Germany Goes Energy Solo: Why Is It A Problem?
The European Union (EU) is one economic entity of 27 countries. Any step taken by one of the countries will have a cascading impact on all the other nations. Germany, which is a part of EU, has come out with a pact for reviving its energy sector will have an impact on all the other countries. In a way,
What has happened?
Germany is Europe's largest economy as per some estimates, and has recently released 200 billion Euro energy assistance plan for its households and businesses. Other economies fear that it may fracture the single market in a time of crisis.
This is problematic because Europe is in the midst of a major energy crisis. Economies re-opened after Covid 19 pandemic began to fade and caused a surge in demand for energy. This was followed by Russia's invasion of Ukraine. Moscow has been a key supplier of natural gas to Europe, especially Germany, and its leverage to progressively cut off vital flows of gas to the continent.
These two factors have caused uncertainty in markets and the price of energy has shot up. The European gas price has shot up by 550 per cent in just a year. In the United Kingdom (UK) the bills have risen by 54 per cent in April with another 80 per cent rise slated for October. As economies lay battered, leaders have called for a joint European response to the crisis.
In Germany, which is also Europe’s largest economy, may enter into recession if energy situation does not improve. Inflation has also hit a 70 year high in the country and crossed double digit. The 200 billion Euro plan is to act as a buffer in this situation. Government resources will be used to compensate gas suppliers for selling energy at reduces rates.
Why is this a problem?
To start with, it may trigger a subsidy war among other European nations. It will also give undue advantage to Germany who can now borrow energy at low prices. Other economies might have to set up expensive bankroll subsidy programs, which might be an issue for them. Slovakia's energy minister for instance accused Berlin of fracturing the EU's common market.
The continent was earlier able to agree on partial measures like price caps on non-gas power prices, Berlin has resisted a cap on the price of gas supplies. Its latest plans complicate the efforts to present a joint European front. Germany's politicians remain defiant in this scenario, and are pointing to France that has similar energy goals and has provided a government backed relief. However, the French package was 12 Billion Euros, as against 200 Billion Euros of Germany.
EU's winter is India's heat
Europe is in the worst energy crisis it has seen in 50 years, and with the onset of winter, this issue is set to exacerbate. The demand for energy will go up while supply remains weak. The EU gas prices are at an all-time high, as we can see in the graph below.
The scenario has a profound impact on India, especially in the sector where natural gas plays an important part. These include CNG supply, fertiliser, and the like. It also has an impact on India's ‘Atmanirbhar Bharat' plan and its commitment to renewable energy, that is, establishing 450 GW by 2030. Given this scenario, the present tussle between Germany and other EU countries is only going to make things more difficult. At the same time, countries going solo is nothing new. In 1973-74 when the first oil crisis hit the world economies badly, France single-handedly took a bold decision to go for energy security by launching a massive indigenous nuclear power program funded by their government. They added nearly 50.000 MW of nuclear plants, and this way they successfully targeted energy security for their country, and almost 70 percent of their electrical energy was supplied by nuclear power generation. This implies governments have always taken decisions to protect their energy economy and India must accelerate its pace for energy self sufficiency.
