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Germany’s seismic energy policy U-turn
Berlin finally comes off the fence. Now it faces some hard realities.
Europe is undergoing a profound awakening. Russia’s ruthless bombardment of Ukraine is shaking the scales off people’s eyes. Decades of political hand-wringing and rhetorical contortions around Russia’s central role meeting European demand for gas and coal are coming to a dramatic head. The fence-sitting of some EU member states, Germany in particular, was always problematic. Now it is untenable, and we are witnessing a seismic shift in thinking around European energy security.
The German government’s indefinite halt of Nord Stream 2 (see last Friday’s issue) was followed by another two highly significant policy U-turns. On Saturday, Berlin decided to send arms to Ukraine, breaking from its neutral standpoint that had limited assistance to sending helmets to Ukrainian frontline soldiers, prompting ridicule in some quarters.
On Sunday, Chancellor Olaf Scholz indicated his administration’s willingness to defer planned coal and nuclear plant closures that are widely expected to drive greater natural gas burn. Simultaneously, Berlin intends to expedite the development of Germany’s first two LNG import terminals to diversify gas supply sources, and invest more in seasonal gas storage and subsidise wind and solar to the hilt.
‘The energy of freedom’
Germany imported 56.3 billion cubic metres of Russia gas in 2020 (source: BP statistics), equating to 55% of the country’s entire gas procurement that year. Reducing Germany’s gas demand and diversifying its gas supply sources have shot up the political agenda in Berlin.
This means promoting alternative power generation and finding non-Russian gas suppliers. It could also spell an end to the installation of gas-fired heating systems in German buildings.

Germany is doubling down on renewable power sources to phase down reliance on Russian exports. A draft government draft obtained by Reuters purports to set a target for Germany to meet 100% of its power demand from renewables by 2035, an acceleration of the previous “by 2040” target.
An amendment to the Renewable Energy Sources Act (EEG) is said to be in the works to support a roll-out of wind and solar to cover 80% of demand by 2030. This would require 100 GW of onshore wind, 30 GW of offshore wind and 200 GW of solar PV capacity.
If true, this is a gargantuan increase on today’s 62 GW of onshore wind, 7.7 GW of offshore wind and 59 GW of solar installed capacity — and will come will an immense price tag in the EEG, which will be borne by either consumers, taxpayers or both. Here’s how German Finance Minister Christian Lindner referred to renewables yesterday:


Entrenched reliance
Germany’s new government came to power with plans to accelerate the country’s coal phaseout to 2030, from 2038 previously. Combined with an imminent nuclear exit, this would leave the country heavily reliant on gas to balance variable output from wind and solar sources until there’s enough redundancy in the system to cover periods of dunkelflaute. That’s a big obstacle, because seasonal demand varies enormously.
There are, of course, many problems to overcome. Germany’s reliance on Russian coal rose to 45.4% of the country’s coal imports in 2020 (source: CLEW). Most coal used in Germany is produced domestically.

However, in the last decade, indigenous production dropped by 13% while coal imports decreased by 2%. This means that, overall, the share of Russia coal in the mix is rising:

And, as I’ve discussed previously on the podcast, some European coal power stations are configured to run only on Russian coal (I can only presume that some of these plants are located in Germany; this Argus article does not elaborate).
Prolonging coal burn beyond 2030, as is now being discussed, might be necessary without Russian gas. But this would be bad for CO2 emissions and air quality in Germany. If this is deemed to be a price worth paying, there must be a plan in place to ensure that ‘Russiaholic’ Germany is not merely swapping one brand of vodka for another.
Atomic rethink
The nuclear U-turn has been widely hailed as a welcome and long overdue realignment with common sense. But it is no panacea, and merely buys some time. Moreover, this remains a purely speculative idea. All we have seen so far is a weakening in the government’s ideological opposition to nuclear energy. Economy minister Robert Habeck was notably circumspect:
“Because the preparations for the shutdowns are already so far advanced that the nuclear power plants could only continue to operate under the highest safety concerns and possibly with fuel supplies that have not yet been secured. And that is certainly not what we want.”
Germany closed three reactor units (total: ~4 GW) at the end of 2021 and the last three are scheduled for closure this year (another 4 GW). If contractual and procurement obstacles can be overcome, it might be possible to return the most recently closed units back to service. If so, this could see 8 GW of nuclear operating to reduce Russian gas-fired power generation.

Any amount of extra generation capacity would be welcome. Every kilowatt-hour matters when EU wholesale electricity markets are as tight as they are today. German monthly baseload power futures are trading at €200 per megawatt-hour all the way out to April 2023, and thereafter remain above €100/MWh until April 2024.
But 8 GW is a far cry from the 22 GW of atomic capacity that the German nuclear industry operated at its heyday in the 1990s and 2000s, when the fateful decisions were made to exit nuclear. In fact, if Germany does decide to embrace nuclear again, this would be the second U-turn.
“A coalition government formed after the 1998 federal elections had the phasing out of nuclear energy as a feature of its policy. With a new government in 2009, the phase-out was cancelled, but then reintroduced in 2011 following the Fukushima accident in Japan, with eight reactors shut down immediately.” – World Nuclear Association
Germany’s major utilities – RWE, E.ON and EnBW – were quick to pour cold water on any potential plans to extend existing nuclear plants or restart decommissioned ones, with RWE reportedly saying this won’t happen:
“Nuclear power is no longer an issue in Germany. It wouldn’t even be possible to restart the power plants in the short-term.” – RWE CEO Markus Krebber
This could be a negotiating tactic. These three companies and a fourth, Vattenfall, were last year awarded €2.5 billion in compensation after dropping their legal action against the government. Reversing the phase-out is likely to require another big payoff. Refuelling, procurement and staffing are also obstacles (read: bargaining chips) to contend with.
Expediting LNG
After decades of dithering, Germany still has no LNG import capacity of its own. Numerous projects have surfaced over the years, only to run into problems.
The 10 Bcm/year Wilhelmshaven project was abandoned in 2020 when lead sponsor Uniper decided to use the site for hydrogen imports instead. The rival 8 Bcm/year German LNG Terminal, proposed at Brunsbuttel, was thrown into uncertainty when cornerstone partner Vopak discontinued its “active participation” in the project.
Chancellor Scholz yesterday said Germany would move “quickly” to build these two defunct LNG terminals. Details are sparse at this stage on what this means in practice. In all likelihood, it all boils down to money.
Often the challenge for building European LNG regasification projects centres around securing firm capacity-holders who are willing to underwrite financing. Without this, lenders are unwilling to bankroll construction because the risk of under-utilisation could jeopardise revenues.
The EU overcame this problem in Lithuania, Poland and Croatia by subsidising projects. The EU Commission signed off on a generous subsidy package in 2019 covering 86% of capital costs for Croatia’s LNG terminal on the island of Krk, plus a ratepayer-funded fee to cover operating expenses.
This meant granting the project an exemption from EU competition rules to allow the Croatian government to co-finance the project from its national budget to the tune of €100 million. Another €101.4 million came from the EC’s Connecting Europe Facility.
Channelling CEF cash to bankroll German LNG terminals seems unlikely today because the EU Council and Parliament struck a political agreement in December 2021 to prevent “fossil gas” projects from receiving support. The justification was that when ongoing projects are complete in the early 2020s, all member states would have “access to at least three gas supply sources or the global liquefied natural gas (LNG) market”.
It remains to be seen whether the rapidly changing views in European capitals will alter entrenched political positions around the financing of natural gas infrastructure. The inclusion of gas in the EU green taxonomy became lightning rod for political divisions, pitching pro-nuclear France against pro-gas Germany.
Now that the EU’s main gas supplier is a global pariah in financial markets, the Overton window around financing gas and LNG import projects might end up shifting. Watch this space.
Main photo by Ingo Joseph from Pexels
Recommended further reading
Russian invasion impact on gas & power prices – Timera
EU to unveil strategy to end Russian gas dependence – WaPo
Why German nuclear is not that relevant to the current crisis – JaP