Germany's Pricy Gambit Will 'Cleantech' Be Next Economic Miracle?

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By and

Part 2: Memo to Companies: Change or Die


A visit to the company's plant in Elchingen near the southern German city of Ulm illustrates what Fehrenbach is talking about. For the past three years, a team there headed by project manager Christine Ehret has been developing a new type of braking system. Scheduled to go into production at the beginning of 2010, the system is designed to reduce fuel consumption in trucks by up to 25 percent.

In one of the assembly buildings, Ehret is running the final tests on a 20-ton truck, an orange garbage truck based on the Mercedes Econic. She climbs into the driver's cab. Steel tubes that look like scuba tanks, the heart of the system, are installed behind the cab. Hydraulic oil is compressed in the bottles using the energy that normally escapes as heat during braking.

The oil is compressed at pressures of more than 100 bar. When the vehicle starts accelerating again, the pressure is released and the energy is fed into the powertrain, boosting the engine. The system works very smoothly, says Ehret. "Drivers enjoy it."

This process of returning energy to the engine is called recuperation. It is particularly effective in vehicles that make frequent stops, like garbage trucks, which consume up to 120 liters of diesel fuel per 100 kilometers (for a fuel efficiency of only 2 miles per gallon). According to Bosch estimates, the investment could pay for itself within four years.

The example of the hybrid brake shows how climate protection encourages companies to innovate. The biggest transformation will be faced by those companies that have been the most heavily dependent on the fossil fuels and are now forced to adjust to increasingly strict environmental standards. Change is their only option.

Revamping Product Lines for the 21st Century

Carmakers like BMW are putting all of their efforts into developing fuel-efficient hybrid engines. Chemical giants like Germany's BASF are producing energy-saving insulation materials. Electricity producers like E.on already operate enormous wind farms, including one in Texas that is the world's largest. Steel producers like ThyssenKrupp are making oversized rolling mills to produce the giant rotors used on wind turbines. All told, some of the biggest names in German industrial history are revamping their product lines for the 21st century. Nevertheless, no one really knows whether these companies will end up earning more or less money by making such major adjustments.

At engineering giant Siemens, the environmental segment is already large enough to offset declines in the company's other divisions. The Munich-based group earns about €23 billion a year with its environmental businesses, which include products like gas turbines and smart power grids. Siemens' environmental business has grown by 11 percent this year and is expected to continue growing at about the same rate.

The frugal use of resources has always been seen as a hallmark of the German economy. From major corporations to virtually unknown smaller operations, German companies are always at the forefront when it comes to making products designed for precision control, regulation and measurement.

"The German machine tool industry identified the field of energy efficiency as a megatrend early on," say the analysts at Deutsche Bank Research, who believe that the industry is "one of the great white hopes for the end of the age of oil." There is no doubt that increasing energy efficiency is one of the most important tools to avert the squandering of fossil fuels.

Take, for example, the building sector, which generates more than a third of all carbon dioxide emissions. By installing the latest in heating and insulation technology, property owners can easily cut their energy use in half.

Energy Harvesting

Electricity providers are another case in point. Equipping all of the world's power plants with the latest technology would save four times as much CO2 as is currently emitted in Germany. However, it is not always necessary to realize potential savings at the gigawatt level. Sometimes even tiny amounts can be relevant, as evidenced by the high-tech sensors engineers have developed at Enocean, a pioneering company in Oberhaching outside Munich.

The sensors require no outside power sources to operate. The mechanical pressure generated by pushing a button is sufficient to transmit a radio signal, which can activate a light or switch on a heating system. Cable connections and batteries are no longer needed.

The principle is called energy harvesting. A small vibration, a weak light, a puff of air or the push of a button is sufficient to generate voltage of no more than 10 milliwatts. The company's miniature power plants are still "quite unique," says Markus Brehler, the engineer who founded the company eight years ago. Enocean -- the name signifies an ocean of unused energy -- employs 50 people.

Germans Pay Dearly for Green Economic Miracle

Enocean, which has not taken advantage of government subsidies, derives its funding from about €22 million in private venture capital. The political world doesn't have a very good record when it comes to promoting energy-efficient technologies, says Brehler, at least when compared with the vast amounts of money the government spends -- or wastes? -- on the production of renewable energy, particularly photovoltaic systems.

In fact, German citizens have paid dearly for this part of the green economic miracle. Electricity customers have paid €6 billion for solar modules that were installed between 2000 and 2008. But the bulk of costs related to solar power are yet to be incurred. German economic research institute RWI-Essen estimates that the government will spend an additional €29 billion to promote solar power in the next 20 years, the remaining duration of the county's solar energy subsidy program.

The benefits are relatively modest, compared with the cost. Solar-generated electricity covers only 0.6 percent of demand in Germany. Subsidizing solar is neither good for the climate nor does it help employment in Germany, says economic sage and RWI President Christoph Schmidt. The Renewable Energy Act (EEG), says Schmidt, has merely artificially stimulated demand for solar energy. "The EEG may be well-intentioned, but it's highly inefficient from an economic standpoint."

The law -- enacted in 2000 under the center-left government coalition of then Chancellor Gerhard Schröder of the Social Democrats and the Green Party -- allows operators of solar systems to collect a fixed payment of up to 43 cents per kilowatt hour that they feed into the grid, at prices guaranteed for 20 years. By comparison, the producer price of electricity is approximately 5 cents per kilowatt hour. The rate paid to solar power producers, in the system known as net metering, will be reduced to 39 cents at the beginning of next year, prompting a rush among homeowners to have solar panels installed on their roofs. Many installers are now booked solid until the end of the year.

China Competes in Solar Panel Market

But the investment will still be worthwhile after that. Even more significant than the government subsidy is the substantial decline in the cost of solar panels. Chinese manufacturers like Yingli and Suntech are now offering comparable systems at discounts of up to a third off current prices. German solar panel producers, accustomed to success, can hardly compete. Major players like Solarworld are reporting sharp declines in profits, while some manufacturers are already in the red and cutting jobs.

The German photovoltaic industry is in danger of losing its dominant position in the world market, and even Germany's technological leadership is now in jeopardy. Chinese companies, lured by German subsidies, are the beneficiaries -- an object lesson in misguided industrial policy.

Nevertheless, the new administration in Berlin is standing by the existing subsidy system. The coalition government of the conservative Christian Democratic Union (CDU) and the pro-business Free Democratic Party (FDP) is determined to take "the path into the renewable age," as the coalition agreement states, and it has already guaranteed the continued existence of the EEG and net metering rates. The government wants to do everything within its power to defend "Germany's pioneering role in climate protection," now that other countries have also discovered the green markets of the future and are upgrading their industries accordingly -- no matter what the cost.

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