New German coalition government leaning green; will impact Russian energy complex

Among the goals: doubling green energy and cutting coal (and coal imports) to zero


Angela Merkel’s new German government will cause no rejoicing in the Russian fuel and energy complex
The largest supplier of oil, gas and coal to Germany is Russia. The green energy policy of Berlin in the coming years will run counter to the interests of Russian exporters.

What may Gazprom, Rosneft or, say, the Siberian Coal Energy Company (SUEK) expect from Germany’s new government? What kind of energy policy will the country pursue in the next three and a half years, for which Russia is the main energy supplier? And not only gas and oil, as is widely known, but also coal.

The share of renewable energy should grow to 65 percent

The medium-term objectives and long-term goals of Germany’s energy policy can be judged by the coalition agreement between the conservative bloc of the CDU / CSU and the Social Democratic Party of Germany (SPD). After the approval of this 177-page document by the ordinary Social Democrats, announced on March 4, it changed from being a project into the official program of the new government of Germany. It will go into effect March 14, when Angela Merkel will be elected Chancellor of Germany.
So what can we expect from this government, which will be in office until 2021, for Russian exporters of fuel and energy? The key problem for them is that Russia supplies hydrocarbons to Germany, and the strategic goal of Germany is to accelerate the abandonment of fossil fuels, and in the accelerated development of renewable energy to protect the environment and the global climate. The program of the new “grand coalition” fully confirms the commitment to the long-term goal of green energy and contains a list of concrete measures to get there.

There are very few specific figures in the “Energy” chapter of the economic section of the program, but they are very eloquent. Thus, the new government of the Federal Republic of Germany, the coalition agreement says, “will strive to bring the share of renewable energy to about 65 percent by 2030”. Considering that in 2017 the share of wind, biomass, sun and other renewable sources in the German electric power industry was 33-36 percent (depending on the method of calculation), then it is actually about doubling this share in just ten years.

Betting on wind parks and energy storage

To this end, the new government sets the task of increasing the generating capacity of both wind farms on land and photovoltaics by 4 gigawatts, respectively by 2020 Eight gigawatts of additional power are, for comparison, approximately 7-8 nuclear power plants.

At the same time, the construction of offshore wind farms should continue. The coalition agreement notes their great role in Germany’s industrial policy and intends to create a national experimental wind farm in the sea for “exploring the potential of offshore wind power.” The main purpose of the test site will, apparently, be to understand how stable wind generators are at producing electricity in the marine environment. The latest research claims that they can work steadily almost all the year round.

In other words, the new government of Germany intends to take up the key problem of green energy seriously – the production of electricity whether the wind is blowing and whether the sun is shining. The solution of this problem will also be the allocation of budgetary funds for the development of various energy storage technologies and subsidization of existing storage facilities. The new German government intends, in particular, to create a separate institute for energy storage technologies within the Fraunhofer Society, uniting institutes of applied research.

The plan to abandon coal will be ready by year’s end

The coalition agreement details the measures designed to stimulate and accelerate the construction of power transmission lines necessary to deliver electricity from Northern Germany, where the sea and land wind parks are concentrated, to large industrial centers in southern Germany. There, a significant part of the electricity is still produced at nuclear power plants, which will be shut down in 2022.

Further accelerated development of renewable energy in Germany will inevitably lead to an accelerated reduction in the share of coal in the German electric power industry (and its role in heating buildings is already small). However, after 2011, when the FRG took a course to renounce nuclear energy, this share grew for several years, which provided Russian exporters with a significant increase in coal supplies to the German market.

Now, apparently, the long recession will begin. For Russian coal exporters to Germany, the key passage of the coalition agreement in the chapter “Climate” is the decision to convene a multilateral commission of representatives of business, the environmental movement, trade unions and local authorities in order to develop a national action program to protect the global climate by the end of 2018.

One of the elements of this program, the document says, should be “a plan for a phased reduction and cessation of the use of coal in electricity generation, including the final date.” This means that already next year, Germany should start actively closing the oldest and harmful coal-fired power plants in terms of carbon dioxide emissions, which will reduce the purchase of coal, including from Russia.

And within a decade, these purchases can completely come to naught, because 2030 is often cited as a possible date for the final abandonment of coal. So the Russian coal miners have no long-term prospects in the German market. As for the policy vis-a-vis Russian gas specialists, it is difficult to see from the coalition agreement, since minimal attention has been paid to natural gas in the “Energy” chapter. There, in particular, there is not a word about gas pipelines, especially about the “Nord Stream-2”.

But there is a second key figure. The new German government intends to proclaim the national goal of reducing energy consumption by 50% by 2050. Achieving such an ambitious goal should ensure energy saving and energy efficiency in all spheres of life. This is bad news for Gazprom, which, justifying, for example, the need for Nord Stream-2, comes from growing, or at least stable, energy consumption and, in particular, the use of natural gas in Germany and the EU as a whole.

The decision to build a terminal in Germany for receiving LNG

Another item of bad news for Gazprom is that the new government of Germany intends to “create a German infrastructure for LNG.” This line in the coalition agreement can only mean one thing: soon a long-delayed decision will be made to build a terminal for reception of liquefied natural gas in the North Sea port of Wilhelmshaven, which will compete with Russian pipeline gas.

If we add to all this the plans to fully stimulate electromobility and thereby reduce the consumption of petroleum products, then the obvious conclusion arises: the new government of Merkel, if it takes its principles seriously, will not be pleasing to the Russian suppliers of hydrocarbons.

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Amado Naranjo
Amado Naranjo
3 years ago

And what is the problem?. In this view, Rusia has to create new potential in his industry and to develop the east economic relations.

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