There could be a coalition between Conservatives and Greens in which Greens would resign from 2030 coal exit postulate in exchange for concessions somewhere else. For example, Conservatives are thinking about 10H regulation similar to Polish and that would be more important issue from the point of view of Greens – says Hanns Koenig from Aurora Energy Research in an interview.
Germany has plan to exit coal between 2035 and 2038 but in the same time it wants to invest in Nord Stream 2 and LNG. What is the rationale behind?
The rationale is the cost. Switching from coal to conventional natural gas is the cheapest way to decrease emissions. We have a big gas power generation fleet with low utilization. Usually coal and nuclear are first in merit order. It changed a little bit in last months in because of big decrease in gas price but that is not typical. Compared to switching to natural gas, power-to-gas is a much more expensive decarbonization option. Hydrolizers are expensive and not too efficient. Power-to-power we are talking about 30-40 percent efficiency. That makes it one of the last options to be called, not one of the first. Switching from coal to natural gas and renewables is much cheaper.
Should we expect any change of the decision on coal exit in Germany?
I would be very surprised if over next couple of years the coal compromise were undone politically. The Coal Commission brought business and industry, environmentalists and civic society together. Now they are all defending the agreed timeline. In the end the transition is likely to happen faster, especially when European ambition will increase. European Commission has nominated Frans Timmermans for green deal commissioner. He has to develop a strategy to decrease emissions for at least 50 percent until 2040. That means tightening the cap on the European emission trading scheme which means a lot higher carbon prices and very likely a coal exit before the 2038 date agreed by the commission.
Would Greens demand a speed-up?
Government were represented in Coal Commission, opposition were not. Greens want something more ambitious. The questions is how hard they want to fight for this. In my opinion there could be a coalition between Conservatives and Greens in which Greens would resign from their 2030 coal exit demand in exchange for concessions somewhere else. For example, Conservatives are thinking about 10H regulation similar to Polish and that would be more important issue from the point of view of Greens.
What about carbon emission tax?
The Liberals proposed an expansion of the EU ETS to additional sectors such as industry and transport. This solution would anger other countries like Poland, because increased demand for EUAs from Germany means higher prices for everyone in Europe. Conservatives came up with a separate emission trading system which is sometimes called a “non-ETS ETS”. In theory it would work. You set a cap and the price is the function. The problem is that it is hard to set it up. It is hard to measure emissions from all cars. You have to calculate the emission from wholesalers, count how much they sell and add a price factor. The Öko-Institut think tank has done a study on this and believes this process could take about three years. It is a problem of lost time. The other solution from Conservatives is fixed-price ETS. At some point you get rid of this fix when the infrastructure for free ETS is ready. Introducing a carbon tax, a proposed by Social Democrats and the Greens, does not guarantee a result, there are too many unknows and you cannot plan anything. You need to constantly adjust the tax and in you end up with a very similar price signal to that of an emission trading scheme, just without the advantages of an ETS, such as the ability to hedge. My expectation is that there will be some interim solution like tax and we work towards an ETS in the longer term.
What about carbon neutrality until 2050 in comparison to present investment? For example, Nord Stream 2 is projected for 50 years from 2019.
Russian representatives state that Nord Stream 2 can be used to carry blue hydrogen, which is hydrogen created from natural gas and splitting off and storing carbon molecules which normally would be released to atmosphere. For now there is no demand, because it is too expensive.
Will Baltic Pipe be hydrogen ready?
It is a good question for its developers. I know Norway is very ambitious with hydrogen export idea. It is leading European country when it comes to carbon capture and storage technology. It could be used to decarbonize natural gas.
What about German LNG terminals then?
Europe has around 240 bcma of LNG import capacity which is actually close to half of European demand. Most of it is quite badly utilized. LNG from U.S. is now cheap because of overcapacity and problems between the US and China. However, the main reason why Germany is building the LNG terminals is political.
Is it really building something? We have the declarations from politicians.
It has projects of LNG terminals. We want to signal to Donald Trump that we can buy some LNG and on the other hand to alleviate concerns about Germany getting to reliant on Nord Stream 2. Personally I do not buy this argument. We have a European gas market and big LNG capacity. Germans could already buy it from…
Is there a business perspective? There is a project between Vopak and Novatek. Will it be feasible?
There is a big debate. We are now discussing carbon neutrality by 2050. We need to decide from where to get the green gas required for that. Most analysis suggest that Germany does not have adequate renewable resources to generate all green gas it needs domestically, especially when we further increase demand by decarbonizing the industry like steel production. It is looking very likely that we could import hydrogen through Nord Stream 2 or as green LNG by boat from countries producing green hydrogen, like Norway with wind or North African countries with photovoltaics. Based on our analysis it would be cheaper than producing it domestically and it brings no dependence on supplier. It could be a kind of successor idea of Desertec project but without a need of building electricity interconnectors which could bring dependence. That was a big weakness. No one really wanted to connect the market with this politically unstable region. When you import green gas from this country and meet some problems there you simply change the supplier.
What is the timeframe of such projects?
It depends on our level of ambition. We currently target a range of 80 to 95 percent CO2 emission reduction from 1990 levels in Germany. You can achieve 80 percent reduction without P2G and hydrogen. To achieve 95 percent you definitely need it. It probably only needs to enter at scale post 2040. It is one of the most expensive ways of decarbonization, so you first decarbonize whatever else you can, and then go for P2G. However, we need research and pilot projects, to get the technologies to an industrial scale. The government is subsidizing this in the so-called “energy transformation real labs”, a lot of which involve green gas technologies.
There are voices for governmental support for P2G. Should there be support like this?
I think yes and no. The research should be done. Should it be paid by German consumer? Rather not. That is exactly what we did with Energiewende. There was a time when Germany was adding more than half of solar in the world every year. This was justified by an idea that we build a world-leading solar industry and bring green jobs. Then in 2012 we halted this support because it went crazy expensive. We now have the highest retail energy prices in Europe. But now renewables are much cheaper and we build less than in the past. Others build more, taking advantage of decreased CAPEX, and the solar industry is almost completely in China. German consumers largely financed this CAPEX decrease for everyone, and we need to be careful to not to make the same mistake with P2G technologies. We need at least European approach, and should also look for other parts of the world to do their job. Luckily, China announced their hydrogen strategy, and Japan is also ambitious, so hydrogen could turn out to be a different story than solar.
Interview by Wojciech Jakóbik