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Germany's Reaction To The Energy Crisis Could Be Catastrophic

Tyler Durden's Photo
by Tyler Durden
Friday, Dec 24, 2021 - 10:30 AM

Authored by Julianne Geiger via OilPrice.com,

  • Germany's determination to go green despite an energy crisis in Europe could significantly impact the country's energy security

  • While power prices in Europe have been soaring and natural gas prices have begun to drop, Germany is refusing to change its energy policy

  • Specifically, it is Germany's decision to phase out nuclear power and accelerate the phase-out of coal-fired plants that has confused analysts

The European gas crisis has hogged energy headlines for months. But that hasn’t stopped Germany from retiring half of its nuclear capacity by the end of the year and pushing an accelerated phase-out of its coal-fired plants by 2030. And for Germany’s energy security, it could spell disaster. 

The commitments to greenifying Germany’s grid are noble. Unfortunately, they also appear ill-timed, as German baseload power for 2022 delivery—a European benchmark—hit a brand new contract high of 278.50 euros. This is an increase of 10%, as gas flows through a pipeline that brings natural gas from Russia to Germany switched direction to flow Eastward. 

But soaring power prices and sagging natural gas prices haven’t knocked Germany off its green ambitions—and it could have bigger ramifications than many realize. 

Coal and nuclear power, now on the ropes in Germany, rose in prominence this year, accounting for a larger percentage of Germany’s overall energy mix compared to 2020, BDEW said this week.

The rise in nuclear and coal-fired power was due mainly to lower wind speeds and increased demand. 

Coal and nuclear energy made up 40% of the overall energy mix in Germany. Meanwhile, renewables fell to 41% of the mix. Still, Germany is stuck on kicking its coal and nuclear habit—coal because it’s dirty, and nuclear because of Fukushima. The decision to retire the latter was made shortly after the Fukushima disaster, but since then, coal use has risen to fill in the gaps left by nuclear. 

This year, Germany plans to shut down the Grohnde, Gundremmingen C, and Brokdorf nuclear plants, which will leave Germany with just three. Those final three will be retired by the end of next year. 

For coal, Germany has agreed to phase out coal by 2030—up from its previous goal of retiring coal in the country by 2038. 

These two moves alone put Germany, gasping for energy, in a precarious position. But there’s more. 

Germany also has a plan to kick its natural gas habit, with plans to end power generation from gas by 2040. Currently, half of all German homes are heated with natural gas.  By 2026, a ban in Germany on the installation of heating in new homes using any type of petroleum products will go into effect in favor of heat pumps that draw electricity from the grid. 

This would be the grid that is currently struggling to supply power to its people, and the grid that currently relies 40% on nuclear energy and coal-fired power that is set to be retired.

Germany’s decision to phase out nuclear power is Germany has puzzled analysts, who argue that phasing out the zero-emissions created by nuclear power while relying on natural gas and coal-fired power (at least for now) seems counterintuitive. Add to that the current predicament that Germany finds itself in being short on natural gas, and analysts are puzzled even more. In addition, nuclear power has served as a rather reliable fill-in for renewables that rely on the intermittency of sun and wind—an intermittency that has been brought to light this year more than ever. 

These rising power prices in Europe are fueling inflation, and Trafigura has warned that Europe could experience rolling blackouts if this winter turns out to be a cold one. Meanwhile, natural gas flows from Russia are a big question mark, with tensions over Nord Stream 2 and Russia’s possible invasion of Ukraine exacerbating Europe’s power situation. 

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