Industry-funded report calls for changes to German energy policy

Wed Feb 26, 2014 6:01pm EST

* Costly, misses CO2 emissions cut targets, IHS says

* Seeks greater role for shale gas, mature renewables

* Says staying on current track risks Germany falling behind

* Says reform could safeguard exports, jobs, investments

By Vera Eckert

FRANKFURT, Feb 27 (Reuters) - Germany's current policy of rapidly deploying renewable energy should be redesigned to prevent its industry from losing global market share because of high power costs, a report by international think-tank IHS said on Thursday.

The research by IHS, a global research, analysis and specialist information group, was funded by companies in Germany's chemical and oil and gas industries such as BASF , Bayer and Exxon Mobil and national business federations.

One of Chancellor Angela Merkel's most significant domestic policies, known as the Energiewende, has been to shift Europe's biggest economy out of nuclear power and away from fossil fuels to a greater share of electricity from renewables.

The report said that if the policy was changed to focus on domestically produced gas and the expansion of technologically mature renewables such as onshore wind and solar power, Germany could still shift to low-carbon energy while reaping more benefits from exports, jobs, incomes, tax and royalties.

"Germany's current path of increasingly high-cost energy will make the country less competitive," Dan Yergin, IHS vice chairman who headed the study, said in a phone interview.

"That's why we're trying to describe a path to a more competitive Energiewende and one that will have greater durability," he added.

The recommendations comes as the government is urgently seeking to reform its renewable energy law to bring down costs.

Germany's industrial power prices have risen around 60 percent since 2007, while those in the United States and China have risen less than 10 percent.

This has hit manufacturers that accounted for 21 percent of Germany's economic output last year, one of the highest shares for a developed country, IHS said.

North America has become a more competitive location for manufacturing and exporting as its domestic shale gas boom cuts gas prices to one-third of Germany's.

IHS said the hasty phase-out of some German nuclear plants, slow progress on energy efficiency, and a greater reliance on coal-fired power had driven up carbon dioxide emissions by utilities, the opposite of what was intended by the Energiewende.

It recommended a set of policy changes up to 2040, especially to reverse the declining role of gas, which is now unprofitable in power generation even though it emits half the CO2 of coal.

Domestic shale gas production also should be developed, rather than being shunned due to environmental concerns and political opposition, it said.

Germany also should cut its targets for an expensive build-up of offshore wind power, which the government has already reduced to 6.5 gigawatts (GW) by 2020, IHS said.

Low prices for coal and carbon permits and the shutdown of gas plants led to a 1.5 percentage point increase in German coal-fired power production to 45.5 percent of the total last year, figures from industry group BDEW show.

According to these figures, Germany's emissions rose slightly last year, even though consumers paid more than 20 billion euros ($27.5 billion) to support renewables.

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