Germany turns to coal as Russia cuts gas supplies
Comment of the Day

June 20 2022

Commentary by Eoin Treacy

Germany turns to coal as Russia cuts gas supplies

This article from Bloomberg may be of interest to subscribers. Here is a section:

The Greens party minister also said the country will rely more on coal-fired power plants to produce electricity. A bill providing the legal basis is making its way though parliament and should take effect quickly after discussions in the upper house on July 8. 

Using more coal to generate power is “bitter, but it’s simply necessary in this situation to reduce gas consumption,” he said. “We must and we will do everything we can to store as much gas as possible in the summer and fall.” 

Siegfried Russwurm, president of the German industry lobby group BDI, said the country should “stop gas-fired power generation now and get coal-fired power plants out of reserve immediately,” in an interview with Funke Mediengruppe published Saturday. Importing electricity from neighboring countries has its limits, he said.

Savings will also have to be made by the industry. An auction model will begin this summer to encourage industrial gas consumers to save fuel, which can then be put into storage, Habeck said, adding that the government is ready to take further measures if needed.

Eoin Treacy's view

There is a lot of discussion in the financial media about the possibility the Eurozone will break up. I don’t see that as a realistic possibility. Europeans understand they are in a better position to oppose foreign adventurism together than apart. Putting cherished climate goals on the long finger is an example of the lengths they are willing to go to protect national interests.
Even if coal fired power stations are to be reopened, little has yet been done to improve their operating conditions. Carbon credit prices are firming within the seven-month range and a sustained move below the trend mean would be required to signal question medium-term demand dominance.
RWE broke out to new 10-year highs in January and has been consolidating since. It is currently firming from the region of the trend mean to confirm first step above the base characteristics.

CEZ is a major exporter of electricity into Germany. The share has accelerated of late and is approaching the region of the 2007 peak. If Germany fires its coal power stations up again, that will result in less demand from imports so the first clear downward dynamic is likely to mark a peak of at least near-term and potentially medium-term significance.
Meanwhile, Italian spreads continue to contract. The ECB’s targets spread control plan has instilled a measure of confidence that a potential crisis will not be allowed to materialize. There will inevitably be legal challenges to this policy but is the EU going to bow to systemic risk? This crisis may yet provide the catalyst for further cohesion as has been the case on repeated occasions over the last twenty years.

It is also worth considering that if the EU is willing to delay its climate ambitions, continued unwavering support for Ukraine’s resistance is also open to question. They are offering EU membership but that may be part of a wider negotiation about accepting a new border and military neutrality.

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