Ukraine spotlights German priority: energy switch

The crisis in Ukraine has added an extra dose of uncertainty to German Chancellor Angela Merkel's biggest domestic project: shifting the country from nuclear to renewable energy sources.

Merkel launched the drive to transition the country away from nuclear after Japan's 2011 Fukushima disaster. Since then, the 'Energiewende' - roughly, 'energy turnaround' - has created increasing headaches.

Now, the tensions with Russia could complicate the plans further.

Germany, other European countries and the U.S. have slapped some sanctions on Moscow and threatened to impose more. The problem, however, is that Germany and several European economies depend heavily on Russian energy. Germany gets about a third of its natural gas and crude oil from Russia.

Merkel is still pushing ahead with the plan to shift away from nuclear energy. But if the situation with Russia escalates and Germany decides to try and reduce its reliance on Russian gas, there could be problems staying on track.

WHAT'S HAPPENED SO FAR?

Deciding to switch off nuclear reactors by 2022 was popular in Germany. But readying Europe's largest economy to switch power sources has proven complicated and, at least until Merkel's new 'grand coalition' of right and left took office in December, a recipe for political gridlock.

Germany's coast and flat northern plains offer plentiful wind power, but planning the ugly lines to get that electricity to the southern industrial heartland is hitting resistance. A subsidy system meant to build up renewable energies is causing mounting problems.

'Make no mistake: the world is watching with a mixture of incomprehension and curiosity whether and how we will succeed in this energy turnaround,' Merkel told lawmakers in January as she set out her priorities for the next four years. 'If we succeed, then I am convinced that it will be another German export hit.'

WHAT'S THE PLAN?

Merkel's ambitious plan is for renewable energies including wind and sun to make up 40-45 percent of Germany's energy mix by 2025, compared with just under a quarter now, and 55-60 percent by 2035.

Critics say it's not green enough, though: coal and lignite - decried as dirty by environmentalists - accounted for 45.5 percent of Germany's energy output last year, up from 44 percent in 2012, as nuclear energy dropped to about 15 percent from more than 20 percent at the time of Fukushima.

'The current path of the Energiewende is neither competitive nor low-carbon,' Daniel Yergin, vice chairman of the research and analysis group IHS, said recently. 'Costs are rising. And so are CO2 emissions, with coal's renaissance in the fuel mix to replace nuclear and balance out the renewables.'

HOW DOES THE UKRAINE CRISIS COMPLICATE THINGS?

If Germany makes its goal of having 80 percent of its power come from renewable sources by 2050, there is no question it will add to the country's energy security. But along the way, as it takes nuclear power plants offline and builds up its renewable network, the country remains reliant on fossil fuels - and that means Russia.

Germany gets some 35 percent of its natural gas and oil from Russia, as well as significant quantities of coal, a dependency that weakens Germany's energy switchover plan, according to Hans-Werner Sinn, a prominent economist.

'It can't work without Russian gas,' he said.

Alexander Rahr, research director of the Germany-Russia Forum think tank, notes that as nuclear power has been phased out, Russian coal 'has taken on a more important role for Germany.'

Right now it doesn't seem likely that Russia would shut down its gas pipelines - or that Germany and other western European nations would include fuel supplies in any economic sanctions - but the situation in Ukraine does have people talking about 'what if?' Merkel herself conceded last week there is 'some unease' among European leaders about Russian gas, but also noted 'even in the Cold War the gas, the oil kept flowing.'

WHAT'S AT STAKE?

Germany's priority is to ensure that energy-hungry companies such as steelmakers, chemical manufacturers and automakers remain competitive globally. The issue requires urgent attention because renewable energy subsidies paid by all consumers are pushing up their bills - the costs are expected to total 23.6 billion euros ($32.5 billion) this year. Companies have enjoyed sweeping discounts on those subsidies, but the European Union's executive Commission is investigating whether that's unfair.

The conservative Merkel's new vice chancellor, Economy and Energy Minister Sigmar Gabriel, is finalizing plans to reform the system. Still, he faces blowback from regional leaders in his own center-left Social Democrats over proposals to cut subsidies for new wind-power facilities and make firms that produce their own electricity share the cost of helping expand renewables.

'We simply have a gigantic problem in competition with the United States,' Gabriel said this week. 'Electricity prices there are 50 percent of what they are in Europe. All of Europe has a competitive disadvantage, and we Germans must take care that we don't add a disadvantage of our own.'

One thing that's unlikely to help anytime soon: fracking for shale gas. The process, which involves blasting rock deep underground with water, sand and chemicals to release trapped oil and gas. Germans, like many other Europeans, view the industry with suspicion because of environmental concerns.

POLITICAL HOPES

For Merkel's governing alliance of Germany's two biggest parties and traditional rivals, 'the focus is clearly the energy switchover,' said Gero Neugebauer, a political scientist at Berlin's Free University. Gabriel in particular has a lot riding on it: succeed, and he could make a strong candidate for chancellor in 2017. It's unclear whether Merkel will seek a fourth term or let another conservative run.

Gabriel's aim is to fix voters' impression that his Social Democrats lack economic competence, Neugebauer says. Criticism that his energy plans aren't green enough doesn't worry him, he added - 'he is not a Green.'