Movellas | Financial Times | In the idyllic southern Bavarian community of Wildpoldsried, 2,600 villagers are diligently playing their part in a bold experiment in German renewable energy generation, known as the Energiewende. The shift away from nuclear power and fossil fuels is Germany's most complex undertaking since reunification two decades ago. But with consumers complaining of rising energy bills and industry warning of a threat to competitiveness, whoever wins the German federal election on September 22 will face intense pressure for a rethink.

In Wildpoldsried, scores of homes and energy-efficient public buildings are bedecked with high-tech solar panels and many obtain their heat from a communal biomass plant. Wind turbines, financed by local residents, dot the surrounding hills and several farm buildings have adjacent biogas plants. These and many similar projects produce roughly 500 per cent of Wildpoldsried's energy requirements. Thanks to Germany's renewable energy law (EEG), which prioritises wind and solar power over coal and gas, the surplus of electricity in Wildpoldsried - worth an annual €5m to the village - is delivered into the grid. This bill is footed by a surcharge added to German electricity bills.

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In part due to the ecological ardour of villages like Wildpoldsried, renewable energy has been expanding more rapidly than envisaged. "I think people were surprised that the Energiewende is happening so fast," says Günter Mögele, deputy mayor. However, this is driving up the cost of subsidies, creating inefficiencies and outstripping the ability to develop the necessary electricity grid and storage infrastructure to support it. The environment ministry has estimated the total cost of the project could reach about €1tn. Claudia Kemfert, energy expert at the German Institute for Economic Research (DIW Berlin), says: "German angst used to be about blackouts and the dangers of nuclear power. Now Germans are worried about the Energiewende. The process is being mismanaged and the government's policies need urgently to be improved."

Pressure is growing on whoever forms the next government to rethink how the country goes about its flagship project, which will be closely observed internationally. Ulrich Grillo, head of the Federation of German Industries, said: "It was always clear that there would be a price . . . [But] the new energy supply architecture was entered into without an architect, a construction plan or site management." Kurt Bock, chief executive of chemical maker BASF, mused that "abroad, people are observing this German experiment with wide eyes and partly with a little Schadenfreude".

Following Chancellor Angela Merkel's decision to phase out nuclear power in 2011, Germany's goal of raising the percentage of renewables in the electricity mix to 35 per cent by 2020 and 80 per cent by 2050 - from 23 per cent last year - has become a national obsession. Despite the urgency and scale of the challenge, the issue has been peripheral in the election campaign. The public continues to support the expansion of renewable energy and none of the major parties therefore has an interest in advocating a significant reversal of the Energiewende. Ms Merkel, who likes to project an aura of absolute competence to the electorate, on the campaign trail barely talks about the energy transition, an area in which her government cannot be said to have excelled. Her Christian Democrat party's manifesto is vague about how it will tackle the problem, possibly reflecting uncertainty about with whom it might have to form a coalition.

Opposition Social Democrats have tried to make inroads into Ms Merkel's poll lead via a 10-point energy plan that pledges to cut electricity taxes. But as yet, it has not delivered the desired leap in the polls. Due to taxes - not all of which are associated with the Energiewende - electricity costs more in Germany than elsewhere in the EU. Costs associated with the renewable energy levy are expected to jump this year from €14.1bn to €20.4bn, according to the BDEW association of energy and water industries. The rapid expansion of solar and wind power means coal- and gas-fired plants are left with little to do on sunny and windy days and are increasingly unprofitable to operate. Utilities are therefore considering shutting down modern and highly efficient gas-fired plants, which were originally envisaged as a bridging fuel in the Energiewende.

Bernhard Guenther, RWE's chief financial officer, described the situation in conventional power generation as "the biggest crisis since ages . . . Unprofitable power stations cannot be kept open in the long run." Although the Energiewende's goal is to reduce carbon dioxide emissions, Germany's CO2 emissions rose last year as coal-fired power plants became cheaper to operate than gas. Much of the new renewable energy production is set to be built in the north, which will require new high voltage power lines to transport the electricity to the industrial south.

But the construction of these grid connections has stalled as Germans do not want the unsightly, electromagnetic pylons and cables near their homes. Willi Traut, who has been campaigning for more than two years to have planned high-voltage power lines buried underground in the town of Neuss near Düsseldorf, says: "It's not because I'm against wind and solar power - quite the contrary. But many people wonder whether these grid cables are even necessary due to the possibilities of decentralised power production and energy efficiency." Offshore wind farms, which offer higher yields than their onshore equivalent, are intended to fill the gap left by the exit from nuclear power. Some 10GW are planned by 2020 on the northern coast but the projects are expensive, technically challenging and slow to be completed.

German media let out a collective groan when it emerged that a new offshore wind farm near the North Sea island of Borkum was not yet generating any electricity from the wind and instead was consuming large quantities of diesel. The required grid connections to the land are not ready yet due to discoveries of second world war munitions on the seabed. However, the wind farms' mechanical components must be kept turning with diesel generators to avoid corrosion.

World Energy Solutions of Worcester saw a 27-percent increase in revenue during the first quarter of this year, but lost nearly $1 million after an accounting change that defers some revenue recognition after reporting sales and commission expenses, the company said.

In its quarterly filing, the energy procurement and services provider said it took in $8.7 million during the quarter, up from $6.8 million in the first quarter of 2012. But it also reported a 23-percent rise in annualized backlog, to $23.8 million. Altogether, total backlog and deferred revenue totaled $50.2 million as of March 31, up 27 percent. "We delivered strong results in the first quarter, despite the challenges of rising commodity prices and … previously announced changes to our mid-market business," CEO Phil Adams said. "World Energy's fundamentals and long-term outlook remain strong, and our results continue to validate our transition from an auction-based, procurement-only company to one offering a broader range of energy management services." | WBJournal.com

The management services line saw 57-percent revenue growth during the quarter. The energy procurement side, meanwhile, saw a 24-percent increase, which the company said reflected its acquisition of Northeast Energy Partners LLC (NEP) of Connecticut last year. As of the end of the quarter, World Energy had $2.1 million in cash and cash equivalents, down from $3.3 million at the end of 2012 and $2.4 million at the end of the first quarter of 2012. The company attributed the decrease to $1.4 million in contingent consideration payments and $500,000 in principal payments on long-term debt, offset by $700,000 from operational cash flow.

Last month, World Energy said it was delaying its annual report for 2012 due to the change in revenue recognition. It said there were questions about when certain commission payments it received as a result of its acquisition of GSE Consulting in 2011 should be applied to the company's revenue. World Energy said it concluded that the timing of recognizing the revenue was recorded incorrectly.

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