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14 July 2022

Germany pushes renewables, protects coal as gas shortage looms

Germany’s latest energy policies see coal protected from decommissioning for a few more years, new LNG terminals being built, while nuclear is given no such special treatment and renewables receive further boosts.

Coal plants may be revived, which is something of a trend across Europe – but as elsewhere, this is an emergency measure to fill in for any gaps which may open up in the supply of gas power. While little electricity comes from gas in Germany, nearly half of its heating does, so a shortage of gas will see whatever gas is available reserved for heating through the winter. If the 10% of electrical capacity which comes from gas is thus rendered inactive, then Germany must be able to reactivate at least a portion of its 44 GW coal fleet, if only for this year and perhaps next year.

Coal plants scheduled for decommissioning in 2022 and 2023 have therefore been given a new lease of life for as long as Germany remains in its “phase 2” emergency gas plan. In total 8 GW of coal has been protected by the Replacement Power Plant Act adopted on July 8th.

Last week Germany’s three-party coalition government reached agreement and passed a new energy transition package under which the country now plans 10 GW of new wind and 22 GW of new solar capacity each year. Other measures included broadening of land availability, with each state required to assign 2% of their land to onshore wind developments – though states unwilling or unable to assign that much can be compensated for by “overachieving” states. There will also be a simplification of licenses and construction, with one major reform being facilitation of repowering – some 16 GW of Germany’s wind fleet will have reached the end of 20-year Feed-in Tariffs and will then either be repowered or switched to PPAs. All told the new target is to reach 215 GW of solar and 115 GW of wind by 2030.

The 80% clean energy by 2030 target was maintained (up from under 50% today), but the pro-business FDP party had the 100% by 2035 goal scrapped, instead shifting that target to be achieved “after the coal exit.” That coal exit is still officially set for 2038, with the coalition agreement to move it forward to 2030 still not brought into law.

Another major policy move is the abolition of the $37 per MWh EEG surcharge on consumer electricity prices, which paid for renewable projects’ Feed-in Tariffs. Those will now be funded from carbon emissions trading. The surcharge had already been slashed by nearly half last year and will slow the rise of electricity prices.

Germany’s latest renewables auction, launched in May, tendered 1.125 GW of photovoltaics under a price cap of $60 per MWh (up only a few per cent from the previous tender), but only 714 MW was bid for according to a Bundesnetzagentur (Federal Network Agency) survey. That isn’t as bad as it sounds – one explanation offered by authorities is that higher module costs have seen developers shift to PPA-based projects instead. A small number of projects were rejected due to clerical errors while another was rejected because the state it applied for had used up its allowance of arable and grassland terrain which could be allotted to photovoltaic projects. Furthermore, the total amount of solar projects to be tendered in 2022 will be 3.6 GW, with 1.1 GW tendered in March and another tender to be held in November. That 3.6 GW is almost double the figure from 2021, so capacity being bid for is still rising overall.

This is all in the context of the latest events in Germany’s gas supply crisis. Uniper, the country’s largest gas supplier, has requested a bailout and says it expects losses this year to reach $10 billion. The most serious event has been the Nordstream 1 pipeline being brought down to 40% operation on June 16th and then taken completely offline on July 10th for maintenance. One turbine was sent to Canada for repairs and detained there under Canada’s sanctions rules, before being released after protests from Germany, and with US approval. That episode has led to some ironic statements being made, such as Canada’s Resources Minister stating that restoring the turbine would help Germany “counter Russia’s efforts to weaponize energy” – by resuming use of a pipeline that imports Russian gas.

Other figures, such as France’s Finance Minister, have warned that a Russian cut-off of the gas supply is “the most likely outcome.” While a Russian cut to Europe’s fuel supply is certainly an interesting possibility, so far sanctions have of course mostly been enacted by the West, including refusing to certify and use the physically constructed Nord Stream 2 pipeline, which has the same capacity as Nord Stream 1. The headlines warning of a calamitous Russian-initiated cut-off may really be a way to warn of the consequences of any further interruption of fuel supplies by Western sanctions as winter approaches – framing it as a possible Russian action allows one to completely avoid criticizing the West’s strategy. Stating that the Russians will cut off gas is also a way to reinforce the necessity of finding alternative suppliers – once that is done Europe will then be able to ban Russian gas for real.

Russia must surely have considered cutting Europe’s gas supply, but it is hard to see how the hit to Russia’s own finances and to its reputation as a reliable supplier would be worth it. Europe’s economy would be weakened, but so far most of the money and weapons sent to the Ukraine come from the US. A cut-off would likely result in angered European populations supporting an increase in their own support for the beleaguered country.

What is somewhat likely compared to a full cut-off is that Gazprom may prolong the Nord Stream 1 maintenance, which is annual and scheduled, beyond the 10-day duration which should end on the 20th of this month. That way Europe will be less able to stock up in preparation for stricter sanctions after the winter. Some have suggested that the 60% reduction in output from the 16th June to 10th July was not necessitated by the absence of the repaired turbine. Ukrainian officials have stated that the pipeline could’ve been run at full capacity without the repaired turbine, but they also condemned Canada’s decision to return it to Germany regardless.