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Renewables Could Head Off EU Natural Gas Boom as Germany Phases Out Coal

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Renewable energy may be poised to head off a boom in natural gas demand that European producers expected to see in the wake of Germany’s coal phaseout plan [1].

“The natural gas industry is eager to see a jump in demand,” Bloomberg News reports. But a new industry study “shows that gas demand in Germany, The Netherlands, Belgium, France, and the UK is expected to fall by as much as 16% by the end of the next decade from 2016 levels.”

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And by then, “the cost of solar and battery systems will fall far enough that renewables may become the most cost-effective way to generate new flows of electricity.”

If that scenario played out, it “would be a blow for utilities from RWE AG to Uniper SE and Statkraft AS which operate many of Germany’s natural gas plants,” Bloomberg notes. “After years of depressed profit margins even for the newest and most efficient stations, a revival of the fuel in power generation would be a welcome relief for the companies and local economies.”

Industry lobby Zukunft Erdgas and some producers expect gas demand to increase by 50 to 81 terawatt-hours per year by 2022, producing a 5% to 7% increase in consumption and a doubling for natural gas use in electricity production. “We will always need gas power generation in order to back up renewables, and that is a given,” said Zukunft Erdgas Chair Timm Kehler.

But others aren’t so sure.

“You can’t expect to see a big increase in demand just because of the coal exit,” said Harald Herzig, an executive with Frankfurt utility Mainova AG, which wasn’t involved in the study. “German natural gas demand, even with coal phasing out, might increase just a little, because the other sectors like households and industry will most probably reduce their demand.”

The coal shutdown will take out 45 gigawatts, or 40% of Germany’s power generation capacity. But “the solar industry will be strongly benefited with Germany’s coal phaseout,” Bloomberg News notes, citing analysis by Bloomberg New Energy Finance. “Post-2035, during the last few years of coal in Germany, cost reductions in solar and battery storage will make these technologies very cost-competitive, allowing solar to grow by 50% from 2035 to 2040.”

And even if the phaseout does double the country’s gas-to-power demand by 2022, the increase of five billion cubic metres (bcm) will be small against annual demand of 84 bcm over the last decade.