2022 starts with the preparation of some legislative changes. The German government wants to pass a legislative package to achieve the expansion paths for renewable energies, the EU taxonomy is currently being discussed, and a legislative reform regarding the termination of electricity contracts is being planned.

Opening balance sheet on climate protection

At the opening statement of the Ministry for Climate Protection on 11 January 2021, the Federal Minister of Economy, Robert Habeck, introduced his speech as follows: “We are starting with a drastic backlog. The climate protection measures to date are insufficient in all sectors. It is foreseeable that the climate targets of 2022 and 2023 will be missed”. Therefore, a series of measures is necessary in order to achieve the targets. Figure 1 shows the necessary expansion paths for wind and PV. The first legislative package is supposed to be passed by the cabinet in April (source: BMWK).

Development and outlook for the expansion paths onshore wind, offshore wind and solar power (source: Energy Brainpool according to AGEE-Stat – Arbeitsgruppe Erneuerbare Energien-Statistiken, 2022 [1] )

Figure 1: Development and outlook for the expansion paths onshore wind, offshore wind and solar power (source: Energy Brainpool according to AGEE-Stat – Arbeitsgruppe Erneuerbare Energien-Statistiken, 2022 [1] )

The following are the measures that the Federal Ministry for Economic Affairs and Climate Protection would like to implement in the near future (source: BMWK):

  • EEG amendment: The tender volumes will be increased in order to achieve the target of 80 percent green electricity by 2030, assuming a gross electricity consumption of 715 TWh.
  • Solar energy: The solar acceleration package, a bundle of individual measures, is intended to promote solar energy. Among other things, it includes better subsidy rates for new PV systems as well as higher tendering volumes. Moreover, a photovoltaic obligation in trade and industry are intended to use as much roof space as possible for solar energy in the future.
  • Wind energy: The expansion process is to be accelerated with a wind-onshore law. For this purpose, an area of two percent is to be reserved exclusively for wind energy. This equals four times the previous area.
  • Reduction of the electricity price: From 2023 onwards, the EEG levy is to be financed through the federal budget. Thus relieving consumers of the burden of electricity costs.
  • Climate protection contracts with industry: The legal and financial conditions for carbon contracts for difference are to be created. Reliable funding and investment frameworks should increase the planning security of companies.
  • Heating strategy: The aim is to generate 50 percent of heat in a climate-neutral manner by 2030. From 2025 every newly installed heating system will be operated on the basis of at least 65 percent renewable energies.
  • Hydrogen strategy: The traffic light coalition aims to increase the national expansion target for hydrogen from 5,000 to 10,000 MW by 2030. For this reason, the National Hydrogen Strategy is to be adapted this year. Additional support programmes are to be set up to promote the market ramp-up of hydrogen.

Divided opinions on the EU taxonomy

On 31 December 2021, the EU Commission presented a concept that will in future classify natural gas and nuclear energy as sustainable investments in the EU taxonomy. This ensures that investors can now also assume the same basis when investing in environmentally friendly projects (source: EU Commission).

The 27 EU member states had time to react until 21 January to the draft and take a position. While Germany expresses a clear “no” to nuclear power, the opinion on gas is divided. The German government calls it a “bridge technology”. That means, it is the right way to reduce CO2 emissions and enables the coal phase-out. Numerous climate protection organisations in Germany appealed to the coalition not to classify both energy sources as environmentally friendly. As this would send the wrong signals and thus, threaten the energy transition (source: Euractive).

As this is a delegated act, it will automatically enter into force without opposition. This means that either the EU Parliament or the Council of Ministers, the body of member states, must object within four to six months. This currently seems quite unrealistic, as 20 of 27 governments would have to vote against the draft. Furthermore, eleven European states, including France and Poland, are in favour of the EU Commission’s draft. Failure in the EU Parliament is also not expected (source: energate-messenger).

Read more on this topic in the blog post “Nuclear power and natural gas in the EU taxonomy: What is it about?”.

Legislative reform in planning to protect electricity customers

The German government is currently planning a legislative reform of the Energy Industry Act. The goals is to protect consumers from short-term terminations of electricity and gas contracts by low-cost suppliers. You can see in Figure 2 that the price of electricity in 2021 has increased. Especially towards the end of the year, and is currently 40.46 ct/kWh. Due to the increase in electricity prices, some low-cost suppliers have had to terminate thousands of contracts, as they have aligned their contracts with speculation on low prices on the electricity exchange. As a result, the terminated electricity and gas customers have fallen into the basic supply, which is much more expensive than a regular contract. The reform is intended to protect consumers by providing clear notice periods and to better regulate basic services (source: The Local).

In addition to a long notice period, the Federal Ministry of Economics is planning a uniform tariff in basic supply. This is to prevent new customers from having to pay double or more than existing customers do. According to a study by the Federation of German Consumer Organisations (VZBV), new customers have to pay comparatively between 889 and 1654 euros more per year (source: Handelsblatt).

Average electricity price for an annual consumption of 4,000 kWh in ct/kWh (source: Energy Brainpool according to Verivox consumer price index, 2022 [2] ))

Figure 2: Average electricity price for an annual consumption of 4,000 kWh in ct/kWh (source: Energy Brainpool according to Verivox consumer price index, 2022 [2] )

Mixed movements in the gas market

After being on a downward trend at the end of last year, the gas price recovered at the beginning of the month until it collapsed shortly afterwards due to an improved LNG supply. LNG releases marked a new all-time high this week at almost 4,400 GWh/day (previous month 2,500 GWh/day). The extremely high LNG supply is providing some relief in the gas trading markets. But the threat of supply disruptions is spurring the gas price, which is on an upward trend (source: Montel).

The power front year responded to the price decline in other commodities in the middle of the month. But the firm gas price gives a corresponding boost to the power price towards the end of the month, and the power front month was able to regain the 200-euro mark. The front month had fallen below the mark for the first time since November (source: energate-messenger).

After the price of the EUA lead contract fell to 77.55 EUR/t CO2, the EUA price reached 90 EUR/t CO2 at the end of January and is currently heading for an all-time high. The record high was 91.19 EUR/t CO2 and was reached only last month on 8 December 2021 (source: Montel).

The price of Brent crude oil has reached its highest level in three years. This is partly because the Omicron variant is having a milder impact than previously feared. Front-month traded at around USD 90/bbl, which is roughly the same level as before the pandemic (source: Montel).

Percentage price development of the German power front year (candle sticks), CO2 allowances with delivery December 2022 (orange line), gas front year at the TTF (red line) and coal front year (green line) from December 2021 until February 2022 (source: Energy-Charts, 2022 [3] )

Figure 3: Percentage price development of the German power front year (candle sticks), CO2 allowances with delivery December 2022 (orange line), gas front year at the TTF (red line) and coal front year (green line) from December 2021 until February 2022 (source: Montel, 2022 Electricity generation and consumption in January 2021 in Germany (source: Energy-Charts, 2022 [3] )

Few hours of sunshine, but lots of wind energy

The share of renewable energies was higher in January 2022 with an average of 45 percent compared to the previous year (37 percent). For the rest of the winter, rather milder temperatures and windier weather are announced and this should lower the pressure on gas prices (source: Montel). There was low solar feed-in over the month. Therefore, solar energy was at its lowest level at 0.84 TWh in January. Wind feed-in fluctuated strongly over the month, ranging from 1.44 GW to 43.47 GW. In general, wind feed-in was at a high level of 12.34 TWh and roughly corresponds to the wind feed-in of the previous months (source: Energy-Charts).

Electricity generation and consumption in January 2021 in Germany (source: Energy-Charts, 2022 [4] )

Figure 4: Electricity generation and consumption in January 2021 in Germany (source: Energy-Charts, 2022 [4] )

Image sources:

[1] https://www.erneuerbare-energien.de/EE/Navigation/DE/Service/Erneuerbare_Energien_in_Zahlen/Arbeitsgruppe/arbeitsgruppe_ee.html

[2] https://www.verivox.de/strom/verbraucheratlas/strompreise-deutschland/

[3] https://www.montelnews.com/

[4] https://energy-charts.info/charts/power/chart.htm?l=en&c=DE&stacking=stacked_absolute_area&interval=month&download-format=image%2Fpng

 

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