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    HomeBusinessIndustry is moving to the windy north

    Industry is moving to the windy north

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    A battle for the industry of the future is currently taking place not only between the USA, China and Europe. The German federal states are also keen to become home to new factories. One location factor could become increasingly important: the availability of renewable energy.

    Elon Musk’s new Tesla factory is in Brandenburg, Schleswig-Holstein will be the new location for the battery startup Northvolt, and Saxony-Anhalt will get the factory of the US chip manufacturer Intel. Is it just a coincidence that these federal states are also pioneers in the expansion of renewable energies? The first results of a new study by the German Economic Institute in Cologne (IW) show: The location advantage through renewable energies is growing.

    “We are already seeing a north-south divide in Germany,” explains Dennis Bakalis, economist for digitalization and climate policy at the IW and one of the authors of the new study, in an interview with ntv.de. “Especially in northern Germany, there is an increasing locational advantage due to the expansion of wind energy.”

    In the survey, 80 percent of the almost 1,000 companies surveyed rated the prospects for a climate-neutral energy supply in northern Germany as “fairly good” or “very good”. However, only 30 percent of companies say this about the southern federal states. This is what the “Handelsblatt” reports in advance about the results of the IW study.

    The share of renewable energies already varies greatly depending on the federal state. 81 percent of the electricity generated in Mecklenburg-Western Pomerania in 2020 came from renewable energies. Behind them were Schleswig-Holstein with 63 percent and Thuringia with 62 percent. In Baden-Württemberg, however, 40 percent of energy production was renewable. In North Rhine-Westphalia it was only 16 percent.

    Musk’s decision to build his Gigafactory in Brandenburg shows how important the immediate proximity to wind farms etc. is. The billionaire from the USA explicitly mentioned this as one of the central aspects for his choice of location. The Gigafactory will be powered by 100 percent renewable electricity. The first application documents for the environmental impact assessment mentioned 109 megawatts of electrical power – as much as a city with 40,000 inhabitants consumes. In the current version there are only 72 megawatts.

    Uniform electricity price

    Brandenburg is actually a pioneer in Germany when it comes to expanding renewable energies. In 2020, only 37 percent of energy production was renewable. But the country’s large areas offer a lot of potential. In 2022, Brandenburg was one of the leading federal states in expanding wind energy. However, it is still unclear where exactly the amount of energy for Tesla will come from. Musk has indicated that he does not want to build his own power plant. It could even be that a power purchase agreement is concluded with an offshore wind farm in the North Sea or a solar field in Spain.

    In terms of price, it actually makes no difference whether green electricity from the North Sea is used in Schleswig-Holstein or Brandenburg: there is a uniform electricity price in Germany. “It basically doesn’t matter where the electricity is produced, because an efficient electricity transmission network in Germany is a basic requirement for the energy transition,” says Norbert Ammann, energy expert at the Chamber of Commerce and Industry for Munich and Upper Bavaria, in an interview with ntv.de.

    So don’t all the wind turbines in Brandenburg have such a decisive influence on the attractiveness of the location? It is not that easy. The networks as they are currently built are not prepared for a climate-neutral world. The north-south routes must be massively expanded. The distribution networks to end consumers are also not prepared for the large amounts of renewable energy. If more and more end consumers buy green electricity, the grids cannot currently stand it. Even if the north could produce enough electricity for the south, it still cannot be transported there. “Expanding the power grid is crucial to transporting green energy from the windy north to the south,” explains Bakalis. But this is only part of the solution, because the expansion of wind power must take place in all parts of the country.

    Transmission networks are being expanded

    The IHK Munich also sees the solution in the expansion of the power grids: “The transmission networks will be further expanded. In the end, 150 or 800 kilometers of transmission distance doesn’t make much of a physical difference,” says Ammann, pointing to the well-established compensation mechanisms in the European networks, which depend on the situation Weather conditions bring French nuclear power to Germany or southern German solar or biomass power to the Austrian pumped storage plants. “In the long term, renewable energies will not bring any locational advantage in the sense of industrial settlements, since electricity generation and consumption must always be balanced over as large an area as possible to ensure the stability of the networks.”

    Ammann also points out that due to the focus on wind power, the share of renewable energies in electricity generation in Bavaria is often underestimated. In Bavaria, 48.5 percent, slightly more electricity was generated from renewable sources in 2021 than the overall German average (39.8 percent). In Bavaria, hydropower, photovoltaics and biomass play a larger role than in other parts of Germany – but wind power plays less of a role.

    CO2 prices make renewables attractive

    Tesla certainly did not choose the Grünheide location solely because of the advanced expansion of renewable energies in Brandenburg. The large area, the proximity to the metropolis of Berlin and the access to skilled workers may also have played a role. “The availability of renewable energies is becoming an increasingly important location factor,” says Bakalis. Ultimately, however, one indicator alone is never the deciding factor; the local infrastructure and available skilled workers are also important.

    Because of rising CO2 prices, the pursuit of climate neutrality is becoming an increasingly important location factor. According to the EU’s plans, CO2 pricing for oil, gas and fuels is to be switched to Europe-wide emissions trading in 2026. The price for each ton of emissions will then be regulated by the market – there will no longer be a uniform price. The more is consumed and the faster the certificates are used up, the more expensive the ton of CO2 emissions becomes. “The companies are already calculating everything,” says Norma Groß, spokeswoman for the East Brandenburg Chamber of Industry and Commerce ntv.de.

    But she doesn’t believe that companies are moving away now because there is more solar and wind energy in Brandenburg or Schleswig-Holstein. Nowadays, not so much industry is being built – and relocation costs a lot. Relocating operations solely to solar or wind energy is currently not realistic. That is why she does not yet see any direct location advantage in renewable energies. Very likely in the future, for example if the price of CO2 emissions rises. “But that will take a while.”

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