Germany loves renewable energy (and coal)

Germany has a rather unique problem when it comes to its mix of fossil fuel and renewable energy. While we hear a lot about cheap natural gas, in Germany the cost of generating power from natural gas is so expensive that for every megawatt-hour produced, utilities lose 12 euros. In fact, EON SE, which has a fleet of gas powered generators, is the worst performing stock in Germany’s benchmark DAX Index.

Germany has extremely ambitious renewable energy targets and has made big investments in wind and solar. It’s also in the process of shutting down its nuclear plants as it moves toward it 40 percent renewable target by 2020 and its 80 percent by 2050 target. Pretty amazing for the fourth largest economy in the world.

Unfortunately, coal is still very profitable in Germany, taking in 10 euros of profit for every megawatt-hour produced. Germany is in the strange position of on the one hand aggressively deploying renewable energy and on the other hand continuing to build coal plants because even with carbon emission permits factored in, they’re profitable. What’s driving this phenomenon is that now all fossil fuels have to compete with renewables and the solutions, like natural gas turbines that can’t compete, get pushed out in favor of the cheapest fossil fuel solution. Yet again, the law of unintended consequences.

Germans already pay a premium to live in a society where renewables are subsidized, but the country could take a page from the Obama administration and effectively ban coal power plants by placing hard emission limits on all power plants. That would push utility rates even higher in Germany, but if there’s a country with the wealth to take that aggressive action, it’s Germany.