If we assume the same costs for Germany, there is a profit of 1-2 euro cents in 2012 and 0 euro cents in 2014! Of course windmills are being constantly enhanced which will surely lead to lowering production costs -- but will it be in time? Recent pace of improving cost effectiveness is rather disappointing. Moreover, old windmills in Germany are being replaced by new, bigger ones with larger capabilities. Renting or buying new lands for new farms doesn't take place -- proving that it's rather uneconomic.
With a respectable 7.5% in Germany's energy mix windmill farms are seen by environment-friendly Germany as a big chance (or rather a hope?). The only problem is the fact that windmills produce electricity not when needed but when good wind blows.
There is one solution to it -- artificial dam lakes (for example Kaprun Stausee in Austria). Those solutions are located in mountains due to height differences. Cheap energy (e.g. from nuclear plants) is used for pumping water up from lower to higher lake. In peak time, when electricity is expensive, water is pumped down to lower basin generating electricity with help of turbines. SPIEGEL reports that RWE and EnBW already announced plans to build such a huge dam lake in Hochschwarzwald.
OK. Let's try to link it with nuclear abandonment in Germany. According to DER SPIEGEL, an energy-exporting country turned overnight into energy-importing one. Today around 1.2 GWh of electricity flow everyday from nuclear plant Temelin in Czech Republic to Germany -- showing only shift of nuclear risk from one country to another. Thanks to already mentioned artificial dam lakes Austria (an energy net importer) has begun exporting energy there too. Other energy exporters to Germany include France (nuclear) and Poland (coal). Higher costs of energy in Germany are already a fact -- prices of electricity at European Energy Exchange in Leipzig have risen in previous months by around 10%! Furthermore, Federal Statistical Office recons that Germany's GDP in Q2 2011 was lower by 0.1% mostly due to shutting down of number of nuclear plants.
Let me conclude by making reference to Prof. Ferdinand Banks' statement. He claims that in long-term Germans will have to come back to atom. His reasoning is rather simple but convincing: they will not accept higher costs of electricity. Provided they are reasonable (what's probably true, showed by their rising opposition to German bail-out packages), they will not accept lowered living standard because of some political decision-making.
Feel free to comment. Any discussion will be answered and highly appreciated.