Germany plans coal reversal and gas financing to counter Russian cut

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(Bloomberg) —

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(Bloomberg) —

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Germany is stepping up efforts to respond to a cut in Russian gas supply by reviving coal-fired power plants and providing funding to secure gas for the winter, an effort that would cost around 15 billion euros (15 $.8 billion) at current prices.

The package of measures was announced days after Moscow cut deliveries on its main gas link to Europe, hitting supplies from Germany and creating a ripple effect for France, Austria and the Czech Republic. Austria reacted to the reduction in flows by reactivating an inactive coal-fired power plant.

The return of factories burning highly polluting fossil fuels is the latest sign of how Europe’s climate fight is taking a back seat as governments seek to hedge against energy shortages caused by the invasion of the coronavirus. Ukraine by President Vladimir Putin.

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“It’s a kind of showdown in which Putin has the longest arm at the moment,” said Economy Minister Robert Habeck, a member of the Green Ecologists, on Sunday evening. “But that doesn’t mean we can’t achieve a stronger arm with effort.”

The heightened alarm was triggered after the Kremlin cut deliveries last week in apparent retaliation for Europe’s support for Kyiv. Flows through the Nord Stream 1 gas pipeline were reduced by around 60% when Chancellor Olaf Scholz and his French, Italian and Romanian counterparts visited Ukraine to support the country’s bid for European Union membership .

Scholz’s administration, which had sought to accelerate Germany’s exit from coal, also plans to offer incentives to industry to reduce gas consumption and make unneeded supplies available for storage. Credit lines to fill the reserves will be provided by public lender KfW, the economy ministry said on Sunday.

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Although the government did not immediately provide details on the size of the program, German gas storage is at around 57% capacity. Purchasing the approximately 120 terawatt hours needed to recharge the facilities would cost around €15 billion at the current rate of €123 per megawatt hour.

Monday’s gas supply from Italy’s Eni SpA was only “partially confirmed”. Germany’s Uniper SE – the biggest buyer of Russian gas in Europe – also said it was getting less than expected.

Russia’s move sent prices up more than 50% last week, raising fears of worsening inflation. Since the start of the war in Ukraine, Germany has been bracing for a cut and has dipped into its resources, including securing floating terminals to import liquefied natural gas, to fill a possible supply gap. Europe’s largest economy still depends on Russia for 35% of its gas needs.

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“Security of supply is currently guaranteed, but the situation is serious,” said Habeck, adding that supply will be “really tight” in winter without full reserves. “It is obviously Putin’s strategy to destabilize us, drive up prices and divide us. We will not allow this.

Limited supply briefly led to a reduction in storage last week, but Germany’s grid regulator, known as BNetzA, said facilities were filling up again. The government will provide the gas market manager, Trading Hub Europe, with the cash to buy the supplies needed to reach its target of 80% fill by October 1 and 90% by November 1.

KfW’s financing will be provided by a government guarantee. Germany had already asked Trading Hub Europe to buy liquefied gas for storage in March. The company – formed by gas network operators, such as Open Grid Europe and Gasunie – is funded by network fees paid by gas consumers in Germany.

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Read more: Germany’s efforts to store gas are boosted by falling prices

The country’s three-stage crisis plan is currently at the first level. At the highest level, the state would take control of gas distribution in Germany.

“Very little has been discussed about the emergency level, although it is much more likely that it will come into effect soon,” said Christoph Merkel, chief executive of consultancy Merkel Energy.

A bill providing the legal basis for burning more coal for power generation is pending in parliament and is expected to come into force shortly after discussions in the upper house on July 8.

In Austria, state-controlled Verbund AG was ordered on Sunday evening to commission its mothballed Mellach coal-fired power plant. The plant – located 200 kilometers (124 miles) south of Vienna – was closed two years ago in a move that at the time made Austria the second European country to phase out entirely the coal of its electrical network.

Reviving coal is “bitter, but it’s just necessary in this situation to reduce gas consumption,” Habeck said. “We must and we will do everything we can to store as much gas as possible in summer and autumn.”

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