Kent Moors: The moment Germany (NYSEARCA:EWG) announced its highly publicized decision to phase out nuclear energy in the wake of the Japanese triple disaster; observers began to ask one very important question.
Just what energy source would replace such a huge swath of power in Europe’s dominant economy?
The short-term solution had to be natural gas.
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But this would make Germany more dependent upon imported energy, especially from Russia.
In that sense, the nuclear phase-out made the Nord Stream pipeline – from Russia, under the Baltic Sea, to northern Germany – absolutely essential.
Today, the first line of the twin pipeline is already in operation. The second should be on line at the end of next year (if not sooner).
Then there is the other Russian project – South Stream. This one intends to move Russian and Central Asian gas into Southern and Central Europe.
Much of that will also reach Germany.
In addition, several pipeline projects are vying for the excess production from the second phase of the Azerbaijani Shah Deniz offshore development in the Caspian Sea.
Included among these is Nabucco, a venture to bypass Russia and transport gas into the Baumgarten hub in Austria for ongoing distribution.
Nabucco has long been the European Union favorite, but it has been unable to attract sufficient supplies. Three other pipeline proposals also are attempting to secure the Caspian gas for transit to Europe.
But there is a problem for Germany in all of this.
It does not want to form an increasing dependence upon imported gas to power its economy.
And this sentiment is driving one of the biggest alternative energy revolutions in recent memory.
The German Push Toward Wind and Solar Power
The 17 currently operating nuclear reactors in the country provide about 20% of the national electricity needs. Any replacement of those plants (where capital expenses are already sunk) will add significantly to the end costs of energy.
That means a political decision following the Fukushima Daiichi disaster one year ago ends up costing the average German citizen even more to secure what is already among the most expensive electricity in the world.
Germany does have shale gas.
But the furor over nuclear power is paralleled with a similar environmental concern regarding the dangers of fracking, a process of pumping water and chemicals under high-pressure to break open the rock and free the gas.
There are now four U.S. examples of seismic anomalies resulting from the combination of fracking and deep horizontal drilling.
And they have not instilled much confidence for the markets.
Instead, what the Germans are deciding to do is already being called the biggest restructuring of the national energy landscape since the end of World War II.
The government will initiate a campaign valued at more than $260 billion to harness wind and solar power.
The price tag is staggering. It is already pegged at more than 8% of the nation’s entire gross domestic product (GDP). And it could move even higher.
This will involve huge wind farm areas in the Baltic and massive new high-power transit lines nationwide. The goal is to have at least 35% of the nation’s power needs generated from renewable sources by 2020.
However, the developments of this massive policy shift are even more exciting.
All Eyes on Germany
Germany has become the first nation to really tackle the rising energy crisis. To succeed, the country will need new technologies and fresh approaches, some not even yet on the drawing board.
The most important European market will transform into a massive energy laboratory. But success is hardly certain.
Either way, all eyes will focus on this huge German experiment.
It will cost German consumers even more than they pay now - some analysts say as much as 60% more. It holds captive the survival of a government, political careers, industrial prospects, and continental-wide financial policy.
As the Eurozone wrestles with debt contagion and questions the strength of cross-border banking, the main lynchpin of that zone – Germany - is embarking on a very ambitious and risky path.
For those accustomed to seeing renewable energy sources such as solar, wind, geothermal, and even biofuels dependent upon heavy government subsidies, the German experiment will be a significant change.
The large public sector injections of tax revenues and credits will still be there.
Germany will have to increase taxes to pull off this grand departure. That could make it the most expensive government debacle in recent memory. What changes is this.
A Solid Market for Alternative Energy
For the first time, a huge, guaranteed market will be opening up for alternative energy.
It will require new developments, infrastructure, improvements, and breakthroughs to make it work.
In short, there will be a new playing field for well-focused, forward-looking, entrepreneurially driven energy firms.
Unlike any other alternative energy push in memory, this one will have both government support and an assured, expanding need.
In the months ahead, wind power pioneered in Denmark and major advances in solar from China
, along with a number of other ingredients introduced geographically in between, will converge on Germany.
That will translate into some huge profits over the next decade, both from new applications in Germany and the export potential to other countries.
A brave new world is underway for retail investment’s next big return sector.
Related: Guggenheim Solar ETF (NYSEARCA:TAN), ISE Global Wind Energy Index Fund (NYSEARCA:FAN), First Solar (NASDAQ:FSLR), Trina Solar (NYSE:TSL), Yingli Green Energy (NYSE:YGE), JA Solar Holdings (NASDAQ:JASO).
Dr. Kent F. Moors is an internationally recognized expert in global risk management, oil/natural gas policy and finance, cross-border capital flows, emerging market economic and fiscal development, political, financial and market risk assessment. He is the executive managing partner of Risk Management Associates International LLP (RMAI), a full-service, global-management-consulting and executive training firm. Moors has been an advisor to the highest levels of the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 25 countries and has appeared more than 1,400 times as a featured radio-and-television commentator in North America, Europe and Russia, appearing on ABC, BBC, Bloomberg TV, CBS, CNN, NBC, Russian RTV and regularly on Fox Business Network.
Moors is a contributing editor to the two current leading post-Soviet oil and natural gas publications (Russian Petroleum Investorand Caspian Investor), monthly digests in Middle Eastern and Eurasian market developments, as well as six previous analytical series targeting post-Soviet and emerging markets. He also directs WorldTrade Executive’s Russian and Caspian Basin Special Projects Division. The effort brings together specialists from North America, Europe, the former Soviet Union and Central Asia in an integrated electronic network allowing rapid response to global energy and financial developments.
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