Reliance on gas power plants: what risks does the new traffic light power plant strategy bring?

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Monday, February 12, 2024, 9:11 p.m.

The federal government has presented its new power plant strategy to make Germany climate neutral by 2045. But how does this strategy affect the supply of gas plants and what risks does it pose? Financial expert Sebastian Hell answers pressing questions about energy supply.

How does the federal government's current power plant strategy influence the supply of gas-fired power plants?

The federal government presented its strategy for power plants a few days ago. The goal is for Germany to achieve climate neutrality by 2045. The guidelines for this have now been set out in a strategy document. However, there are some details missing that will be provided in the coming months. What we already know is that the federal government remains dependent on gas-fired power plants. For the conversion to renewable energy to work, power plants are needed to step in when the wind and sun are not producing electricity.

To ensure this base load, new gas power plants are being built, which will be converted to green hydrogen between 2035 and 2040. The positive thing about the strategy is that quixotic ideas such as gigantic battery storage systems that supposedly store solar and wind energy are out of the question. However, the strategy of continuing to rely on gas seems problematic.

About the expert Sebastián Hell

Sebastian Hell has been a successful entrepreneur in the German financial sector since 2005. In 2019 he founded the “Hell Investiert” project, which now has more than 100,000 followers on social media. The focus is on investing through tangible assets (stocks, real estate and precious metals) to achieve both profitability and capital protection. His free weekly report offers interesting tips and ideas.

To what extent is Germany dependent on countries like Qatar for gas power plants and what risks does that pose?

The lack of deliveries from Russia showed how dependent Germany was on a single supplier. Subsequently, demand could only be met by LNG deliveries from the US and other countries. As the United States, under President Joe Biden, has announced that it will suspend export permits for new LNG exports, the question arises of how the gas market will cope next summer, when storage needs to be replenished. In Germany people are calm because, as I have already said, so far only new contracts have been affected. According to a report by the Bloomberg news agency, Asian countries are already looking for new suppliers.

If we continue to depend on gas and the United States reduces its supplies, while an important debate has raged about the sustainability and climate risks of liquefied natural gas, we could become dependent again. Qatar will become a major supplier from 2026 and there is a risk of new dependence. At the same time, Germany has the possibility of producing gas itself through fracking or by relying on other forms of energy, such as nuclear energy. Both options bring new problems that the federal government has decided not to address.

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Hydrogen is often referred to as an unproven technology. How do you see this and what role could hydrogen play in future energy supply?

According to the strategy for power plants, new gas power plants will be converted to hydrogen from 2035. This is a bold step as the technology has not yet been tested on this scale. It is also unclear where the hydrogen will come from and how it can be produced sustainably. It seems problematic that an industrial country like Germany relies on a technology that has not been well tested, thus creating uncertainty for investors about whether the supply of electricity can be guaranteed in the future and, above all, at what price.

What alternative solutions do you think could contribute to the energy supply, especially after the closure of nuclear power plants in Germany?

Many other countries depend on nuclear energy. According to Statista, there are currently more than 100 nuclear power plants under construction. Although nuclear power has also come under criticism, it appears to be gaining acceptance in most countries outside of Germany. However, it should be mentioned that the power plants' strategy demonstrates openness to technology. There is talk of funding for research into new forms of energy, such as nuclear fusion. This potentially provides a backdoor for the return of new forms of nuclear energy. Otherwise, it is possible to meet additional demand during calm periods by importing electricity.

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