News Bulletin
Daily News Portal

Germany set for power surge as industry transforms


A Thema consulting group report shows Germany had a recent demand high of 536 TWh in 2012 before falling to 490 TWh in 2022 – when price shocks came after Russia’s invasion of Ukraine.

German industry makes up about 200 TWh of that demand, with about half of that figure for heavy industry.

The push by Europe’s biggest economy to slash carbon emissions will push energy-intensive sectors like cement, chemicals and steelworks to find cleaner, more efficient ways to produce. At the same time, advancements in machine-learning technology and data centres will require more electricity.

For Germany, the question is not which industries disappear, but rather whether they are replaced by ventures that help sustain the economy, according to Gunther Kegel, president of the German Electro and Digital Industry Association.

Chemical processes, for instance, will likely shift to electrification, while sectors that play to Germany’s strengths will continue to do well, such as machine production or electronics.

“The technologies of the electric and digital industries are real game changers for our climate neutral future. But their potential can only be realised if it is economically attractive to put them to use,” Kegel said last week at an industry event in Berlin, where he highlighted the need for lower power prices.

Niclas Wenz, an energy expert at the German Chamber of Commerce and Industry, reckons there was a point during the energy crisis when about 20% of German high energy-intensive industry activity had shut down. Since then, some activity has returned, but the figure is still down about 15% below the starting point.

However, even if industry’s fears about operations moving to lower-tax destinations come true, boosted power demand for electrification for everything from electric cars to new industrial processes will keep electricity demand rising, forecasts show.

Government projections forecast a doubling of overall German power consumption by 2045 to around 1,000 TWh/year. Within that, industrial demand would be boosted to 300 TWh/year, although an economy ministry spokesman said these projections are “continuously… updated based on new insights”.

“We still do expect, in the long run, an increase in electricity demand,” said Tobias Federico, of Montel subsidiary Energy Brainpool. The group’s projections also forecast eventual yearly demand of 1,000 TWh, assuming current government policy is maintained.

Transformation
Henrik Meincke, chief economist at the German Association of the Chemical Industry, said Germany will most likely see a shift in kinds of energy consumed. The chemicals industry is working to find ways to phase out gas and other fossil fuels in favour of electricity for heating processes.

“Overall, we are going to see a shift. We will use less energy, but power consumption will multiply.”

The question will be how much value is created with the energy used.

“We have to get away from the perspective of worrying about how much production we lose to looking at how much value creation we lose,” said Wenz, arguing for efficiency. He noted that Germany’s energy-intensive industry was responsible for about 17% of value creation in manufacturing, but around two-thirds of sectoral energy demand.

Industries like electronics and car manufacture might continue to do fine, representatives say, because of the low power needs of those sectors.

But Loic Geipel, a climate and sustainability expert with the German Association of the Automotive Industry, points out that the car business will in future rely on setting up semiconductor and battery factories as the field goes electric. But those kinds of factories are especially energy-intensive, meaning the unattractiveness of Germany as a site for business will continue to be a hurdle.

Flight risk?
Experts worry the temptation to flee Germany will stay high so long as power prices remain high compared to other European countries.

Power prices spiked to record highs following Russia’s invasion of Ukraine, with the benchmark front-year contract peaking at EUR 1,050/MWh in August 2022. Current front-year baseload prices have since plunged, hovering near EUR 100/MW but still above the average of around EUR 52/MWh for 2021 and 2020 at this time of year.

Wenz said he sees little hope of current prices coming down in the future.

But he argued that the real issue is not only the market price, but rather overall costs being also passed on to consumers. That includes the wholesale prices, taxes, transmission fees and bureaucracy costs.

“We’re heading, so to speak, from an energy price crisis into an energy cost crisis,” he said. “It’s the peripheral costs and uncertainties of the energy transition that at the moment are making this location unattractive and holding off investors.”

Nor are industry costs likely to come down, warns Geipel, noting the scope of investment needed in Germany to build new dispatchable power plants. 

Power grids pose a similarly significant challenge, as new connectors are needed to link renewables produced in the north to industry based heavily in the south. It is unlikely industry will not be asked to bear some of those costs, Geipel said.

“We’re talking about EUR 500-600bn that has to be invested into power networks in the coming years through 2045.”



Read More:Germany set for power surge as industry transforms