Berlin is debating the consequences of the energy transition, as the nuclear phase-out, high electricity prices, and lackluster CO2 reduction results increasingly converge. Germany’s unique approach to decommissioning its nuclear power plants is impacting an industrial sector that is already grappling with high energy and production costs. Despite investing billions in renewable energies, Germany remains one of Europe’s largest emitters of CO2. The critical issue lies in the lack of affordable baseload power. Consequently, the chemical, steel, and other energy-intensive industries are finding themselves under severe pressure. Investments are migrating abroad, while jobs and economic value creation within Germany remain at risk.
High Energy Prices Hit Industry First
BASF illustrates the situation with particular clarity. The chemical giant aims to save an additional one billion euros per year at its Ludwigshafen site by the end of 2026. In doing so, the company cites high energy costs, weak demand, and high production costs. Furthermore, BASF is investing billions in a new site in China.
However, this trend is not limited to a single corporate group. Many large companies are now exploring the relocation of their production facilities. Energy-intensive businesses, in particular, are scrutinizing their cost calculations more rigorously than ever before. Moreover, for these companies, electricity is no longer merely an incidental operating expense, but a critical strategic factor regarding their choice of location.
Germany’s Distinct Path Loses Economic Viability
The energy crisis did not begin with the war in Ukraine; however, the Russian invasion significantly exacerbated the situation. Even prior to the conflict, the phase-out of nuclear power, grid expansion, and various subsidy mechanisms had driven electricity costs steadily upward. Consequently, critics view the Energiewende—Germany’s energy transition—as a costly restructuring process that offers little tangible relief.
Costs have now reached staggering proportions. An estimated 500 billion euros has already been invested in the energy transition. Projections for the complete transformation of the energy system run into the trillions. Furthermore, the question of who is ultimately to bear this financial burden in the long term remains unanswered.
Nuclear Phase-out Worsens Climate Footprint
Germany has shut down its final remaining nuclear power plants. As a result, the country has lost a low-carbon source of electricity capable of providing reliable, predictable output. While wind and solar power generate substantial energy, they do not do so consistently around the clock. Consequently, the electricity grid continues to require conventional power plants capable of stepping in to fill the gaps.
This distinct policy path thus intensifies the inherent conflict between competing objectives. Germany aims to reduce emissions, ensure security of supply, and keep electricity affordable. Without nuclear power, achieving this delicate balance becomes significantly more challenging. Moreover, the demands placed upon the power grid, energy storage facilities, and reserve capacities are steadily increasing.
Hydrogen Does Not Solve the Cost Problem
Policymakers are placing a strong bet on green hydrogen. It is intended to replace natural gas and coal in parts of the industrial sector—with the steel industry, in particular, being regarded as a key sector. However, green hydrogen requires very large quantities of low-cost electricity.
Yet, this is precisely what is lacking in Germany. High electricity prices drive up the costs of hydrogen projects. Consequently, many such initiatives require state subsidies. On the global market, they struggle to compete with locations that benefit from cheaper energy.
Industrial Policy Cannot Substitute for a Reliable Energy Supply
Proponents of the energy transition point to climate protection and technological leadership. Germany aims to demonstrate how an industrialized nation can achieve climate neutrality. However, the persuasive power of this vision diminishes when companies relocate—thereby merely shifting emissions elsewhere. This undermines the political narrative.
For businesses, however, the decisive factors are costs, security of supply, and planning certainty. Germany’s distinctive approach has, thus far, failed to provide a stable answer to these concerns. Consequently, energy policy directly determines decisions regarding business locations, investments, and employment. Without affordable energy, Germany will continue to erode its industrial base. (KOB)