GIF COMMENT: Germany’s anti-nuclear approach has consequences while opening the door to gas

Thomas Rodgers

31-Mar-2021

LONDON (ICIS)–By the end of 2022 Germany will have phased out nuclear power from its generation mix, bringing to an end a movement dating back to the 1970s but ultimately defined by decisions made in the wake of the disasters at Chernobyl and Fukushima.

It marks one step in the Energiewende – Germany’s move to a low carbon energy system – that has Europe’s biggest economy at odds with other major markets.

French uptake of nuclear power was a reaction to the 1973 oil crisis and has been the backbone of French electricity supply since the 1980s. ICIS analytics forecast nuclear will be a declining but significant chunk of the generation mix out to 2050.

While North Sea oil and gas solved the same problem in Britain, nuclear still meets about a fifth of electricity demand. In the past decade, various governments have remained committed to the politically fraught Hinkley Point C, planned for 2026.

Germany has invested heavily in renewables over the past decade, with wind and solar energy encroaching into the gap left by nuclear and some fossil fuel generation.

However, the intermittency of renewables means its ability to displace fossil generators is capped without a technological solution.

ICIS analytics forecast, under its base-case scenario, annualised German power prices will be close to €48/MWh in 2025 and over €53/MWh come 2030. The French forecast has the same two years at above €43/MWh and just shy of €50/MWh.

There is perhaps some irony in that Germany’s premium will almost certainly make it a net importer from France in the long-term, bringing over electrons from French nuclear plants while they eschew them domestically.

The demise of nuclear means that Germany will exit hard coal and lignite generation by the end of 2038 – eight years past the deadline for OECD nations set by the Paris Climate Agreement and more than 10 years after both France and Britain.

The nuclear exit first, coal second approach has had both social and economic costs.

According to the National Bureau of Economics Research , the phase out has cost Germans around $12bn a year primarily from increased mortality risk from air pollution which far outweights costs associated with the risk of nuclear power.

There are also climate consequences, nuclear power has avoided around 55 gigatonnes (Gt) of CO2 emmission since 1971 worldwide with over 22Gt of that total in the European Union , EIA data showed .

The rapid nuclear exit and relatively slow coal exit leaves natural gas as the clear winner for baseload power for the long term.

With a rising carbon price tipping the scales away from coal and towards gas in 2020 and 2021, utilities have started to ramp up their gas pivot.

Uniper in October 2020 brought the Irsching 4 and 5 gas-fired power plants back into the market, after they had operated as part of the grid reserve for seven years. RWE will construct a new gas plant near the decommissioned nuclear power station Biblis, with start-up pinned for 2022.

By 2023 gas-fired capacity in Germany will exceed coal and lignite combined.

The increasing demand potential has coincided with comes with multiple LNG terminals vying for investment and the Nord Stream 2 pipeline potentially doubling Russian supply.

While a boon for the gas industry, Germany’s lack of an evidence-based approach to nuclear power will raise costs across the European energy market and impose avoidable externalities on climate outcomes.

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