New Market Report: Germany Petrochemicals Report Q4 2013

From: Fast Market Research, Inc.
Published: Fri Nov 01 2013

With the German general election set to take place on September 22 2013, our view that the country's energy policy would be a fundamental tenet of the political discourse in the months preceding the vote has proven correct - with the debate still raging just days before the polls open. Central to the future trajectory of the Germany's energy policy will be the way in which the country phases out nuclear capacity and transitions to generating electricity using a greater share of renewable sources (Energiewende) - without spiking domestic electricity prices and damaging the economic competitiveness of its major industries. As such, while we believe the most likely outcome of the election is that Angela Merkel will remain Chancellor at the head of a grand coalition comprising the CDU-CSU and the SPD, with both opposition parties, consumers, industry and many utilities themselves voicing major concerns about the spiralling costs we reiterate that the Germany's Renewable Energy Resources Act (EEG) is unlikely to survive in its current form regardless of the composition of the next coalition government.

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The favourable conditions governing the integration of renewables-based generation into the grid and the sheer volume of electricity generated from green sources continue to create a number of challenges in the German power sector, penalising base-load producers and causing many utilities to consider mothballing uneconomical thermal capacity. As a consequence, there have been calls for both reform of the German electricity wholesale market and reductions in subsidies for renewables, in order to integrate both green energy and traditional sources of generation into the mix - while also ensuring the costs of the country's energy transformation (Energiewende) are sustainable.

The key trends and developments in the German electricity market are:

* Although we emphasise that there are a number of possible eventualities, BMI's Country Risk team takes the view that Angela Merkel will remain chancellor following the federal elections on September 22, and that a grand coalition between the centre-right Christian Democrats (CDU-CSU) and centre-left Social Democrats (SPD) is the most likely scenario. That said, it is also plausible that Merkel's current ruling coalition, which includes the Free Democrats (FDP), will remain in power - although recent polls show that FDP has been haemorrhaging support and may struggle to reach the 5% electoral threshold. We take a closer look at what both of these outcomes could mean for the country's energy policy in our forecast scenario section of the report.

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