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    Germany returns to coal in the face of Russian gas supply cuts


    June 20, 2022 - CE Noticias Financieras

     

      Germany is stepping up efforts to respond to Russian gas supply cuts by reactivating coal-fired plants and providing financing to secure gas for the winter, an effort that would cost some 15 billion euros at current prices. The German executive announced on Sunday a series of measures to deal with a situation that has become even more complicated after Moscow announced last week that it was cutting supplies through the Nord Stream 1 pipeline, a decision that has also affected Italy, France and Austria. Vienna has also decided to redouble its commitment to coal.

      The reactivation of plants burning this highly polluting fossil fuel is the latest sign that the fight against climate change in Europe is taking a back seat as governments try to protect themselves against energy shortages caused by Russian President Vladimir Putin's invasion of Ukraine.

      "It's a kind of arm wrestling in which Putin has the longer arm for now," Economy Minister Robert Habeck, a member of the environmentalist Greens, said on ZDF television late Sunday. "But that doesn't mean we can't get a stronger arm with effort."

      The idea of the German leaders is to reduce the volume of gas used to generate electricity and to use coal instead, with the percentage of electricity produced with gas in 2021 in Germany being put at 15%.

      To this end, the network of coal-fired power plants in the electricity reserve is to be reconditioned so that they can be activated "in the short term", which Habeck says will happen as soon as the relevant law has passed through parliament.

      "We have to be honest, this means, during a transition period, more coal-fired power plants. It is bitter, but in this situation it is necessary in order to reduce gas consumption," noted the minister, who also has the rank of vice chancellor.

      At the start of the current parliamentary term, the coalition government of Social Democrats, Greens and Liberals set out to accelerate the timetable for saying goodbye to coal, scheduled for 2038, but already anticipated in May that it might be necessary to extend the period of activity in the face of the energy crisis.

      Chancellor Olaf Scholz's administration also plans to offer incentives to industry to reduce gas consumption and make unneeded supplies available for storage. Credit lines to replenish reserves will be provided by state-owned lender KfW, the Economy Ministry said Sunday.

      Although the government did not immediately provide details on the size of the program, German gas storage is at 57% of capacity. Buying the nearly 120 terawatt-hours needed to refuel the facility would cost about E15 billion at current prices of E123 per megawatt-hour.

      Alarm bells have gone off after the Kremlin cut off supplies last week in apparent retaliation for Europe's support for Kiev. Flows through the Nord Stream 1 pipeline were cut by about 60% as Chancellor Olaf Scholz and his counterparts from France, Italy and Romania traveled to Ukraine to support the country's bid to join the European Union.

      On Monday, gas supplies for Italy's Eni SpA have only been "partially confirmed." Germany's Uniper SE - the largest buyer of Russian gas in Europe - has also said it was receiving less than agreed.

      Russia's move sent prices soaring more than 40% last week, creating concerns that inflation could worsen. Since the start of the war in Ukraine, Germany has been bracing for a cutback and has drawn on resources, including obtaining floating terminals to import liquefied natural gas, to cover a potential supply shortfall. Europe's largest economy remains dependent on Russia for 35% of its gas needs.

      "Security of supply is currently guaranteed, but the situation is serious," Habeck said, adding that supply will be "really tight" in the winter without full reserves. "Clearly, this is Putin's strategy to destabilize us, drive up prices and divide us. We will not allow it."

      Supply shortages prompted a brief reduction in storage last week, but Germany's grid regulator, known as BNetzA, said facilities are filling up again. The government will provide the gas market manager, Trading Hub Europe, with the liquidity needed to buy the supplies to meet its 80% fill target by Oct. 1 and 90% by Nov. 1.

      KfW's financing will be secured by a government guarantee. Germany had already applied to Trading Hub Europe to purchase liquefied gas for storage in March. The company - made up of gas network operators such as Open Grid Europe and Gasunie - is financed by network tariffs paid by gas consumers in Germany.

      German government: "We must and will do everything possible to store as much gas as possible in summer and autumn"

      The country's three-stage crisis plan is currently in the first stage. In the highest stage, the state would take control of gas distribution in Germany. "There has been very little discussion about the emergency level, although it is much more likely to come into force soon," said Christoph Merkel, managing director of consultancy Merkel Energy.

      A bill providing the legal basis for burning more coal for power generation is making its way through parliament and should come into force soon, after debates in the upper house take place on July 8.

      In Austria, state-controlled Verbund AG was ordered late Sunday to prepare its mothballed Mellach coal-fired power plant for operation. The plant, located 200 kilometers south of Vienna, was shut down two years ago, making Austria the second European country to completely eliminate coal from its power grid.

      Reactivating coal is "bitter, but it is simply necessary in this situation to reduce gas consumption," Habeck said. "We must and will do everything possible to store as much gas as possible in summer and autumn."

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