Green revolution will cost you

Germany's dream of an energy revolution has already come true in the small town of Morbach, nestling between wooded hills in the southwestern Hunsrück region. Morbach boasts 14 wind turbines, 4,000 square meters of solar panels and a biogas plant, all located on the site of a former military base straddling a hill above the town. Together, they produce three times more electricity than the 11,000-strong community needs.

Politicians and corporate executives from all over the world have visited the site. Morbach has already achieved what Merkel is now planning for the whole of Germany.

She wants to lift Germany to Morbach's levels in just four decades, after which Europe's largest economy will meet most of its energy requirements from the sun and the wind, biomass and water. Drawing on the inexhaustible supply of energy on land and at sea would help combat global warming. And it would mean an end the dependence on Arab oil and to fears of nuclear accidents and of the mood swings of Russia's gas suppliers.

The government laid out this bold, green vision in its draft energy plan earlier this month. It wants to increase the share of renewable energy from 16 percent today to 80 percent by 2050.

Silence on True Cost of Energy Plan

It will mark the end of an energy system that has been based almost exclusively on fossil fuels -- coal, oil and gas -- for the last two centuries. That is why Merkel keeps on emphasizing the scale of the revolution Germany faces. But she is keeping quiet about the huge cost this will entail.

For a start, new power lines need to be built to transport the growing amounts of wind power from Europe's north and solar power from the south. The power industry estimates that constructing these power motorways -- the lines, switching stations and transformers -- will cost some €40 billion ($53 billion) in the coming 10 years.

The Era of Cheap Power is Over

The strategists at RWE, Germany's biggest power company, estimate in an internal study that Europe will require a staggering €3 trillion ($4 trillion) of investment just to convert its power generation to green energy. That doesn't include the necessary spending on networks and storage. The price of electricity production would increase rapidly in the coming 25 years to up to 23.5 cents per kilowatt hour in a worst-case scenario, if Germany were to switch to complete self-sufficiency in energy production, from 6.5 cents now, RWE estimates.

It is impossible to arrive at precise forecasts for the cost of the green revolution over the next 40 years. Besides, most scenarios don't factor in the problems that could arise in terms of arduous approval procedures, legal disputes and public protests. But six main factors can be identified that can help to determine whether a renewable energy system can work reliably and what cost levels can be expected.

1. Solar Power Subsidies

This young industry is enjoying an incredible boom, but one that has come at a high price. Solar panel operators receive a fixed tariff for every kilowatt hour of power they produce. That tariff is well above the standard market price for electricity, guaranteed for more than 20 years. The total subsidy payout over the last 10 years has been €60 to €80 billion. The yield has been modest by comparison. Solar power covers just 1.1 percent of German electricity requirements.

2. €75 Billion for High Sea Wind Farms

The expansion of wind power has been successful but is hitting its limits. The most favorable locations on land can't be increased. They are running into problems getting planning permission for the new turbines which in many cases are twice as high as the old ones.

As a result, companies are diverting to offshore sites where the wind is more constant but the costs of construction are far higher. The government's energy plan estimates that the expansion of offshore wind farms will cost €75 billion ($100 billion) by 2030, but adds that the investment risks are "hard to calculate."

3. Autobahns of Electricity Across the Continent

Building wind farms alone isn't enough. Power lines are needed to transport wind power south from the North Sea. The expansion of the grid, the third cost factor, will play a key role in the future energy system. The European Commission expects that investments in the power network will exceed €500 billion ($668 billion). Some 6,000 kilometers of submarine power cables have to be laid in a project called Seatec which is estimated to cost €30 billion ($40 billion). An additional €50 billion needs to be invested south of Europe to hook Europe up to the Desertec solar power project. The plan is for Europe to be covered by a smart grid capable of distributing electricity intelligently.

4. Norway as Europe's Green Battery?

Power companies already have difficulties reducing the output of coal-fired and nuclear power stations to avoid overloading the system. Engineers complain that such problems are occurring more often.

Pumped-storage plants are regarded as the best solution because of their high effectiveness of up to 80 percent. It's a simple principle. When there's a surplus of electricity, water is pumped into reservoirs that are located many hundreds of meters higher. When electricity is needed, the water is allowed to flow back down through tubes, driving turbines in the process.

Germany has limited space for expanding its storage capacity, because of its topography and population density. As a result, high hopes are being pinned on northern Europe, and on Norway in particular. And worse, there are no power lines running to central Europe yet. Billions upon billions will have to be invested to turn Norway into the green battery of Europe.

5. Biomass Boom Sending Prices Soaring

Because customers these days want wheat or corn both as food and as fuel, 2 million of the total 12 million hectares of agricultural land in Germany are already devoted to energy crops -- biogas from maize, fuel from rye and diesel from rapeseed. The government plans a gigantic 13- to 17-fold increase in the use of biomass by 2050. Based on current technology farmers would need to convert many millions of hectares of land to energy production. The result would be monocultures of maize or rapeseed. More biomass would need to be imported from Asia or Latin America, where palm oil crops are often planted on cleared rainforest land and sold at dumping prices. That flies in the face of ecological sustainability.

6. The High Cost of Saving Money

If Germans really want to banish fossil and nuclear power they will have to face up to the cost of doing so. And they will have to break the resistance of the big power companies who have been secretly trying to stall the transition.

Industrial companies, especially the energy guzzlers in the heavy industry sectors such as steel, cement and aluminium production, are also trying to slow down the transition. Industry consumes a quarter of Germany's electricity and gas requirements.

Germany's heavy industry is a powerful lobby because it employs some 875,000 workers. The CEO of chemicals group BASF, Jürgen Hambrecht, fears a "creeping deindustrialization in Germany." Firms are starting to threaten that they will build their next plant abroad where energy costs are lower and environmental regulations less strict.

Grassroots Revolution

Who is to say that it wouldn't make sense to sacrifice traditional heavy industry for the emergence of new, modern businesses?

Every euro spent on solar, wind and biomass power is an investment that benefits not just major companies like Siemens, but small businesses as well.

Local authorities want to wean themselves off the large power suppliers and are investing in renewable energies and small heating plants that supply power and heating to nearby customers such as schools. The regional enterprises are quietly pushing ahead with the green revolution, from the bottom up.

The energy changeover mustn't confine itself to trans-continental power lines, storage plants in the mountains and wind farms along the coasts. The government hasn't taken enough account of this maxim in its energy plan.

It's clear that the costs of the green revolution will be tremendous. The government will have to make sure that they don't become uncontrollable. But foregoing the necessary investments could turn out to be far more expensive because that would increase Germany's dependence on raw materials imports and worsen climate change.

Whether Merkel's master plan will ever be realized in its current form is doubtful, not least because energy policy these days is mainly drafted at the European Union level, in Brussels. European Energy Commissioner Günther Oettinger plans to present a new plan in February to show how Europe's energy markets can grow together. It will contain proposals for the location of power lines and how to remove the major differences in national subsidies for green power.

It's already clear that the Berlin energy plan won't be the last one. A new one is bound to be drafted -- not necessarily by Merkel.

Reported by KIM BODE, FRANK DOHMEN, ALEXANDER JUNG, KIRSTEN KRUMREY AND CHRISTIAN SCHWÄGERL