Making a Virtue of Necessity

Germany’s transition to clean energy has been on the political agenda for years, but geopolitical developments have given it an unprecedented urgency. For businesses, this means a flurry of new opportunities, supported by lots of state funding and private investment.

October, 2022

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The war in Ukraine and the accompanying sanctions against Russia have been a wake-up call, making political and economic decision-makers painfully aware of how dependent the country has been not only on Russia and its oil and gas supplies but also on other critical raw materials, components and goods from other continents.

Sustainability has now taken on a double meaning. “Clean energy and secure energy sources are now understood as two sides of the same coin much more than they were before,” says Thomas Grigoleit, director of energy, building and environmental technologies at the German government’s international business promotion agency GTAI. “These developments have created a whole new dynamic. While it’s true that Germany already had ambitious goals in place for the transition to clean energy and the decarbonization of industry, government action to accelerate these efforts is now proceeding at an unprecedented pace.”

Special “suction bucket jacket” foundations are installed at Ørsted’s Borkum Riffgrund wind farm in the North Sea. External #000 Link hover none Linkziel im neuen Tab

© Ørsted/Press

“It’s clear that we need to speed up this transformation dramatically and that this requires massive investments along the entire value chain in the energy sector and in cleantech industries,” Grigoleit adds. Short-, medium- and long-term goals have been compressed, and diversification is the new order of the day, as the issue of natural gas illustrates most vividly.

At the start of February, Germany imported some 55 percent of its natural gas from Russia. With the Nord Stream 2 pipeline between the two countries set to go operational, there was little sign of anything changing in that relationship. But on February 24, Russia launched its invasion of Ukraine. Almost overnight, there was an enormous new imperative to halt imports of Russian gas. Nord Stream 2 was summarily put on ice, and gas supplies for everything from industrial applications to home heating suddenly looked insecure. The search for alternatives was on.

Germany is investing heavily now to diversify its supplies of energy and raw materials in the future. This opens up chances for new players in its new sustainable energy economy.
Special “suction bucket jacket” foundations are installed at Ørsted’s Borkum Riffgrund wind farm in the North Sea.

Those alternatives included buying more natural gas from other exporting countries such as Norway and, of course, simply using the gas Germany does import more efficiently. By the end of the summer, before Russia suspended deliveries, Germany had reduced the proportion of imported Russian gas to just 9 percent.

“Thanks to the intensive efforts of all those involved, we have succeeded in further diversifying supply chains and gradually but significantly reducing our dependence,” the German Ministry for Economic Affairs and Climate Action (BMWK) wrote in its “Third Progress Report on Energy Security” on July 20. But there was no way those initial efforts alone could fill the remaining gap. Therefore, the government turned its attention to LNG (liquefied natural gas).

Facilities to accommodate six “floating LNG terminals” on massive ships are being created in record time in four locations: Wilhelmshaven, Brunsbüttel and Stade on or near the North Sea, and Lubmin on the Baltic Sea. The ships are being rented from international companies like Höegh LNG and Dynagas. In addition to five state-sponsored floating storage and regasification units (FSRUs), as the terminals are technically known, a private consortium is also setting up its own facility in Lubmin.

“We have to build up new infrastructure to replace Russian gas as quickly as possible,” said German Minister for Economic Affairs and Climate Action Robert Habeck. “So it’s very good news that a private regasification ship is joining the government vessels.” The plan is to have the first of the FSRUs go operational by the end of 2022, with the rest following within 12 months.

LNG a major stopgap

But that’s not the end of the story. Belgian investment group AtlasInvest, which specializes in the energy sector, is building an LNG terminal in Wilhelmshaven together with its German subsidiary Tree Energy Solutions (TES). “The German government asked us to integrate an LNG terminal in our planned hydrogen production facility to reduce dependency on Russian imports as quickly as possible,” TES Chief Commercial Officer Otto Waterlander told business newspaper Handelsblatt.

In May, the import terminal was included in the list of “prioritized projects” promoted by an LNG acceleration law. Construction work could thus begin straightaway. According to the company, the application procedure took just under a month during the project phase – far less than is the norm for infrastructure projects.

At least 7.5 billion cubic meters of liquefied gas will be processed here per year, which corresponds to 8.5 percent of the current German gas demand. “We are of course delighted that the German government has chosen us as a stationary terminal under this new LNG law,” says Paul van Poecke, cofounder and director of TES. “It shows the vital role our project will play in ensuring the security of gas supply, and in the long term, accelerating the energy transition and the import of non-fossil gas.”

From LNG to H2

In the medium to long term, however, neither Habeck nor his ministry are great fans of LNG, which is non-sustainable. The ultimate answer to Germany’s needs, they argue, will be renewably generated electricity and hydrogen (H2) as an energy carrier (see our Future Hydrogen Clusters article, page 12), and even the short-term LNG projects have been conceived with that in mind.

4 things the German government is doing to secure a green future

1

Subsidized energy efficiency:
The state-owned KfW bank and the Federal Office for Economic Affairs and Export Control both offer financial assistance for energy-efficient building renovation and construction projects. The measures have been grouped into the Bundesförderung für effiziente Gebäude (Federal Funding for Efficient Buildings), or BEG for short.

2

Carbon dioxide pricing:
The price charged for the emission of carbon dioxide (CO2) from heating with oil or gas will gradually increase from EUR 30 to EUR 55 per ton in 2025. This price is paid by both building owners and their tenants. The measure is intended to motivate property owners to renovate their buildings, making them more energy-efficient.

3

Hydrogen R&D:
Companies getting started with green hydrogen technologies can access numerous support options at regional, national and European Union levels. The German government is supporting the flagship projects “H2Giga,” “H2Mare” and “TransHyDE“ with EUR 700 million.

4

Climate protection agreements:
“Climate protection agreements” are being introduced as a new funding instrument. Investment decisions are now necessary for energy-intensive sectors such as the steel and chemical industries. To provide companies with incentives, the state plans to cover additional costs for more climate-friendly production methods until they pay for themselves.

Sources: Handelsblatt; KfW; DIHK; BMWK; Tagesschau

The AtlasInvest facility in Wilhelms­haven can be easily converted into a hydrogen terminal. The plan is reportedly to have supertankers from the Middle East deliver green energy carriers in the not too distant future. “Technically, it makes no difference to us,” explained Waterlander. “We can use the same terminal either for landing LNG made from natural gas or green gas produced from hydrogen.”

“Because of the design and scale of the project,” wrote Forbes magazine, “it has the potential to replace the Nord Stream 1 or 2 pipeline in terms of energy supply.”

“Examples like these show that even in the current process of rapidly reconfiguring energy infrastructure in the short term, action is being taken to ensure that long-term plans are also achieved,” says GTAI expert Grigoleit.

Targeting 80 percent renewables

A major component of the drive to diversify Germany’s energy supplies is thus the transition to clean energy itself – it’s the pace, not the ultimate goal, that’s changed here.

In July, to stimulate investments in this all-important and indeed all-encompassing area, the German government adopted a comprehensive package of measures. A total of 20 new laws and ordinances are set to trigger a major investment boost in renewables. “We are tripling the speed of the expansion of renewable energy – on water, on land and on the rooftops,” Habeck said.

The core aim is to increase the share of renewables in gross electricity consumption, currently around 50 percent, to at least 80 percent by 2030. The level of ambition in Germany’s long-term, clean-energy goals is a major reason for international companies to be interested in doing business at the heart of Europe.

“The current political goals of the national government offer a very high level of long-term investment security for companies in the energy and environmental sectors,” says Grigoleit. “This makes expansion to the German energy sector very attractive in the short as well as the long term.”

Harnessing the wind

This is also the view of Andrew Mack, managing director of Octopus Energy Germany, a subsidiary of the UK-based electricity and gas supplier specializing in sustainable energy. The company, which has so far mainly acted as a green power distributor in Germany, in partnership with electric car manufacturer Tesla, among others, is currently investing in its first wholly owned German wind farm and is thus becoming a local energy producer itself. “The current investment will only be the first of many,” Mack emphasizes.

He sees great potential in the German energy market. Now is a very good time for cleantech investments in the country, he explains.
“We have reached a turning point. The government has now understood that renewables are not only the more climate-friendly but also the cheaper alternative to fossil fuels in the long run.”

Above all, the government’s decision to set aside 2 percent of Germany’s land area for wind energy production and at the same time to massively expedite planning procedures for new projects, also in the offshore wind sector and in the expansion of photovoltaic areas, is “exactly the push that the market needs now,” Mack says. Previously, site development for the production of renewable energy proceeded too slowly, was costly and fraught with difficulties. “But I am very optimistic that this is now changing.”

»The political goals offer a very high level of long-term investment security for companies in the energy and environmental sectors.«

Thomas Grigoleit, director of energy, building and environmental technologies, GTAI Berlin

Octopus Energy Germany has big expansion plans. The company wants to reach one million customers and more than 1 GW of installed capacity in Germany by 2024. By 2030, it hopes to have 1,000 additional employees in Germany. “Now is the time to think big,” says Mack. “We want to fundamentally change the market, not just build a few small wind farms here and there,” he explains. “It is important in this market to be big and to act on a large scale in order to accelerate the energy transition to the necessary speed.”

Offshore and onshore

The new dynamic in the wind energy market is also illustrated by a recent investment by the Danish energy company Ørsted. The company is building the Borkum Riffgrund wind farm in the North Sea, 50 kilometers off the German coast, with a total capacity of 913 megawatts delivered by 83 wind turbines.

This will make the wind farm the largest in German waters to date, capable of supplying more than one million households with green energy as early as 2024. It is the first large-scale offshore project to be realized in a long time – but only the first in a row of planned new projects.

The political framework conditions for entrepreneurial activity on a grand scale have never been better. This is true not only in energy production but in many related cleantech industries. “Security of supply has now become more of a focus overall as an economic policy goal: This applies not only to energy raw materials but to the supply of critical raw materials and goods as a whole,” explains Manfred Fischedick, scientific director of the German sustainability think tank Wuppertal Institute.

The need for investment is enormous. “In Germany, and also in the whole of Europe, we will have to bring back industrial production that has been offshored,” Fischedick adds. “Also, we will have to manage the conversion to a circular economy that can recycle critical raw materials much more efficiently than before.”