May 23, 2012 / 10:55 AM / in 5 years

Merkel vows to push post-nuclear energy strategy

BERLIN (Reuters) - Chancellor Angela Merkel agreed with Germany's state premiers on Wednesday to step up efforts to expand the power grid and resolve a dispute over solar incentives as she tries to rescue plans for a switch away from nuclear to renewable energy.

Merkel said her vision for an energy shift in Europe's biggest economy would require a lot of work and coordination but all parties at the three-hour talks in Berlin had vowed to work together despite clashing interests.

"The energy switch is a Herculean task which we are all committed to," Merkel said after the meeting with Germany's 16 regional leaders, adding that participants agreed energy supply must be secure, environmentally sustainable and affordable.

"We have a lot of work ahead of us but we agreed to work together," Merkel told reporters.

Since Merkel's abrupt policy reversal last year to shut more than half a dozen nuclear plants and speed up the nuclear phase-out after Japan's Fukushima disaster, her government has failed to set out a clear plan to manage the shift.

Industry has warned of power shortages and companies are experiencing problems with plans for offshore wind power due partly to the insufficient grid network.

Merkel suffered another setback earlier this month when proposed cuts in subsidies for the solar industry were suspended by the Bundesrat upper house, where the federal states are represented, meaning weeks more of tortuous negotiations.

The chancellor stressed she wanted to get a swift deal on the planned cuts to solar feed-in-tariffs of between 20 and nearly 40 percent.

"Time is pressing. We have set up a working group and we are aiming for an agreement before the summer break," said Merkel.

States which have built up strong solar industries oppose the cuts, saying they will destroy jobs and hit local economies.

The government aims to boost renewable energy generation to at least 35 percent by 2020 and 80 percent by 2050 from about 20 percents now.

Slow Progress

The meeting achieved little in concrete terms other than a commitment to work together and an agreement on a loose timetable, including twice yearly meetings to evaluate progress.

Merkel also needs the cooperation of utilities, regulators and lobby groups whose clashing interests have undermined attempts to thrash out a strategy in the last year. Bickering between government ministries, run by different parties in her centre-right coalition, is a further headache.

Merkel said she wanted a quick deal on incentives for building insulation, another area of dispute.

In coming days operators would present a plan for grid expansion which would flow into a binding government proposal by the year's end, she said.

Inadequate transportation and distribution networks are one of the main hurdles in boosting renewable sources. Questions about the liability for delays or damage and who should bear the burden of the immense up-front financing are deterring potential investors and the offshore wind sector is a major victim.

The BDEW power industry association said it was "cautiously optimistic" after the meeting, adding the federal government and 16 states were moving towards a closer integration of their individual energy policies.

"It is pleasing that the government and states want to better coordinate grid expansion and renewable energy (plans)," said BDEW chief Hildegard Mueller.

"However, now we need concrete action," she added.

Fears of a power gap are also a worry for Merkel before next year's federal election.

Utilities and grid operators have warned the switch away from nuclear could create a power gap of 10 gigawatts by 2020 - more than 10 percent of the maximum national load demand.

Paradoxically, Germany is looking to return to fossil fuel power stations, especially gas plants which are friendlier to the environment than coal plants, to plug the gap.

Some states, such as southern Bavaria which has been harder hit by the switch-off of older nuclear plants than some other states, are worried about shortages.

State premier Horst Seehofer earlier warned Bavaria would go it alone if there were no quick solutions, including the construction of new gas plants.

"Then we will create a 'Bavaria utility'," he told the Sueddeutsche Zeitung.

Other states have different priorities. While eastern states want to support their solar industries, some northern states are pushing for a regulatory framework to enable them to invest in offshore wind.

Additional reporting by Markus Wacket, Stephen Brown and Vera Eckert in Frankfurt; Editing by Jon Hemming

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