Dependence on Russian energy?
On 24 February 2022, Russian troops invaded Ukraine. The Ukrainian army is putting up fierce resistance. The civilian population is suffering, millions have fled the war.
Even if hopefully this war is soon to be over, its impacts will remain. Effects on the lives of millions of people and on the economy are being experienced. In addition to supply shortages, for example of food such as oil, it also affects the energy supply in Europe. The Russo-Ukrainian War has the power to create an energy crisis in a strong economic country in the centre of Europe.
Impact of the War on the Electricity Supply Security?
In principle, Germany can utilise four different energy sources.
Nuclear power in Germany is currently generated by three remaining power plants. Germany is in the final phase of the nuclear phase-out. Before the Japanese Fukushima disaster, Germany was receiving just under a quarter of its electricity from nuclear power.[1] As a response to Tōhoku earthquake and tsunami, the nuclear phase-out plan of 2011 was established. 33 reactor units have already been permanently shut down. According to the law currently in force (sec. 7 para. 1 no. 6 German Atomic Energy Act), the last three nuclear power plants must be shut down by 31 December 2022 at the latest. Since no new nuclear power plants are planned in Germany the nuclear phase-out would be completed by this date.
Coal-fired power generation in Europe halved in the five years from 2015 to 2020. Although construction of new coal power plant is declining globally, China is building more coal-fired power due to economic losses from the Corona pandemic. Nevertheless, in 2022, coal was the most important energy source in Germany.[2] A differentiation must be made between lignite and hard coal. Lignite has the advantage that it is cheaper. However, both types of coal-fired power are affected by the problem of procuring coal. So far, Germany has mainly procured coal for hard coal-fired power plants from Russia, Colombia and South Africa. Due to its negative environmental impact, coal-fired power has been highly criticised in recent years. The UN Secretary General advised that OECD countries should stop generating electricity from coal by 2030, and the rest of the world by 2040.[3]
The effects of the war are most evident regarding the third source of energy - Gas. Natural gas is a fossil fuel. It is used for heating buildings, as a heat supplier for thermal processes in trade and industry, for electricity generation and as a fuel for ships and motor vehicles. The pricing of natural gas is closely linked to the oil price. The natural gas produced in Germany amounted to 5 % in 2021 (in % of consumption in the respective year).[4] According to German law, the origin of imported natural gas must no longer be published since 2015. Therefore, although it is not possible to say how much gas Germany has actually imported from Russia in recent years, one thing is certain: Germany’s energy supply depends on Russian natural gas. In June 2022, the Russian energy giant Gazprom reduced the maximum gas supply volumes through the Nord Stream 1 pipeline to Germany by 40 percent.[5] The Russian state-owned company cites construction work as the reason.
Renewable energies have experienced a considerable upswing in Germany within recent years. Renewable energies are important building blocks for a sustainable energy policy and the so-called Energy turnaround. The aim of the German Energiewende is to reduce the ecological and social problems caused by the energy industry to a minimum and to fully internalise the external costs incurred in the process. The energy transition encompasses all three sectors: electricity, heat and mobility, as well as the perspective of turning away from fossil raw fuels in their material use, for example in the production of plastics or fertilisers. In 2018, the German Energy Agency (dena) estimated the additional costs (distributed over three decades) for the conversion to a climate-friendly energy system in Germany by 2050 at values ranging from 1,200 billion euros to 2,200 billion euros. [6]
LNG- Overall solution?
With the phasing out of nuclear power and the problem of procuring coal, liquefied natural gas (LNG) appears to be the solution for energy supply in Germany. Liquefied natural gas is natural gas that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. It solely takes up about 1/600th the volume of natural gas in the gaseous state. LNG could reduce the need for gas supplies from Russia.
Unfortunately, there is one key problem: Germany does not yet have a landing terminal for LNG. However, several possible locations are in preparation and an LNG infrastructure ordinance has been passed by the legislature. Federal Chancellor Olaf Schulze’s goal is to build a Baltic sea terminal by the turn of the year.[7] Currently, LNG can be brought to the German market via neighbouring countries like the Netherlands, Belgium or France.
Even if LNG is in principle capable of providing a future energy source in Germany, it is extremely questionable whether sufficient LNG can be made available in Germany in time. Winter in Germany is inevitably approaching and without its own terminals, an adequate energy supply in Germany via LNG is out of question.
Coal-fired power- an old friend?
Regarding the environment, the expansion of renewable energy in Germany is a top political goal. The Russo-Ukrainian War demands swift action. Unfortunately, precisely this speed and flexibility cannot be guaranteed by renewable energies at this point. Even though scientific research and the awareness of the citizens are pushing renewable energy forward, the current technical standard is not yet sufficient to cover Germany's high energy demand. The construction of a wind farm, for example, takes about one to three years. This is a period Germany cannot currently afford to wait. Germany requires energy supplies - not only for its strong economy, but rather for its citizens. Energy supplies that have so far come from Russia. At present, Germany's path to a largely self-sufficient electricity supply cannot, unfortunately, be achieved through renewable energies.
A current solution for Germany could be coal-fired power. At first glance, this might not seem to be a desirable path in view of the CO2-emissions of the power plants. But Germany needs a stable energy supply- fast and plenty of it. Germany has many coal-fired power plants at its disposal that could resume higher production. The costs of energy in Germany are currently a heavy burden on the national industry and citizens. The expenses could at least be kept from rising ever higher.
It is obvious that coal power is not a long-term solution for energy supply in Germany. Nevertheless, the Russo-Ukrainian War makes a temporary solution unavoidable. Special times require special measures.
Renewable energies- tax incentives?
In 2030, a maximum of 67 million tonnes of CO2 may still be emitted in the building sector according to the Federal Climate Protection Act. This corresponds to a reduction of 68 percent compared to 1990. In order to achieve this ambitious goal, effective measures were adopted in the Climate Protection Programme 2030 and the Emergency Climate Protection Programme for 2022.[8]
The federal government wants to achieve this goal, among other things, through tax incentives.
The depreciation of photovoltaic systems serves as an example. From both a tax and a financial perspective, the calculated depreciation is of particular importance whether one uses the PV system exclusively for their own electricity supply or whether one earns money with it by selling electricity. If the photovoltaic system is operated as an entrepreneur, the reduction in value resulting from the operation of the system can be deducted as a tax-reducing cost, e.g., for income tax purposes.
Since 1 January 2020, the German government has been promoting energy-efficient construction measures on owner-occupied residential buildings with a tax bonus in accordance with § 35c EStG. The prerequisite for this is that the building must be more than ten years old when the construction work is carried out (Section 35c (1) sentence 2 EStG). In contrast to the tax bonus for household-related services and craftsmen's services under § 35a EStG, the subsidy covers not only labour costs but also material costs.
Recently, the Federal Council approved the Energiepreispauschale (energy price flat rate) for all actively employed persons.[9] The employees receive a one-time energy price flat rate of 300 euros in 2022 as a supplement to their salary.
The measures outlined above make it clear that the German state has a great interest in the expansion of renewable energies. Against the backdrop of the Russo-Ukrainian War it is to be expected that these measures will be maintained or even supplemented by further incentives from the federal government.
Future developments- Independence?
The impact of the war is severe. First and foremost from a human perspective, secondly in economic terms. The energy supply of the chief economic power in Europe is put to a hard test. Will Germany manage to find its way to an independent power supply? LNG as an energy source could be a solution if terminals can be built quickly enough. Here, permits and costly construction measures are in the way. Faster and more effective could therefore be the increased use of coal-fired power. Germany needs cheap energy on a large scale. Whether any source other than coal power can guarantee this is more than questionable.