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Jengaj John

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Germany

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Germany goes all in on energy transition with nuclear shutdowns


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The shutdown of Germany's last remaining nuclear reactors over the weekend means the country's power producers have no option but to further accelerate their ongoing energy system overhaul.
With natural gas supplies still severely constrained following Russia's invasion of Ukraine last year, the reactor shutdowns mean that two key sources of baseload power have now been disrupted or cut off to Europe's largest economy.
Somewhat offsetting the shake-ups in Germany's nuclear and gas markets has been a steady surge in renewable energy supplies from solar and wind sites, which generated nearly 40% more electricity in 2022 than nuclear and natural gas sources combined, according to data from think tank Ember.

However, the intermittent nature of renewable energy sources - which leaves them susceptible to sudden drops during cloudy or windless periods - means Germany's electricity system remains vulnerable to shortages and potential price volatility, despite the growing share of renewables in the generation mix.

To combat that vulnerability, and ensure Germany's energy system can accommodate a recovery in power demand from last year's stunted levels despite lower gas-fired and nuclear output, Germany's power producers must continue to retool the country's entire power system at record pace.
FIT FOR PURPOSE
The key near-term challenge for Germany's energy producers is to generate as much power and electricity as was delivered before Russia's incursions into Ukraine upended power markets.

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The steep climb in electricity generation from solar and wind sources - up 19.5% and 10% respectively in 2022 - helped lift Germany's total electricity generation by 0.2% last year, despite a 50% drop in nuclear output due to earlier reactor shutdowns, and an 11% fall in hydropower output due to drought.
However, Germany's overall power consumption remained below previous peaks as several manufacturers and industrial plants curtailed or ceased operations due to the uneconomical cost of power throughout much of 2022.
In 2023, much of that industrial power use is set to return amid a broad push by authorities to drive an economic recovery to safeguard jobs and business earnings.
Sharply lower power prices are also spurring a demand recovery, with wholesale power during the first quarter of 2023 costing around 50% of the average in 2022, Ember data showed.
But even with that combination of government support for industrial expansion and lower prices, Germany's electricity generation total in the first quarter of 2023 was still 10% less than over the same period in 2022.
That suggests that overall demand remains stunted compared to early 2022 levels, and that businesses are reluctant to increase energy use levels with average power prices still more than twice the average from 2017 through 2021.
The lower electricity generation totals also indicate that power producers may be struggling to lift overall generation levels given the falling supplies of nuclear power output and continued tight availability of natural gas.
COAL CRUTCH
With power prices still well above long-term averages, and power demand levels expected to steadily climb over the coming months, power producers are likely to resort to increased use of coal in the generation mix, especially for baseload generation.
Electricity systems require a minimal amount of power to ensure grid stability, known as baseload.
Historically, Germany's grids relied on coal-fired power plants to generate much of that baseload, with roughly 45% of Germany's electricity coming from coal from 2000 through 2019.
In recent years, efforts to reduce air pollution has seen natural gas gain share in Germany's baseload mix, accounting for around 17% of electricity since 2020.
Nuclear and hydropower plants are also effective at generating baseload power, but the recent nuclear shutdowns alongside diminished hydropower output means that coal is making a comeback as the most viable option for German power producers to generate stable and affordable electricity.
The extent of coal's demand growth will be determined by overall power demand needs in Germany over the coming months.
If manufacturing output at the country's famed car and engineering firms cranks up as expected alongside greater output at chemical, steel and fertilizer plants, then overall power consumption has the potential to increase substantially, and exceed 2022's totals.
If that's the case, then power and electricity producers will struggle to meet those elevated demand needs without resorting to greater coal use, especially with no nuclear power available and gas-fired power levels still restricted.
ACCELERATED TRANSITION
For a country that has ambitions to emerge as a leader in energy decarbonisation efforts, the prospect of power producers needing to increase coal burning even as they roll out record renewable energy capacity is a potentially embarrassing irony.
But with low-emitting nuclear power now off the table, more coal use looks inevitable, at least over the near term.
More importantly, the fact that coal is still needed at all in Germany's energy mix also acts as a reminder that the country's energy transition work is far from over, and that much more comprehensive retooling of its energy system will be needed before its visions of a low-emitting manufacturing-based economy can be realised.



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