Germany’s Grid Is Getting Greener as Its Industry Is Weakening

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Yves here. This post highlights the fact that Germany’s apparent improvement in its green transition is not quite what is seems. Even though the proportion of total energy consumption provided by renewable sources has increased, it appears that that improvement is due in large measure to a fall in demand from industry. The increase in clean energy production year to year has been comparatively modest.

Amusingly, the article acknowledges that higher energy costs are the reason for flagging manufacturing output, but curiously never mentions the destruction of the Nord Stream 2 pipelines and the Russian sanctions as the cause. In the meantime, OilPrice today also prominently features another story, European Reliance on Russian Gas Persists Despite Sanctions.

By Tsvetana Paraskova, a writer for with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice

  • Germany is making progress in boosting the share of renewable energy sources in its power supply.
  • The large cut to fossil fuel-powered generation was mostly due to lower total power output.
  • The grid is getting greener and emissions from the power sector are falling, but these developments have been mainly driven by anemic economic growth and weak industry in Europe’s biggest economy.

Germany is making progress in boosting the share of renewable energy sources in its power supply, but it should be applauded with a cautionary note because the bulk of that progress is because of weaker electricity demand amid sluggish industrial activity.

Power providers have drastically cut their total electricity output from fossil fuels so far this year. Yet, this reduction hasn’t been offset by a similar jump in generation from renewable energy sources, suggesting that the weak power demand is the driver of lower overall power output and reduced fossil fuel generation in Europe’s biggest economy.

Germany’s power producers saw fossil fuel electricity production drop by 19% in the first half of this year compared to the same period of 2023, according to LSEG data cited by Reuters columnist Gavin Maguire.

However, renewables power generation increased only by 2.1%

The large cut to fossil fuel-powered generation was mostly due to lower total power output, which was down 6% year-over-year between January and June 2024 amid lower electricity demand with weak industrial activity.

A rebound in said activity would boost power demand in Germany, and its power firms may have to resort to more natural gas-fired generation, offsetting some of the progress in clean energy supply to the grid.

Last year, wind power overtook coal to become Germany’s largest source of electricity, according to clean energy think tank Ember.

Germany relied on fossil fuels for 46% of its electricity last year; however, the single largest source of electricity was wind with a 27.2% share, ahead of coal with 26.8%.

Since 2015, Germany’s falls in nuclear – phased out in 2023 – and coal generation have been mostly met by higher wind and solar generation alongside net electricity imports and gas-fired generation, Ember’s European Electricity Review 2024 showed earlier this year.

Germany installed record-high power capacity from solar and wind in 2023, but only solar additions met government targets, while wind power installations fell short of goals. The new solar capacity is on track to meet the government’s 2030 goals. Wind power also saw an increase in wind power tenders, which awarded a record-high total power capacity of 6.4 GW last year, data from wind power association BWE showed at the end of 2023. Unfortunately, these were short of the 10 GW annual goal.

While the share of renewable energy sources in Germany’s gross electricity generation reached 53% in 2023, up from 44% in 2022, the country needs to accelerate solar, wind, and battery capacity installations to have renewables account for 80% of its electricity generation by 2030.

The grid is getting greener and emissions from the power sector are falling, but these developments have been mainly driven by anemic economic growth and weak industry in Europe’s biggest economy.

The high energy costs have been a key reason for weak manufacturing and industrial activity in Germany over the past two years. Energy-intensive industries, especially chemicals and fertilizers, have been hit the hardest.

“No other sector has been hit harder by the “new energy world” (lower absolute gas imports and higher energy prices compared to pre-war levels and compared to the US and China) than the chemical industry,” Deutsche Bank Research said in February this year, saying that the decline in Germany’s industrial production “is not over yet.”

The Federation of German Industries, BDI, is not optimistic for the near term, either.

Germany’s manufacturing output fell by over 7% in the fourth quarter of 2023, compared to late 2019, before the outbreak of the pandemic, the industry body said in a report in May. The BDI expects industrial production in Germany to continue downward and contract by another 1.5% in 2024 year-over-year. In the two previous years, industrial production had fallen by 0.5% annually.

“The German industry has almost lost a decade’s worth of growth in production,” BDI said.

This weak industrial performance, partly due to high energy costs, has contributed to the decline in Germany’s electricity consumption. When industrial activity recovers, German power producers may have to crank up fossil fuel-fired power plants to meet demand.

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  1. Barnes

    The undoubtably high energy costs in Germany do drive innovations to realise efficiency gains throughout the industry. This works through different mechanisms and up to a point. I know of companies producing industrial goods that even remained in a somewhat Covidian shift regime with labor because it worked. So yes, the political argument is early adaptations are the least painful. Whether that’ll hold true remains to be seen. International competition combined with keeping, preferably building, Germany’s manufacturing capacity is an issue. Outsourcing industrial capacity, like the US did, wouldn’t be all that wise and a middle ground remains elusive. It’s a catch22 for now.

    1. AG

      Just judging politically from the outside much appears to “happen” less than to having actually been planned by the government.

      Not least due to the RU-UKR war upsetting those little plans of a pre-2022 era that had been put in place.

      Scholz´ lot had been overjoyed over the unxpected 2021 win and they had planned to pull off really “cool” politics, green energy, EV transition, etc. to leave their legacy of having transformed FRG into the showcase example of how to solve problems in the 21st century. Baerbock and Habeck also eyeing the chancellory 2025.

      That blew with Febr. 2022 They had zero plan B and followed the US like a lost child. (One reason why Scholz was so pissed with Putin since Putin had forced Scholz into a spot where Scholz never had seen himself knowing that he had no solution to that messing up his naive plan of a shiny chancellory.)

      That this was however bound to happen should have become clear by spring 2021 when Biden and Merkel had agreed to put down NS2 if RU attacked. Nonetheless, fully well aware of this deal with the US, and certainly aware of the NATO military build-up Merkel still stuck to the phasing out NPPs despite the criticism.

      In terms of energy policies and reactions to those a lot has been left to the big conglomerates who operate by their own agenda. Medium size companies on the other hand, where the real value and significance of German industry lies, are much more under constraints. But their influence on the broad top-down decisions is limited.

      The fact that currently Germany has a higher usage of coal than France or GB is absurd enough in the light of the highly publicized German shift towards non-FFs since 2014.

      However despite the near 30% wind power share I have to ask – what is German “progress” worth with a share of 2% of the global electricity usage? Who profits if Germany turns climate neutral while the EU does everything it can to fuck over cooperation on this area with the BRICS? This is childish to say the least.

      And as I said before: I have no clue how German car manufacturers intend to withstand the onslaught of EVs and hybrids and small combustion-engine units from Asia? BMW´s CEO himself said repeatedly there is no sense in phasing out combustion engines, because that´s where German expertise lies on a global scale.

      That´s like shooting yourself in the foot and claim it a win because now you can use the super-modern wheel-chair made of bamboo.

    2. PlutoniumKun

      Underestimating German industries strategic planning is generally a good way to lose money.

      Germany seems to have come to an acceptance that high energy input industry has no future – products like base chemical and fertilizer manufacture. Whether this is a wise move or not only time will tell. A lot depends on where it migrates to – China wants a lot of it, but I suspect much will end up in the Middle East and north Africa where they have the access to capital and the cheap energy to go big on this if they choose.

      A huge issue for German industry is that a decade ago they went big into renewables, EV’s and batteries, but suffered from first entry syndrome – they made outstanding products which were just too expensive for the market at the time, and now China is eating its lunch. Things are made worse by some terrible decisions made by its auto industry (i.e. VW Group and BMW). Even the French are doing much better than anyone anticipated in some of those sectors – there are some enormous investments underway in the corridor of industry clustering in north-east France extending into Germany, especially in battery manufacture capacity.

      There is a major industrial restructuring going on in Europe taking place more or less under the radar. Whether its the last gasp of a dying continent, or yet another Lazarus performance (Germany/France has been declared a has-been multiple times in the past, mostly in the Anglophone world), we may soon find out. But I would never underestimate the ability of German Länder and those vast interconnected financial/design/manufacturing networks to come up trumps in the end.

      1. Colonel Smithers

        Thank you, PK.

        I know what you mean and don’t disagree, especially as you and I have exchanged similar comments over the years, but, having worked there and for one of their big banks until 2021 and my current employer having big operations there, I feel there’s a qualitative difference this time. The nature of capitalism is changing there. Wall Street is a much bigger player and influencer than before.

        1. PlutoniumKun

          Many thanks CS – its interesting (and more than a little sad) to hear of the degrading of decision-making in Germany. Of course, their banks were always a byword for being such easy marks, but I’ve always put that down to Germany training their best and brightest into engineers, not bankers or accountants (the dregs of German intelligentsia seem to find their way to becoming ordoliberal-economists). But the corrosion of neoliberalism and its intellectual off-spring bites deep everywhere.

      2. ebolapoxclassic

        Germany seems to have come to an acceptance that high energy input industry has no future – products like base chemical and fertilizer manufacture.

        Yes, or any sort of battery manufacturing? Or the aluminium that goes into light-weight EVs? (You can make heavier such vehicles out of steel too, but steel isn’t that much less energy intensive to produce.) Or the cement, steel, copper, glass fiber composites etc. that go into wind turbines – all highly energy intensive inputs. (Solar panels are also highly energy intensive to produce.) What’s Germany left with if it gives up on all that?

        It’s all (at least on the surface) fine and good as long as the EU lets Germany import batteries and aluminium from China, as opposed to hiking tariffs on those goods, as they did just this week with Chinese electric vehicles. Then Germany can at least pretend to be making premium electric vehicles, even if they’re just putting BMW badges on mostly Chinese components. (China will of course demand high prices and also even further technology transfers from German car companies, to the extent they even need those to outcompete them anymore.) But so far the European Commission has not been too keen to listen to the concerns of German industrialists.

        How about pharmaceuticals? You can talk all you want about how energy intensive base chemicals are and how China might as well make those in Germany’s place, but without them you can’t make pharmaceuticals or other specialty chemicals. And the pattern we’ve seen so far is that when the “dirty foundations” of high-tech products (such as steel, aluminium, cement, PCB boards for electronics) move to China, pretty soon the high-value added final products (advanced cars and trains, memory chips and then CPUs, and so on) are developed and built in China as well.

        The reality is that Germany’s industrialists, or Angela Merkel for that matter, weren’t so insistent on Nord Stream 2 because they just loved Russia and Putin so much. They understood that they need all chains of industry in place in Germany, including energy intensive fundamental ones like steel, cement and petrochemicals. Without these pillars, Germany’s industrial structure will become as hollowed out as that of the UK or the US.

        While I agree that if anyone can make the best of any situation in terms of reorganizing industry, it’s the Germans (or the Japanese), you can’t escape that industrial activity is tightly coupled to primary energy consumption. It’s also no coincidence that over the last 100+ years, whether under the Kaiser, under Hitler, during the Federal Republic or (most of the period) after reunification, Germany has used any means necessary (including launching invasions) to acquire the energy resources it needed from either the Middle East, Russia or both. (From the 70s oil crisis when those sources looked insecure, they took the French route and bet big on nuclear power, despite large public resistance, as well as drawing on their own ample coal resources.)

        It’s easy to take for granted a political regime that quietly, in the background, does whatever is necessary (or at least possible) to secure cheap and abundant energy for the entire spectrum of German industries. Germany from the time of its industrialization always had that, and now it longer does. That is a real change which is going to have real consequences, and probably sooner rather than later.

  2. Ignacio

    I believe we need better numbers to know exactly what is happening and how things are evolving (in Germany and other countries as well). Apart from electro-intensive industries which rely obviously in utility scale supply, the less electro-intensive industries, commercial, and residential sectors are increasingly relying on roof-top solar and that might be one of the several reasons (apart from lower industrial production) that explain the large fall in apparent demand from the grid. To tell the truth I have not idea to which extent self-consumption of energy is replacing grid supply and how much of the electricity in the grid comes from roof-top surpluses loaded into the grid but my guess that this is a significant part. FWIW i believe that in Spain these sources account for, possibly, about 5% of total power demand.

    1. PlutoniumKun

      I’m sure you are aware of his substack, but Julien Jumeau does some excellent analyses of German energy on the supply side. Hes particularly good on the issues resulting from poorly designed pricing mechanisms (a particular issue in Germany, where pricing is resulting in an imbalance between solar and wind).

      The one big unknown in German demand is how much of the drop is actually due to more domestic solar and storage – I suspect its far more than acknowledged as there seems little data for householders or small businesses who don’t opt in for grid pricing. This seems to have been a major contributor to the drop in demand in the UK over the past decade.

      Another crucial issue will be how successful German industry will be in utilising hydrogen. Germany will have negative pricing for much of the daytime period during the summer due to the solar duck curve, but its hitting a major problem in turning that super cheap energy into hydrogen for industrial use, which is the obvious immediate solution. I’m aware of quite a few large scale production plants under construction but there seems to be little direct data as to how much they are going to produce. As Jumeau points out, in northern climes a huge challenge is how to actually increase demand during the summer to try to flatten out the duck curve.

      1. Ignacio

        Thanks a lot for that link to Jumeau’s substack which I have already bookmarked. I wasn’t aware of it. Indeed hydrogen, even with its relatively high conversion losses, has potential for energy storage from summer to winter and for industrial use as well. It is something to follow. Other ideas with hydrogen such as creating a hydrogen grid I believe them to be somehow-to-very crazy so far. To be sincere this is a subject that I have not examined in depth.

        With regards to pricing mechanisms I believe that they are not functioning correctly when you have “negative prices” at certain times. I will read your link with care but i believe that there must be a positive floor for energy prices and the proceeds of such “lowest limit” might be used to invest in flexibility and storage. If not we are creating wrong incentives transitioning to cleaner sources. This is again a subject to which I haven’t still dedicated the necessary effort to provide informed opinions. As I see it some central planning is necessary more over when the market has been divided into segments (generation/transport-distribution/commercialization) which IMO run to their own interests like beheaded chicken. Coordination is needed.

        1. PlutoniumKun

          I agree that the whole ‘hydrogen grid’ is a pipedream, but hydrogen can be quite easily integrated into a range of existing industrial processes – in the short to medium term, imo this is the quickest and easiest way to utilise surplus electricity – already, a shocking amount of cheap energy is lost through curtailment of renewables (I just checked this morning in Ireland, nearly 1GW of wind was curtailed due to unexpectedly high winds and low summer demand). As Jumeau regularly points out – we focus too much on storage and not enough on finding productive ways of using existing surpluses as a means of balancing loads.

          As for the pricing mechanisms – this whole subject has become incredibly complicated – I suspect very few people really understand or grasp the big picture on how these interrelate with investment decisions – most are just focusing on their own little corner of the problem. Its made worse by there being a lot of commercial secrecy over real outputs. In my own corner, its like extracting teeth to work out the real capacity of many current investments in generation or storage. Nobody wants to give away their own little secrets for how they hope to arbitrage prices (which is the real way to make money these days).

      2. Jeremy Grimm

        Hydrogen, perhaps along with some additive to make the flame more visible, might be used to replace propane for lampworking borosilicate glass. Borosilicate glass will be important to supporting small scale likely local production of drugs and specialty reagents and chemicals.

        Thank you for the link to Jumeau’s website.

  3. Trees&Trunks

    It will get ugly next year because in 2024 the government removed the price break on energy for households.
    Plenty of mould in apartments in a few years when people lower the heating.

    1. PlutoniumKun

      Strictly speaking, mould is caused by condensation, not heating – there is little relationship between mould and room temperature, except insofar as when people are cold, they tend to keep vents and windows closed. I’ve been in plenty of unheated homes with terrible mould problems, especially in buildings dating from the mid to late 20th Century, when architects decided that they didn’t need to learn any lessons from their predecessors. I’ve little experience of German domestic house regulations, but in general they are well ahead of most countries except maybe Sweden when it comes to high quality domestic construction details.

      The covid price props have been removed by the German government, but energy prices are in decline anyway as things stabilise. They’ve put in place a lot of new grants for home heating improvements, mostly to switch from natural gas to heat pumps (which can, if badly designed, increase condensation, but usually improve matters).

      1. Trees&Trunks

        Dynamic: turn down the heating because expensive. The apartment doesn’t dry out properly. Condense. Mould.

        1. PlutoniumKun

          Sorry – I don’t mean to over-egg this topic, but there is a mountain of research on this out there on mould and damp in buildings – its a long standing myth that mould is connected to low ambient temperatures (it can be the result with thermal bridges such as around poorly insulated window frames) – its always and everywhere a function of moisture in the air or moisture embedded in the structural materials due to leaks or poor sealing. Raising heat in a room can actually make things worse if you have a source of moisture that isn’t addressed as it simply increases evaporation. Many a homeowner has wasted a lot of money on trying to fix mould problems due to a failure to identify the core cause. The cure is always either better ventilation, fixing leaks or poor seals and/or dealing with thermal bridging.

      2. New_Okie

        Strictly speaking, mould is caused by condensation, not heating – there is little relationship between mould and room temperature, except insofar as when people are cold, they tend to keep vents and windows closed.

        Respectfully, I disagree somewhat.

        As you rightly point out, relative humidity is the main link between temperature and mold growth in homes. I say “relative humidity” and not “condensation” only because mold only requires 70% relative humidity at a surface rather than 100% (though obviously it won’t say no to that).

        If no one lived in a home then yes, making the home somewhat cooler during the winter wouldn’t create any condensation or mold, since the vapor drive would still be outward and there would be no additional moisture added from inside the home. (Heating the home to a less-than comfortable place still uses heat, which ultimately escapes along with moisture, drying the home).

        The problem, as I understand it, is that humans inside of homes release moisture into the air by sweating, breathing, cooking, and bathing.

        For example, all else being equal the walls of a bathroom at 50 degrees Fahrenheit will remain above the 70% relative humidity mark for longer after a shower than a bathroom with walls at at 70 degrees Fahrenheit. Depending on bathroom use, exhaust fan use, outside humidity, and the wall material, that could be enough that a colder portion of wall is regularly moist enough for mold to grow.

        One resource I’d recommend is

        I’m definitely not saying that keeping a house somewhat cooler in the winter will cause problems for everyone, or every building type but I do think it is a reasonable concern. Not because we can’t build homes to do well at, say, 50 degrees Fahrenheit–I think we could. But just because we haven’t particularly tried.

    1. New_Okie

      I do love heat batteries. I asked the government if they counted as batteries for the purpose of the battery tax rebate(?) in the inflation reduction act. Sadly I never heard back.

      It would be great if there were more systems made to convert solar power to heat for storage. Or, I suppose, one could also store cool. Maybe with California’s newish solar rates that don’t give you much money for feeding power back to the grid, more people will be interested?

    2. JayF

      I’ll just suggest this is another techno-scam built on misguided and corrupted “environmental” ideas. Don’t have time to get into it – but energy in versus energy out. Let’s move great big heavy things to do the work of fewer smaller lighter things.

  4. ISL

    “progress is because of weaker electricity demand amid sluggish industrial activity”

    so a collapse in manufacturing is “sluggish.” Editor painting lipstick on the pig? Bury the lede?

    Certainly the author knows:

    “The BDI expects industrial production in Germany to continue downward and contract by another 1.5% in 2024 year-over-year. In the two previous years, industrial production had fallen by 0.5% annually.”

    My headline, “Germany Greens its Grid by Abandoning Manufacturing”

  5. Irrational

    Just to underline the point the author makes:
    German industrial production declined by 2.5% month-over-month in May 2024, missing market estimates of a 0.2% growth and shifting from an upwardly revised 0.1% rise in the prior month. It was the second time of contraction so far this year and the steepest decrease since late 2022, weighed by lower output from machinery and equipment (-5.9%) and the automotive industry (-5.2%). Production in manufacturing, which excludes energy and construction, fell 2.9%; and construction activity was down 3.3%. On the other hand, energy production grew by 2.6%. At the same time, output shrank for all components: capital goods (-4.0%), intermediate (-2.7%), and consumer ones (-0.2%). The less volatile three-month-on-three-month comparison showed that production stagnated from March to May 2024 than in the previous three months. Yearly, industrial output declined by 6.7% in May, much steeper than the prior 3.7% fall and the fastest drop since August 2020. source: Federal Statistical Office.
    (Trading Economics)

  6. Mirko

    As a German, I have something to say for the nonsense. 1. industry is falling further behind and is not competitive with countries with lower energy costs, many energy-intensive companies are closing their doors and laying off workers (BASF, steelworks, glassworks). 2. attempts are being made to use hydrogen as a substitute carrier for superfluous wind-solar power as storage. This would be a good idea in itself, but it didn’t work, see the problems (hydrogen cars), because as we know, hydrogen is a substance that makes even glass porous and leaks. Conversion processes are de facto 7 higher and the electricity grids in Germany are at their limit; even today, people admit that the expansion is not working. 3 If it were all so wonderful, why isn’t the energy transition here in Germany working by itself? Much more tax money is needed from month to month, and the costs of the energy transition are being hidden in ever newer taxes (CO₂, grid usage).

    BG Mirko


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