In a complete u-turn Angela Merkel’s government plans to decommission all German nuclear power stations by 2022

Germany’s environment minister, Norbert Roettge, announced his country is to shut down all its nuclear plants by 2022.

German Chancellor Angela Merkel set up a committee to decide the viability of German nuclear power following the Fukushima nuclear accident.

Nuclear power produces 22% of Germany’s electricty needs, which will now have to be replaced by other energy sources.

Germany’s decision will have serious consequences for the domestic market and it will also affect the rest of Europe. On Tuesday May 31, Reuters reported that British gas prices rose 4% in one week to their highest in six weeks.

Evidently, energy companies are the worst affected. Eon, Germany’s biggest energy provider, plans to sue the government over its decision to maintain a spent fuel rod tax in spite of the plans to discontinue nuclear power.

Merkel’s government had originally planned to extend the life of German nuclear plants but reneged on her decision following serious protests in April this year.

This decision demonstrates the political power of protest and its associated economic risk.

In a macro-economic context, these events show that electricty prices may increase as developed countries begin the expensive transition to renewable energy sources.

In the interim demand for gas, coal and carbon permits may increase, which in turn would cause the price increase. Risk managers need to be aware of potential volatility in energy markets.