Energy Musings - April 6, 2026
Germany is now rethinking its disastrous decision to shutdown its nuclear power plants in light of the most recent energy crisis due to the Iranian war. The political leaders acknowledge it failed.
Germany’s Anti-Nuclear Policy To Reverse?
CNBC proclaimed “Germany: Energy Price Surge” as it began a segment on the global economic impact of the war in Iran. However, the real news from Germany is that its leaders are reassessing the nation’s energy policies, as the government is forced to address the energy affordability issue that has devastated its economy.
A joint forecast by five economic institutes is predicting German gross domestic product will increase by only 0.6% this year and by 0.9% in 2027. These new forecasts are sharply lower than their last September predictions of 1.3% and 1.4%, respectively. These forecasts are below the most recent government’s forecast, issued in January, of 1% and 1.3% growth, respectively.
Timo Wollmershäuser with Munich’s Ifo Institute, one of those that issued the joint forecast, said, “This energy price shock is hitting a German economy in which a recovery set in last year after a several-year downturn.” Yes, Germany inched out 0.2% growth in 2025 after two years of negative growth, but now it is going to struggle.
A problem Germany is wrestling with is its energy system, created in response to the adoption of the Energiewende in 2010. Energiewende means “energy turnaround” in German and reflects a specific energy policy: do away with fossil fuels and replace them with power from renewable energy sources.
When legislative support for the Energiewende was passed in 2010, as part of the energy transition, the policy included a target to reduce greenhouse gas emissions by 80-95% by 2050 relative to 1990. It also called for renewable energy to account for 60% of Germany’s energy output by 2050. However, given recent events, there appears to be a rethinking of Energiewende. The pressure is coming from the impact of a series of international events, starting with Russia’s invasion of Ukraine in February 2022, and now the Iranian war, the closure of the Strait of Hormuz to energy shipments, and the impending fuel shortages.
The history of Energiewende provides insight into why it led to the closure of Germany’s nuclear power plants, which provided emissions-free power. The term Energiewende was first used in the title of a 1980 publication by Öko-Institut, calling for the complete abandonment of nuclear and petroleum energy. It was the culmination of a decade-long strong anti-nuclear movement in Germany. Disparate groups formed to protest new nuclear power plants, concerned about the risks posed by the technology, and for some, the link to nuclear weapons. The movement contributed to the formation of the Green Party, which has emerged as a powerful political force.
The movement was aided by nuclear accidents such as the partial meltdown of the Three Mile Island nuclear power plant in Pennsylvania in 1979, and the Chernobyl accident in 1986, which released a cloud of radioactive waste that reached parts of Germany.
The Öko-Institut was funded by environmental and religious organizations, turning Energiewende into a quasi-religious crusade. From its formation, Energiewende expanded in scope, reaching its present broad-based form in 2002. The broader scope is perceived as a “democratization of energy,” meaning that traditional energy companies with large, centralized power stations were viewed as oligopolies and capable of amassing worrisome levels of both economic and political power. In contrast, it was believed that renewable energies could be established in a decentralized manner, minimizing their economic and political clout.
In 2000, Germany’s coalition government, which included the Greens, officially announced its intention to phase out nuclear power. The first two plants were closed in 2003 and 2005. This action was followed by the passage of the Renewable Energy Sources Act, which provided a feed-in tariff (subsidy) to support renewable energy. The government also declared climate protection a key policy objective, alongside a target to reduce carbon emissions by 25% by 2025 compared to 1990 levels.
In 1998, renewable energy sources provided 5% of Germany’s electricity demand. The German government wanted to reach 10% by 2010. In fact, it reached 17% of total electricity demand.
As Germany’s share of renewable energy in electricity output rose, critics of the nuclear phase-out argued that the action could trigger an energy crisis, primarily an electricity crisis. They also predicted that only coal-fired plants could compensate for the loss of nuclear power, and therefore, carbon emissions would increase significantly. Prospects of both outcomes were unacceptable.
To mitigate rising emissions, Germany began importing more electricity from France, generated by its nuclear power plants. It was also recognized that increased Russian natural gas imports were another way to mitigate the need to burn more coal. People also believed that improved wind turbine and solar panel technology would reduce the need for conventional energy sources.
Despite renewable energy’s share of Germany’s power market growing, in 2010, 17 nuclear reactors were producing nearly one-quarter of the country’s electricity. It is also important to understand the role that nuclear power played in Germany’s history. Those plants, all in West Germany, enabled a unified Germany to retire the ultra-dirty power plants of the former East Germany without disruption to consumers.
Shortly after the plan to phase out Germany’s nuclear power was put in place, the third significant nuclear accident triggered an acceleration of the plan. On March 11, 2011, an earthquake triggered a tsunami that flooded the Fukushima nuclear power plant in Japan, causing a failure of the plant’s cooling system and the release of radioactive materials. It was classified as a level 7 event, one of the worst nuclear disasters in history, and the evacuation of 150,000 Japanese people.
During the first six years as chancellor, Angela Merkel was a champion of Germany’s nuclear industry and dismissed objections as “absurd.” Reportedly, she was shocked by the Fukushima disaster. She called Juergen Grossmann, the head of RWE, Germany’s largest power company, two days after Fukushima to discuss the impact on the power market. According to Grossmann’s testimony, Merkel never indicated that the government was about to do a U-turn on energy policy. However, two months later, Merkel’s government announced it would close all of Germany’s nuclear power plants by December 2022.
“There was great hysteria,” Grossmann told a hearing at the state of Hesse parliament. “The government thought at the time that Germany was close to a nuclear disaster.” The chancellor’s decision was a shock to Germany’s utilities and to the market. According to Tilman Mayer, a political professor at the University of Bonn, “it was definitely not thought through.” He noted that no other European country, not even Japan, decided to abandon nuclear power fully.
The fallout from the accelerated nuclear plant shutdown policy cost utilities half their market capitalization, as they were forced to deal with an €80 ($92) billion expense, more than their combined market value. The cost of the nuclear shutdown was never assessed, nor was a financing plan considered.
Germany’s nuclear plants and the locations of the final three.
While the final nuclear shutdown was scheduled for December 2022, the final three plants were allowed to continue operating until April 2023. Germany correctly assessed it would need that power through the winter. Since then, however, idled coal-fired plants have been returned to service, and more gas-fired power is being generated, even though access to Russian natural gas has been banned. Yes, renewable energy sources have increased, but not sufficiently to guarantee power availability. Utility bills have soared, and Germany’s economy has suffered. As industrial manufacturing operations have been reduced, jobs have been lost. Cheaper Chinese imports are claiming a greater share of the German economy.
In January, Chancellor Friedrich Merz passed judgment on the nuclear shutdown decision. He called it a “huge mistake.” He outlined the problems Germans face. “[W]e simply don’t have enough energy generation capacity,” Merz said. “To have acceptable market prices for energy production again, we would have to permanently subsidize energy prices from the federal budget.” Merz added: “We can’t do this in the long run.”
Merz acknowledged that the current government is facing the consequences of past decisions. The nuclear exit has contributed to high power costs and increased complexity in Germany’s energy transition.
“So, we are now undertaking the most expensive energy transition in the entire world,” Merz said. “I know of no other country that makes things so expensive and difficult as Germany.”
The complexity and cost are driven by the reality that once reactors are permanently shut down, they must be defueled, safety systems dismantled or deactivated, and key components begin to degrade without active maintenance. Operating licenses are permanently revoked upon decommissioning. Therefore, restarting reactors would require new approvals, full safety reviews, and compliance with modern nuclear standards. Decommissioning also involves the destruction of portions of the reactors, which would require new construction.
“We inherited something that we now have to correct,” Merz said, adding: “But we simply don’t have enough energy generation capacity.” The problem is compounded by Germany’s past reliance on cheap Russian natural gas. When the Ukraine-Russia war erupted, the use of Russian gas by European countries was banned, and replaced with liquefied natural gas, mostly from the U.S. That supply accounts for about 10% of Germany’s gas supply. The percentage will likely increase given the LNG export disruption caused by the closure of the Strait of Hormuz and the loss of 17% of Qatar’s LNG export capacity for three to five years.
European gas prices are 60% higher since the start of the Iran war, creating the continent’s second energy price shock in less than five years. As a result, German electricity prices for May, based on futures contracts, are four times as high as those of France, Europe’s largest nuclear power producer and a supplier to Germany, according to the energy marketplace EEX several days ago.
Germany’s economy minister, Katherina Reiche, says it is time for the country to rethink its opposition to nuclear power. She warned that there was now “no alternative” to natural gas to meet electricity demand. Reiche told the Financial Times, “We need gas to secure our supply – that is the only baseload supply I have left. Politically speaking, I have no alternative.”
Chancellor Merz has ruled out restarting conventional nuclear power stations. Instead, the government is backing new technologies, including small modular reactors and nuclear fusion. Last year, Merz promised France that he would stop opposing nuclear power at the European Union level. The debate about Germany’s future energy mix has become a part of a broader debate about how to restructure the economy to spur growth, now that the energy shock is sapping it of half its previously projected growth.
A leader of Germany’s current governing coalition is proposing reforms to the labor market, the tax code, and the pension scheme. Despite his proposals, his party is still promoting a wealth tax and a windfall-profits tax on energy companies to fund bigger subsidies for households as a sop to the left in his party. German Finance Minister Lars Klingbeil is a co-leader of the center-left Social Democratic Party, or SPD, which is the junior partner in the current coalition government of Chancellor Merz.
In a recent speech, he observed that Berlin must break its habit of responding to crises by doling out subsidies and amping up regulations. He observed, “My sense is that people in our country are willing to make sacrifices and accept change.” Embracing nuclear power could be the first test of Klingbeil’s assessment.
A key question and test of Klingbeil’s view is how Germans will react to the upcoming energy shortages that are spreading across Europe due to the extended closure of the Strait of Hormuz. Looking across the border to France, with its large nuclear power plant fleet pumping out low-cost, clean electricity, will be telling.