Over ten years ago, when Europe was a bright and shining example of experimental monetarist “brilliance”, and when the money was flowing, the continent decided to do the ethical thing and actively promote the pursuit and development of renewable energy through countless government subsidies. As a result, Germany and Spain became the undisputed leaders in the race for a green future, and both created similar laws to encourage the development of renewable energy. There were two problems: i) green energy, while noble in theory, is about the worst idea possible when it comes to profitability and capital self-sustainability and constantly needs governmental subsidies, and ii) it was the end consumers who would pay for the government’s generosity, in the form of a surcharge on electric bills. In Germany, for example, as the industry grew (in size, and thus in losses) demand for the subsidy increased, driving the surcharge higher. In January, the surcharge, which amounts to about 14% of electricity prices, nearly doubled to 5.28 euro cents per kilowatt hour.
And, as the WSJ so deftly explains, “that means ordinary consumers shoulder the lion’s share of the costs for what the German government calls its “energy revolution.” And here is where a third problem comes into play, because while German and Spanish consumers were happy to pay a surcharge in the golden days of a Dr. Jekyll Europe when everything was great, soon Europe become a doomed Mr. Hyde-ian Frankenstein monster, with imploding economies, 60%+ youth unemployment and resurgent neo-nazi powers. In short: the German and Spanish consumers have had it with funding an infinite money drain (even bigger than Greece), when cash flow is scarce and getting worse, and have just said “Basta” and “Nein“, respectively.
Which means it is now a political issue in Spain, where the scandal ridden Rajoy has never been more unpopular, and certainly in Germany where Merkel faces an election in September and can’t allow the public opinion to shift against her. As a result “with Spain in the grips of recession, the government wants to lower consumers’ light bills. In Germany, Chancellor Angela Merkel faces an election in September and hopes to win points with voters by putting a stop to rising electricity bills.” Specifically, “Ms. Merkel’s government on Thursday proposed putting a cap on the green-energy surcharge until the end of 2014 and then restricting any rise in the surcharge after that to no more than 2.5% a year. The government also plans to tighten exemptions, which would force more companies to pay, and achieve a cut in green subsidies of â‚¬1.8 billion ($2.42 billion). The plan is a quick fix pending comprehensive reform after the election, government officials said.”
Spain is not far behind:
The Spanish parliament took a similar step on Thursday, passing a law that aims to curb rising household electricity costs by cutting aid to the renewable-energy industry.
Renewable-energy producers “are going to receive less revenue, but these measures are better for consumers” said Energy Minister JosÃ© Manuel Soria.
Among the changes in the Spanish system, the new law indexes certain subsidies and compensation to an inflation estimate that strips out the effects of energy, food commodities, and tax changes.
Naturally the response from the subsidized industries has been swift and damning:
Renewable-energy companies said that the government was backing away from previous promises that it would ensure them a reasonable return on their investments.
“Spain’s government is trying to smash the renewable-energy sector through legislative modifications,” said JosÃ© Miguel Villarig, chairman of the country´s Association of Renewable-Energy Producers.
Actually all the Spanish government is thing to do is stay in power, and in order to do so, it must stop demanding that its people pay for the development of financial black hole industries.
The immediate result of these steps will be a widespread collapse in the alternative energy space in Europe, which is barely sustainable on an “as is” basis (see Solyndra) with ongoing government funding, and will melt as fast as a snowball in the Iceland thermal when the money is even modestly cut off.
Because like all truly money losing government ventures, one can’t mothball a project that by definition has to lose money in hope one day it will be a new money-winning paradigm, especially since the imminent deleveraging wave which will hit the world once Chinese inflation wakes from its slumber, will mean conventional energy costs will once again have no choice but to drop (see: “On This Day In History…. Gas Prices Have Never Been Higher“).
Yet all this means is that the government will merely have to find other, more creative ways to lose money now that the alternative energy fad is virtually dead. Luckily, spending money with absolutely nothing to show for it is one thing that every government in the current insolvent global regime, has a peculiar knack for. It also means that thousands of former government workers with no real marketable skills are about to hit the streets demanding more handouts from the nanny state, and lead to yet another wave of European civil unrest just as the ‘other people’s money’ is about to run out.