Energy: Germany leads

14/12/2021

Any number of times one harbours a treasured quotation only to find that, when it is brought out for an airing, either the quote is false or the person to whom it is attributed never actually said it.

Nevertheless, it is reasonably safe to trot out the aphorism often attributed to Napoleon Bonaparte, to the effect that you should "Never interrupt your enemy when he is making a mistake". Even if he didn't use those precise words, there is little dispute that he tendered such advice to his marshals.

What brought these words to mind was prime minister Johnson and his current "dead cat" strategy, gambling all on dealing with the latest iteration of Covid with a massive booster campaign and its unreachable target.

It may be not much more than a gut feeling at this stage, but I am of the view that this could be his biggest mistake of an error-strewn career. As such, for a day at least, one can leave Johnson to his own devices and look at another field replete with errors, the nature of which might in the long-term be more serious and of longer lasting effect.

Here, I am referring to the insanity of "net zero" and, in this particular instance, to the impact of the new coalition government in Germany. If possible, this administration is even more determined to commit collective suicide than Johnson's government which, so far, has been in the lead with its asinine ideas.

Before we go there, however, we need to look at the latest developments on Nord Stream 2 where, it seems, the new German foreign minister, Annalena Baerbock, has intervened to say that the pipeline could not be given the green light in its current form "because it did not meet the requirements of EU energy law".

This announcement, though, is a little bit odd. As far as I was aware, the matter is still with the German Federal Network Agency (Bundesnetzagentur) which, as an independent agency, is supposed to make the appropriate determinations on technical grounds, for the Federal government to forward to Brussels.

However, that this is a political intervention is indicated by Baerbock who says that the "escalating tensions" on Russia’s border with Ukraine is "also a factor" because Berlin had agreed with the US that the pipeline should not be used as a political weapon in Moscow's deteriorating relationship with Kiev.

The response of Moscow doesn't yet seem to have been recorded, and the pipeline operator says that it cannot provide comments on political statements about the pipeline's non-compliance with the EU's regulation.

Yet Putin does seem to have an ally in the Austrians. The news agency Tass reports Austrian Foreign Minister Alexander Schallenberg saying that European attempts to challenge the Nord Stream 2 project are unreasonable. He thinks it is a "totally acceptable" project, so it is wrong to challenge it every time Russia comes up in a discussion.

Baerbock, though, is not on her own. She has the support of her boss, the newly appointed chancellor Olaf Scholz, who had words to say about the project on his first visit to Poland.

There, he promised that his government will do "whatever it takes" to ensure that natural gas continues to flow through Ukrainian territory and to prevent Russia from using the new pipeline to blackmail its pro-Western neighbour. Germany, he said, feels responsible for ensuring that the gas transit business continues to provide income to the Ukrainian economy.

Such impact as there has been has, so far, been financial. The European benchmark gas price climbed by around 10 percent yesterday to a high of €116.75 per megawatt hour (MWh), with the year-ahead price later recorded as topping €200 – an unprecedented level. The UK price climbed to 296.35p a therm, just below the record closing price of 298.475p on 5 October.

But if this presages misery for future energy users – commercial and domestic – this is only one of the steps by the new German seemingly directed at disrupting their energy market.

At the end of November, for instance, the new coalition pledged to cease coal production, to quadruple solar PV installations on all rooftops and push renewable energy capacity to 80 percent of the country’s electricity mix – all by 2030.

The 80 percent renewables target will require meeting a demand of 750 TWh, which will require 2 percent of land to be reserved for onshore wind power, and more than triple offshore wind capacity (to 30GW). The current renewable energy capacity in Germany is 53 GW for solar, 7.7 GW for offshore wind and 54 GW for onshore wind, delivering 251 TWh in 2020.

And for the additional electricity to be delivered, the country's electricity grid will need considerable development. "Not only renewables expansion needs to switch on its turbo boost, also the expansion and optimisation of the grid has to happen much faster", says grid operator Tennet.

Om top of that, the government is to close down its remaining three nuclear plants, one by the end of this year and the other two by late 2022 (one pictured).

Such is the lack of coherence in the new coalition, though, that the plan relies on an increase in gas-powered electricity generation, by about one-third or more, up from 90 TWh in 2020 to about 120 to 150 TWh in 2030. And this, supposedly, is to be achieved at a time when Germany's gas supply has never been less secure, with the government going out of its way to increase its vulnerability to disruption.

What does not seem to have been factored in is that the Ukrainian pipeline infrastructure is ageing and badly maintained so, even without the political issues, the Russians are looking to redirect flows to Nord Stream 2. If this pipeline is not approved by the regulators, Germany (and Europe generally) can expect a reduced supply of natural gas from Russia- and more so if the situation in Ukraine kicks off.

If that wasn't bad enough, a reduced gas supply in the absence of nuclear and other fossil fuel generation, increases the reliance on intermittent renewables to unprecedented levels. Not only will the grid have to deal with the inherent variability, there is also the question of whether the system will have sufficient inertia to protect it from unplanned drops in capacity.

It is not even certain that a national grid of the size on which Germany relies can operate with the high proportion of renewables that will emerge if Russia cuts back on the gas supply. Furthermore, because the European grid is heavily integrated, problems in Germany risk destabilising the entire system.

As I have indicated before, the UK would not be insulated from such perturbations, which look as if they might be hitting us sooner than expected. With the loss of nuclear generation by the end of next year, the system will already be fragile and any action by Putin could cause the collapse of the entire European system, dragging down the UK grid as well.

The only consolation we might draw from this is that Germany looks set to provide us with a working example of how not to manage a national electricity system, early enough for us to amend our policies before it is too late. Whether or not our government will have the sense to learn the lessons is another matter. It may take prolonged periods in the cold and dark before the penny finally drops.

Also published on Turbulent Times.