Allianz Trade identifies »three reasons why Germany’s energy transition is unlikely to go off track«
Post date: 27/07/2022 - 15:45
In a recent analysis of Germany’s energy sector, credit insurer Allianz Trade discusses »concerns about the country’s green transition going off track« but finds this to be »unlikely for three reasons.« It is true that after the Russian invasion of Ukraine, Germany is currently relying more on coal-fired power to compensate for a lack of gas supplies. However, the study concludes that »Germany’s ambitious new targets should push the renewable energy share of its electricity mix even beyond what would be needed to meet the Paris climate goals by 2035.«
Firstly, more coal-fired power generation within the EU emissions trading system leads to rising CO2 prices and thus fewer emissions in other sectors, the study says. Second, the prices set in the trading system are currently 80 to 90 euros ($81.34 to $91.51) per metric ton and thus »above levels that would allow coal to be competitive in the electricity market.« Third, the German government remains committed to phasing out coal by 2030, and moreover, given elevated emissions trading prices, »it is very unlikely that coal will overstay its welcome as a substitute for Russian gas; it will be priced out of the market.«
Like virtually all papers on the subject, however, the Allianz Trade study cites a »paradigm shift in core areas of the electricity system« as a basic prerequisite, namely a simplification and acceleration of planning and approval procedures for generation plants, electricity and hydrogen networks. Then, however, the expansion of power generation capacity from renewable energies alone could generate additional direct and indirect value of €40 billion ($40.7 billion) per year. If the economy remains weak, this would provide »a more than welcome economic stimulus«. If, on the other hand, »the economy moves back into bullish territory or the recovery of global supply chains doesn’t keep up with the expansion,« there is a risk of further price pressure on scarce resources, which Allianz Trade believes could provoke inflation or even a wage-price spiral.
The study is available for free download (see link below).