Berlin's power shift

As Germany’s Christian Democrat alliance (CDU/CSU) is in talks about forming a new government with the Social Democrats, this week’s episode discusses the country’s role in the new global order. It comes against a backdrop where US president Donald Trump is abandoning old friends in Europe and proposing a trade war instead of aiding old allies. Not only could this have implications for US-sourced LNG but the new government in Berlin must make key decisions on the future of fossil fuels, the renewables transition and on whether to embrace hydrogen. The coalition will also have to deal with pressure from domestic industry and consumers demanding cheaper and more reliable power provision, as well as a backlash against wind turbines in the east of the country.

Host: Richard Sverrisson - Editor-in-Chief, Montel News.

Guest: Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University. She also heads the Energy, Transport, Environment Department at the German Institute for Economic Research.

Podcast editor: Bled Maliqi, Montel. 

Transcript

Richard Sverrisson - Editor-in-Chief, Montel News: 0:03

Hello listeners and welcome to Plugged In - the energy news podcast from Montel. Each week we bring you in-depth analysis and insights from across the energy sector. This week we focus on the election result in Germany and its impact on the country's energy markets and the green transition. Friedrich Merz as conservatives, the CDU and CSU won the election on Sunday, and we'll now be in talks to former government with a third place Social Democrats. The far right alternative for Deutschland, the AFD achieved a second place result Their best ever sending shockwaves through Germany and Europe, but not the US were the vice president, JD Vance, Olaf Scholz to meet with AFD leader, Alice Weidel instead, if Merz does indeed become chancellor. Will he accelerate or slow down the country's energy transition with President Trump seemingly ripping up the transatlantic alliance and the us. No longer trustworthy ally. Will Germany continue to import mass amounts of LNG from the US and will the country have to delay? Its much vaunted coal exit setting. The scene for us this week is Andreas Lochner Montel's Germany editor. Andreas a warm welcome to you.

Andreas Lochner - Editor Germany, Montel News: 1:18

Hello, Richard.

Richard Sverrisson - Editor-in-Chief, Montel News: 1:19

So Andreas th the, obviously intense talks going on now about forming a new government. It's going to be f Friedrich Maths as the Chancellor. What are gonna be the main issues in terms of energy facing the new German government?

Andreas Lochner - Editor Germany, Montel News: 1:33

The new German government will be formed, probably be formed by as you said, Merz and his conservatives CDU/CSU Alliance, and the social Democrats and they both in their election campaigns, had on the agenda to, to bring down the costs. Of energy, power prices for and consumers, they want to lower the power tax and also the grid fees. And that's, these two things are the, on the main things on the agenda, I guess because obviously the German economy is suffering for years already. We have weak economic growth and that's all related to energy costs.

Richard Sverrisson - Editor-in-Chief, Montel News: 2:15

Andreas, thank you very much. Joining me, Richard Sverrisson is Claudia Kemfert. Claudia is professor of Energy, economics and Energy Policy at Leuphana University. She also heads the Energy Transportation and Environment Department at the German Institute for Economic Research. A warm welcome to you, Claudia. It's great to have you back.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 2:35

Yeah, thank you for the welcome, Richard. I'm really happy to be here. Thanks for having me.

Richard Sverrisson - Editor-in-Chief, Montel News: 2:40

Perfect. We're here to talk about the election result. Obviously there's, it's too early to talk about a new government, although some indications are quite clear. But what's been the reaction? I mean, how what's your reaction been to the election results?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 2:54

Yeah. I mean, the re reaction was immediately, it's, that happened, what has been predicted, because it's most likely that there will be a conservative chancellor at the end. And maybe he's doing a coalition with the social Democrats. And that has been expecting me in the polls in advance, were very much saying this. And it happened in that way. So we had a very a very short election campaign. But at the end we'll see what comes out of it.

Richard Sverrisson - Editor-in-Chief, Montel News: 3:23

It's. We've seen very much a lurch to the right conservative and to the right wing with the AFD polling over 20% that it, its highest ever result. But would, could we say that the voters are fed up with the energy transition or would that be reading too much into it?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 3:39

I think that would be reading too much into it. It's a time of populism. And this is the same in Germany because we see, on the one hand you are right, a large increase of the very far right party, which is the AFD. But on the other hand, also we see on the far left, which is linker, which is the left party they have also gained. And that was pretty much because of this campaign driven by the probably next Genor Fredrich Mad, who was focusing very much on migration. And the migration discussion is really helping the the parties at. The left and right. I mean most, most to the right, but to the extreme oppositions and this is now the result, but you're right. I mean, there has been a steep increase of the very far right party approximately 20% of the AFD, which is a party. Not really much based on scientific facts. They deny climate change. They do not like the energy transition at all, but. Most likely there will not be in power in the future because most likely there will be a conservative Chancellor Fri mad and most likely the coalition partner will be the social Democrats.

Richard Sverrisson - Editor-in-Chief, Montel News: 4:50

But the clear, the country's quite split Claudia, isn't it? Far the former East is now pretty much an AFD stronghold, whereas the Old Western part is largely conservative of hands of the CDU/CSU. That be a fair assumption?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 5:03

Yeah. If you're looking at the map of Germany, you really see that, there's a blue blue area, and the blue is the AFD which is pretty much the the eastern part of Germany and the West was very conservative. And with the, or the CDU and front and is obviously very obvious that of course in the East there might. Be reasons why there are so much liking also this populism and the easy answers to complex problems. And we have to find out why this happened in two, in that large extent. But what we also have to stress, of yes, there are 20% in total Germany who voted for the AFD, but they're 80% not voting for them. And the 80% is. Very much also in the mid they, Germans do not really so much trouble. They don't like changes and they are really happy in the mid of the whole system. And this is why I think what we call the mid, so the democratic parties in the mid have been strengthened and they wanted to have a change, but not that complicated change. And this is why we see this result, I think.

Richard Sverrisson - Editor-in-Chief, Montel News: 6:11

But do you think then there, there is a, there's a danger that the energy transition in the AFD stronghold or the former maze, Germany could, that could be threatened or at least slowed down because one of the AFDs, it was it was an opinion or a comments they made about tearing down windmill windmills or wind turbines and cutting exports to neighbors. These are quite, outrageous things to say, but do you think it could. Have an influence in certain regions or parts of Germany.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 6:38

Yeah, there is a potential danger that it might have an impact in some areas, especially in the eastern part. And we already saw that because we have AFD parties in the parliaments of the individual states and the lender in eastern part because we had elections last year also in those regions. And we already see that there, there's not really a strong support to the energy transition and not a strong support. To windmills and solar. But they cannot, they will not tear down windmills, for sure not, but the barriers might increase. But in the past with the now with the still government of the red and the greens. They have reduced barriers for wind energy especially, and also solar with the result that there's the larger share of solar and wind. Now the system and wind will also continue. This is what what will continue for sure, but with the new government it's not unlikely that the there might be again, some barriers which do not really help the energy transition.

Richard Sverrisson - Editor-in-Chief, Montel News: 7:43

And maybe, or extending the life, you know, the lives of the lifetimes of coal or ignite fired plants as well. Was that likely? But we'll come to that later about the coal exit, but but in, there's certainly the eastern parts of Germany are very ignite based or some of them are. Anyway, does that's do you see that's gonna continue continue unabated for a number of years?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 8:03

Well, there is there is an agreement from the coal commission that and phase out of coal, which is most likely not be touched again, because now we have the phase out by 2038 and the large part of the eastern regions get a lot of money for the structured changes and they do not want to lose this money. But they will leave the. Coal fire power plants in the system until 2038, but not longer. I don't think so. But again, of course there will be discussions, but coal is not profitable at the moment. It's not compatible. Two other technologies, and this is why the coal or the utilities, they do not like it to extend it at the moment because that's not really an attractive business right now. But we will see in the future, but I don't think that they will come up with discussions to extend explicitly the core fired. Power plants. What we might get a discussion is about what about the future electricity market design and here also the reserve, the role of reserve re reserves in the coal or coal fire power plants as a reserve to the system. And this will. Be ongoing for sure. And needs to be done, of course. But not an explicit extension to larger than or more years than the 2038 which has been agreed upon.

Richard Sverrisson - Editor-in-Chief, Montel News: 9:28

No, that's very interesting. And I think, you know what about the influence of that kind of far right approach to the energy transition or very much an anti opposition to it, do you think that could rub off or have any influence on the federal governments or the next federal governments?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 9:44

No, not really on the federal government because here, there will be a strong, the big coalition with the conservative, with the CDU and the social Democrats. And they will decide, of course, on those frameworks for the market design and also for the extension, potential extension of power plants or reserves or the whole market design. But what they would do in the individual countries or states in the lender is that they were not. Provide enough areas for creating windmills, for example. And this is what they can do. All they can do on the sales level, they will do to put more barriers into it. And this is this will also be a potential danger to the energy transition because we need wind energy everywhere in Germany, also in the eastern part. And this is not unlikely that they will provide here some hinders. To, especially to wind energy.

Richard Sverrisson - Editor-in-Chief, Montel News: 10:37

So there could be some o obstacles approaching here, I think. Yeah, absolutely. In the eastern part. Yeah. And you mentioned reserve a reserve power plants, basically backup to keep the lights on. Is there, is there more of a discussion now, again, reemerging about a capacity market which is there designed to, to come in when, when you have, when it's dark and there's no wind and it's cold. The old Dunkelflaute.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 11:01

Exactly. There's the discussions about the Dunkelflaute will come up and there has been very active in December last year when we had several days of Donka flower and of course the next government will discuss it again. There has been still, I mean there is a discussion again about capacity markets, how that might. Look like. There's a discussion about the central capacity market or decentralized capacity market or a reserve, and our studies show that there's more backup technology reserve is more efficient to the system because these kind of backup technologies, like for example, gas fired power plants are also competing. Two other flexibility options, like for example storage or also demand site management and all this the power to X technologies, which we need also in the system with increasing supply of renewable energies. And here a capacity could disa bring disadvantages or also biases to the system, which is not attractive.

Richard Sverrisson - Editor-in-Chief, Montel News: 12:02

In what way? Claudia, could you explain how?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 12:04

Yeah. Because what we really need is is a system with renewable energy, with increasing renewable energy, which creates a lot of flexibility. So in times of donka flower to where the, when there's not enough sun or not enough wind we need flexibility options with more storage. Capacity. Also, battery storage is nowadays very cheap. And also demand side management energy and load management which is really important at the decentralized level. And if we would increase large amounts of capacities right now we would benefit or also bring benefits to the power plants. For example gas fired power plants. And here they do not bring enough flexibility or. Or bring out or move out a little bit. The flexibility options we may, we need in the whole system. And there's a competition between flexibility options in general and the capacities, which is which is now or might be installed with the capacity market. And this is a problem. And, this is why we did a study on it and recommended or, yeah, recommend to install a reserve, a capacity reserve and install instead of a capacity market. And that's especially because of the flexibility options in storage, we need which urgently in the market, which we would not see so much if we would have a capacity market itself,

Richard Sverrisson - Editor-in-Chief, Montel News: 13:28

because they would direct more flexible. Flexibly to the volatility in the markets, is that what you're saying?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 13:33

Exactly. Exactly.

Richard Sverrisson - Editor-in-Chief, Montel News: 13:34

And there's and in, in a cheaper, more efficient way.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 13:36

In a cheap and more efficient way. Exactly. And it brings down also energy costs. Colleagues of mine that modeling studies around this and it shows that the flexibility drives down the cost and brings more also the options in the system which we need and the capacity market do not allow for this kind of flexibility. They reduce flexibility and reserve, however you, we have to talk about how it looks like, but the reserve that where you just have a tendering system of the capacities and put a reserve in the system do not compete with the flexibility options we need.

Richard Sverrisson - Editor-in-Chief, Montel News: 14:11

That's all very interesting. And I think where does that leave or where does that leave the new government in terms of the power plant strategy and the rollouts of what they're saying of hydrogen ready gas plants? Claudia.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 14:21

Yeah. That's really now difficult to say. The city u they want to have a hydrogen ready gas, fire power plants. So the Christian Democrats the Fred talked about in the election campaign to install 30 gigawatt. Of new gas fired power plants and how he would do it and how it can be done that's completely open. And the social Democrats might or might also go for this because they announced it already in the past. However, this as I said, might also contradict the goal of flexibility in the system if we do have such a large amount of gas fire power plants because they need a business. Case you, they need to be profitable and with a capacity market it might work. But we see that with the capacity market, as I said, the flexibility is not that large. So with the new government, it's likely that we might see some kind of flexibility market and the future. With a market it might be centralized or also decentralized market with where they want to create more gas fired power plants, capacities in the system.

Richard Sverrisson - Editor-in-Chief, Montel News: 15:28

But yeah, that's gonna be my next question. Who pays for this? I mean. The last government, fell on on, on a major disagreement of a budget. And there are other priorities now in the future that needs to be addressed, certainly defense and building up the Germany economy or re you know, getting the Germany to economy to run smoothly again. How how would you pay for a rollout of up to 30 gigawatts of gas plants? That, that's quite enormous.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 15:52

Exactly. And that's a big open question because there's there's no budget at all. And hope, I think they hope that this is private money going into it if they do the framework and do it in a very attractive way so that the companies invest by themselves. However, this will not happen without any kind of, as you correctly said, financial support for it. And this the money is not there. We are now talking about money for defense and to get the economy back on track. And we have a huge investment lags in infrastructure, in education and everywhere. So digitalization is not working well. So there's a huge amount of investment, which is needed, but there's no money for it. At least no public money. Yeah. And so they hope to attract a more private money into it. But of course companies will only invest if they if their attractive market conditions and we will see how they will solve it. I think Azi did not understand so well what he said with this 30 gigawatt of gas fired power plants. And I'm not sure whether he will really, or they, the new government will really do it in that way. But of course it is a big willingness to increase more and a large amount of new gas fire power plants in the system.

Richard Sverrisson - Editor-in-Chief, Montel News: 17:07

The willingness is certainly there and, but the capability in the money may not be. So that's always crunch.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 17:12

That's always a big contradiction with them both.

Richard Sverrisson - Editor-in-Chief, Montel News: 17:14

Yeah, absolutely. And in terms of, you know, maybe from what I'm hearing correctly here, Claudia poten they will be lucky to install even five to, for, to 10 of that 30 gigawatts. Yeah, sure. Very true. Yeah. I'd like to move on to, we discussed the, before we started recording about the current, momentous events happening in the world in Europe and the states that, we have a trustworthy ally in, in the US now has become almost a hostile nation or very anti-European. Do you think, where does that place the next German government, it's obviously in a very difficult position here. How will they deal with Putin and Trump here?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 17:51

Yeah that's really a good point. Of course if we're looking at the potential new government, a new chancellor Merz is very much pro USA, he is the old school style of thinking of the alliance to the USA and the defense situation. And he's coming from a history of that. But that seems very much over at the moment. But that, that's on the one hand. But related to Russia, of course they, both parties agree that there's certificate situation now with the Russian War and the Ukraine. So they willingness to help the Ukraine even more with defense money. But also we have to spend in Germany more money also for defense by defending to get a defense by ourselves. I think there's a. Clear pro USA and more anti-Russia mood, let's say in that way. But we will see what they will do at out of it at the moment. Because with the new Trump administration, this kind of old style thinking is over. They realize. This now and are very much I think shocked and do not really know how to do or how to react as I think a lot of European parties at the moment. And we heard also fri mass at the Munich Security Conference saying we really don't know what to do, but obvious that they gave a strong recommendation to vote for AFD. So this right wing party was a big shock. And also the yeah, shock to both parties and now related to the next relationships. We will see how they might go on further and what needs to be done. On the one hand, I think LNG related now to the energy policy. They, Germany is importing a lot of LNG and will do it in the future as well. And they have been increased the share of LNG imports under Trump under the last administration as well. It's not likely that they will, reopen the North Stream pipelines as the right wing party want to have and some of the lefts as well. That's not very likely but we will see what kind of deals at the end they will do with the US president. It seems easier with him than with Russia. Putin.

Richard Sverrisson - Editor-in-Chief, Montel News: 20:05

Yeah. But then you have a US president that's very pro Putin and anti Europe. It's, that's a Yeah, exactly. It's a complete turnaround situation.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 20:13

It's, it is.

Richard Sverrisson - Editor-in-Chief, Montel News: 20:13

But do you think that this does the US and Trump in particular have a Germany over a barrel in terms of LNG supply? We are not gonna, we won't supply you with this amount of LNG unless you do AB or Z C, is that, yeah.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 20:27

This is exactly how Trump's think thinks. And he did that in the past, under his first administration. He did that. You pay LNG and then we are reducing the sanctions to North Stream two. And this happened already in the past, and I could think that they, he's thinking the same. But now, we have to admit Trump is not do not like the Germans. They, he's very anti-German. We don't know why. He's. Partly German because he has relatives, so from Germany where probably that's the reason. But we will see what kind of deals he has in mind when talking to Germany. And the next chancellor Trump congratulated the potential new chancellor. That looks good. So at least there's not a new travel on going, but we will see what's what will happen. But with LNG, I'm pretty sure that Trump will sell more energy and he thinks Germany might be a good a good country to, to export it to.

Richard Sverrisson - Editor-in-Chief, Montel News: 21:22

Absolutely. After all, he is a businessman and as he keeps telling us he likes to do deals. But and I think it's, there's one thing what he says is like a little cluster bomb and creates panic and chaos. But then you have to actually maybe see what he actually does, rather what he says he will do. But do you think then that's pushed the urgency for Germany as well as other European countries to look at, other. So diversifying their LNG supply or they're looking at other countries though there aren't that many out there apart from the US and the big Middle Eastern exporters of Norway, of course is pumping at full volumes. But do you think there'll be pressure on German to diversify its LNG supply?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 22:01

Yeah. I mean there is already pressure to diversify LNG import. Germany has created a lot of LNG terminals and they're only partly used and applied. This is because of course LNG is much more expensive than Norwegian gas. But it's also because there will be in the future, a reduction of gas supply demand, as we always said. We will see an energy transition also in the heating sector with less gas boilers, but more heat. Pumps in the last year that happened, not so much because of uncertainties and also some strange public discussions about heat pumps. But in the future I think it's very likely that there will be a reduction of gas cement, especially in the heating in the building sector, but also also in the industry itself. And we already saw that because they have removed some gas extensive productions of. For example, to the US and it would we will see that in the future as well. So with the reduced gas demand, we do not need so much imports of LNG. And it might be that Norwegian gas is enough then.

Richard Sverrisson - Editor-in-Chief, Montel News: 23:08

Absolutely. Do you think then looking forward that the new German government, which under Chancellor Merz would would it still continue to accelerate the energy transition or will the. Be certain breaks, do you think?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 23:19

No, I think they will accelerate, but it very much depends also on the social Democrats because they have a key role here. Because the conservatives, of course, they all, they claim to increase the share of renewables and I'm pretty sure that they will do it because now it's a business case and they want to help industry as well. And the industry or the economy itself. Wants to have more renewables in the system and this will be ongoing. And I'm pretty sure that they will stress on that. But on the other hand, the conservative said they want to create some kind of new nuclear power plants that is very much costly. It's unlikely, but the social Democrats, this will not happen at all. And the other. Options we already discussed. So I think of course there will be an energy transition ongoing. We will see what's happening in the building sector because we need a more energy efficiency in the building sector as well. And more, insulation and renovation of buildings a higher renovation rate that we had in the past. And on the other hand, the transition needs to be done also in the in the transportation sector with more electric mobility, with public transportation, railway system improvement, infrastructure investments, but also with more electric mobility that would help the car industry. And here the conservative said they want to improve the framework for conventional. Cars for diesel engine and gas ion engines. And that framework in the European context with the emission cuts or the the emissions of cars that need to be reduced. They would like to do something about it. This is what they said. They're not very explicit about it. And we will see what's happening on the energy transition of the transportation sector. Hopefully they will move forward with more electric mobility because we need an electrification of all the sectors, so more electrification of all the. Does, especially the the transportation sector as Norway is showing with a large share of electric cars. And I hope this will with this will happen in a way in Germany as well because the car industry is not doing well and the whole economy is not doing well. But the car industry is very important and they do not help them. By just sticking to the conventional cars. They should move forward for an energy or transportation transition as well towards more electrification.

Richard Sverrisson - Editor-in-Chief, Montel News: 25:41

Absolutely.'cause that's gonna be very important in terms of competition with Yeah. With China and also Elon Musk's Tesla. But like a, a tariff war If a tariff, if Trump were to really up the ante in terms of the putting a tariffs on German imports of cars and industrial goods, that would put Friedrich Merz' government in a very difficult position, would it not?

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 26:01

Yeah. Yeah. That's, that is really that is the next nightmare for for the economy, especially for the Germany economy because the Germany economy is very much export oriented, especially to the us And with a car, with a terrorists on cars or other goods it will be very difficult and there would be a huge harm. And the economy of Germany is not doing well. And the Next Gen, he said all he will do is to improve the economic situation. But with this global geopolitical risks related to the US but also to China to Russia it's very difficult to find a good situation here or a momentum to, to change all this. Right now it does not look like that, especially if the tariffs are there with, to the. Us and if China is not improving, or we don't know what kind of role China really will play also to the German government or the German economy in total and also related to Russia. So the whole situation is really difficult. And next Chancellor Merz will struggle, I'm pretty sure.

Richard Sverrisson - Editor-in-Chief, Montel News: 27:05

Absolutely. I'd love to sit and talk for a lot longer, Claudia. It's been an absolutely fascinating discussion. I think you've made it very clear the challenges, but also the opportunities going forward and the ways in which the German energy transition can continue unabated. I think that's a very important point. So Claudia Kemfert Thank you very much for being a guest on Plugged in - Montel's energy news podcast.

Claudia Kemfert, Professor of Energy, Economics and Energy Policy at Leuphana University: 27:27

Thank you, Richard. Have a good day.