Tony Lodge: As Germany says no to nuclear energy, we must not make the same mistake

Where western Europe once envied Germany’s long term and strategic infrastructure planning, political horse-trading over the nuclear issue and her decision to dump atomic power sets a dangerous precedent for Europe’s largest economy.

Chancellor Merkel’s decision to abandon support for civilian nuclear power and close all reactors by 2022 will damage her country’s future economic competitiveness as energy prices rise alongside an inability to meet strict emissions targets. This will also significantly weaken German energy security and affect future economic growth across Europe.

Merkel’s U-turn is significant and concerning for three reasons, over 40 years since Germany’s first nuclear plant opened.

Firstly, the fate of the continent’s largest economy and its return to strong economic health will remain dependent on competitively priced electricity, particularly for energy intensive industry. Removing comparatively cheap nuclear energy from Germany’s future energy mix will drive up prices.

Secondly, Germany is still 40 per cent dependent on hard coal and lignite for the generation of electricity. If Germany is to meet EU carbon reduction targets, then this coal burn must decline and decline quickly; the run-down and removal of zero carbon nuclear power from the German grid could increase the need for electricity from old coal plants. New taxes on carbon will again drive up the cost of electricity from these plants.

Thirdly, Chancellor Merkel looks likely to take the worst possible option in her quest to appease German greens and retain a working majority in the Reichstag after 2013.

I predict her CDU government will approve thousands of megawatts of new gas-fired power stations to fill the electricity generating gap to be left by future nuclear closures.

This would lead Germany to huge foreign gas dependence and expose Germany to a level of Russian gas reliance previously unimaginable.

Though Merkel highlights the need to harness new green technologies, such as wind to replace nuclear, the only medium term and viable replacement for this 22 per cent share of baseload German electricity can come from gas.

This new German “dash for gas” could put the UK’s quest for cheap gas in the 1990s (to replace coal) pale into insignificance.

Manufacturing still accounts for nearly a quarter of the German economy. As in the UK, the competitiveness of this sector relies on abundant and cheap supplies of electricity. High energy prices will quickly make such industry uncompetitive and this leads to relocation to other countries with lower energy prices.

A disturbing development is the anti-nuclear tide sweeping Europe following the Fukushima incident.

Last month, the Italian Parliament voted to shelve plans for its first nuclear plants and instead concentrate on building yet more gas-fired plants. Today, Italy relies on gas imports to generate 54 per cent of its electricity and no new nuclear plants will increase this reliance. Long term energy planning, in the national interest, is being abandoned in the face of public opinion and short term political gain.

The implications of these decisions for new nuclear in the UK should be minimal; but we need a better lead from Ministers. The Government, in its coalition agreement, states that the traditionally anti-nuclear Liberal Democrats will not stand in the way of new nuclear development. But there are deep concerns across the sector. Where is the Energy Secretary, the embattled Lib Dem Chris Huhne? He needs to be making the case for new nuclear at this critical time?

The Government is set to publish its first Energy White Paper in July. If it wishes to incentivise new nuclear reactors as early as 2018, then it must address a plethora of concerns from those international companies which wish to invest and help wean the UK off foreign energy imports, particularly gas.

Last Wednesday, Britain consumed 220 million cubic metres of gas. Some 100 million were imported, including 80 million of liquefied natural gas from Qatar. Annually, the UK now imports more gas than it produces and has done so since 2004. A third of this gas is used to generate electricity. This foreign gas dependence for electricity generation is set to grow alarmingly; a result of no energy strategy in Britain for a generation.

If Britain should look for leadership on this issue, then it must be France. The huge French post-war nuclear programme, which has dotted France with 58 nuclear plants, took place between 1965 and 1985 to reduce French dependence on imported oil and coal.

Today, France draws nearly 85 per cent of its electricity from nuclear power which insulates the country from fossil fuel price volatility and largely removes France from carbon penalties.

To put this into money terms, in 2008 French nuclear operators calculated that a typical French domestic consumer paid £332 per year for electricity while the figure in the UK was £442.

Through the interconnector under the Channel, France regularly sells surplus nuclear generated electricity to Britain and this is set to increase by 20 per cent with another link alongside the Channel Tunnel being planned.

Germany is the first major economy to blink following Fukushima and reject a tried and tested energy provider in favour of huge uncertainty and inevitable future price rises for consumers and industry.

Britain needs to provide better clarity and reassurance to all of the companies wishing to build our new nuclear plants and guarantee a swift planning regime is in place.

If the UK misses this opportunity and allows delays and other factors to hold up progress, then the implications for UK consumers and industry will be huge. The Prime Minister must ensure his Energy Secretary makes the case and takes the lead.

Tony Lodge is a Research Fellow at the Centre for Policy Studies.