Nomi’s Note: Welcome to a special edition of Inside Wall Street. All this week, I’m bringing you some of my favorite content from geopolitical strategist Peter Zeihan.
Around the world, countries are wrestling with a worsening energy crisis. From Texas to California, Germany to France, many places are turning to renewable and nuclear energy to keep their economies open. Some successfully; some not so much.
Today, in the first of a two-part series, Peter shows us what’s working in Europe… and what isn’t.
And he shows us why Germany, which has been regarded as a model of excellence in the energy transition, has got it all wrong…
Read on below…
California. Texas. Germany. France.
Not a normal grouping of places, policies, or politics.
All four, however, are in the midst of a transition to renewable or green energy.
All four are grappling with energy reality… popular expectations… the vagaries of climate and weather… and rising energy costs.
And all four are experiencing a mix of successes and failures, both in and out of their control.
So today, I want to talk about electricity.
We’ve got a lot of things going on in California, Texas, France, and Germany.
I’m going to knit them together into a story for you that hopefully makes some sense. Let’s get to it…
Different Places, Different Policies – Same Transition
Our story starts with Russia.
The biggest issue is that the Russians have shut down the Nord Stream 1 pipeline, again.
Nord Stream 1 is the primary flow of natural gas from Russia direct into Germany. It goes under the Baltic Sea.
Natural gas provides about 15% of the electricity the Germans use.
The Germans also use that natural gas as the base of their heavy industry. And heavy industry is really the foundation for everything in German manufacturing.
So to lose any part of it – even temporarily – is a big deal.
But regardless of what happens next with Nord Stream 1, Germany won’t be in the clear.
I would anticipate the other natural gas pipelines that cross Belarus and Ukraine on their way to Germany are also going to go offline this year. Either due to war or partisan damage.
One way or another, the Germans have to figure out how to do without Russian gas.
They’re trying to bring in liquified natural gas (LNG) from new facilities as quickly as they can. They’re hoping to have those up and running by the end of the year.
But any LNG they bring in is LNG that’s not going somewhere else in the world. So there’s no way this gets solved without much higher natural gas prices.
And that brings us to our three other places: France, Texas, and California.
In anticipation of higher natural gas prices, the French re-nationalized Électricité de France. That’s their electricity company.
They did that so the state can directly control the rates charged to customers.
Then there’s Texas. Texas had a record-setting heatwave this summer.
I was unfortunate enough to be in Dallas recently. It was a “balmy” 110 degrees.
And the whole system nearly crashed. We almost had rolling blackouts in Central and Northern Texas because of the heat.
And then finally, you’ve got California. California is pushing for a 100% green grid.
As part of the debate, it’s looking to eventually take Diablo Canyon offline. It’s a nuclear power plant that provides about 10% of the power for the state. It was supposed to go offline by 2025.
But it just got a reprieve. Governor Newsom introduced legislation that gives the option to keep it open for five more years.
Now, what do all these places – Germany, France, Texas, and California – have in common?
Well, all four are in some way participating in a green energy transition.
Different policies, different places, different fuel mixes – but it’s all happening. In some places, this works. And in some places, it doesn’t.
Let’s start with the doesn’t – and talk about Germany.
Germany Is Taking a Page Out of Enron’s Book
Germany is neither a sunny nor a windy country. They’ve invested about €2 trillion in building out solar and wind and transmission capacity.
By nameplate, all of those facilities should be generating 200% of Germany’s electricity needs. But instead, it’s only 10%.
Why so bad?
Well, it’s not just that the country is not windy. And it’s not just that it’s not sunny. To be blunt, Germany is also doing some “Enron-esque” things with their statistics.
For example, the kind of coal the Germans use is called lignite. It’s 20% water by weight. It is the least efficient fuel out there.
And with the natural gas from Russia going offline, the Germans are mining and burning more of it. It is now their primary source of electricity-generating capacity.
It takes 24 hours to spin up a lignite mine, because when the sun does come out in Germany, they unplug the turbines that are generating the coal-based power. And they only allow solar power into the grid.
They then don’t count the emissions from coal.
But then, as soon as the sun goes down, they have to plug it back in. And we go back to where we were.
The Germans are just flat-out lying about their statistics. And honestly, not doing a very good job of it.
But there are a lot of people in the green community who continue to praise the Germans as the model we should follow…
Even though emissions have gone up in Germany since their commitment to the green transition.
France is a different story – and it’s a better story.
France is a sunnier country. It’s a windier country – not by a huge margin, but enough to make a difference.
And they get a substantial portion – about 70% – of their electricity from nuclear power.
They’ve got this base load that is green-friendly, at least from a carbon emissions point of view. (Although if you don’t like nuclear in Germany, you’re not going to like it in France, either.)
Texas is where things get a little weird. More on that tomorrow…
Author, The End of the World Is Just the Beginning
Nomi’s Note: Nomi here again. As a longtime geopolitical analyst and strategist, Peter has immersed himself in the world of international affairs throughout his career.
In his latest book, The End of the World Is Just the Beginning, he combines his unique understanding of demography, economics, energy, and politics to map out what happens next in our world.. Including in the energy transition.
To order your copy of Peter’s book today – at a discount over the major retailers – simply click here.