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The Big Picture

How Germany Sleepwalked Into an Energy Crisis

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  • Moscow’s invasion of Ukraine is forcing Germany to rethink its entire approach to energy supply.
  • Historical constraints, complacency toward Moscow, and the lack of a broad long-term energy strategy left Europe's largest economy highly vulnerable to Russian gas supplies — and at risk of chaos.
  • A new government coalition is having to show high levels of flexibility and compromise to cope.

Germany is facing an unprecedented energy crisis that could yet worsen this winter. Russian gas supplies partially resumed this week following maintenance work on the Nord Stream pipeline, but remain subject to disruption as Moscow pressures Berlin and others over their support for Ukraine. Any severe disruption would hit Germany industry almost immediately, with some companies warning of complete or partial shutdowns. With gas storage facilities less than two-thirds full, Germany needs to boost stocks significantly by October in order to have sufficient gas reserves to make it through the winter.

So how did the country get itself into this precarious situation? The simple answer is that there was a failure in strategic thinking. Germany relies on imports for close to 70% of its energy resources, and its economic might depends on uninterrupted flows. Both considerations suggest the country would have been expected to be prepared for all eventualities.

But in recent years, Germany remained more focused on its “Energiewende” energy transition policy, and its rapid expansion of renewable energy capacity. This enjoyed strong public and industry support and made it a climate leader, but came at the expense of a comprehensive, diversified energy strategy. Even as it built out renewables capacity, Germany remained heavily reliant on fossil fuels, in particular on gas imports from Russia. That dependency only deepened over the past two decades and was reinforced by the political decision to phase out nuclear power by 2022 after the 2011 Fukushima disaster in Japan.

Instead of caution, Germany assumed that commercial ties with Russia would remain of mutual interest, and that Moscow would continue to be a dependable supplier of hydrocarbons — as it had for many decades and through previous crises. It is now clear this was a miscalculation. The fallout means higher energy prices, and even energy shortages, for Germany and the EU amid a partly self-imposed embargo on Russian hydrocarbons, in which alternatives — from coal, nuclear and renewables to non-Russian oil and gas supplies — are unable to fill the gap.

Achilles’ Heel

Germany's energy strategy under former Chancellor Angela Merkel was dominated by advancing climate goals. Russian gas did most of the so-called “bridge” work amid a declining role for nuclear and coal. The rushed decision to exit nuclear energy, while well intended, created an energy security vulnerability as Germany instead built more gas-fired power plants to bridge the transition to renewables. Relatively more expensive but diversified LNG supplies did not get a look in.

Russia’s annexation of Crimea and military intervention in eastern Ukraine in 2014 could have been an opportunity to launch a full review of Germany’s energy ties. Instead, Germany doubled down on cost-competitive Russian gas imports, reflected in the start of construction of the Nord Stream 2 pipeline in 2018 — which the Green Party opposed on climate grounds and the US advocated against on energy security grounds.

Some analysts argue that the mistake was at least partly down to a lack of serious effort to understand Russia's relationship with Ukraine and the drivers behind President Valdimir Putin's decision-making — even after Russia’s annexation of Crimea in 2014.

But Germany's approach to Russia prior to the Ukraine invasion must also be seen in the context of its history. Germany’s post-World War II identity has been built on its economic success and peaceful integration into Europe, and the belief that trade can build bridges and transform entire political systems — reflected in the steady increase in Russian gas flows. The country's historical war guilt and memories of the Cold War have been the guiding principles in its relationship with Russia. Any concerns over heavy dependence on a single supplier were — intentionally or not — ignored or not understood.

New Flexibility

Russia’s invasion of Ukraine in February marked a turning point. Berlin’s pushback on Moscow since it invaded Ukraine, including via wide-ranging sanctions, has been unequivocal. The war has forced the new German coalition government of center-left Social Democrats, Green Party and Free Democrats to make decisions more swiftly and decisively than seen under the Merkel administration. Chancellor Olaf Scholz’s €100 billion ($102 billion) defense fund, announced just after Moscow's invasion, surprised many. Germany also now aims to cut its reliance on Russian gas to 30% by end-2022, and completely by 2027 in line with an EU target.

Scholz has also been criticized for his poor communication to the German public in recent months, prompting his popularity to drop. Vice Chancellor Robert Habeck, also economy and climate minister, and Foreign Minister Annalena Baerbock, both from the Green Party, meanwhile rank among Germany's most popular politicians. The Greens have adopted remarkable positions since Russia's Ukraine invasion. Multiple LNG import schemes are now on the boil, and Habeck announced in June that Germany will increase the use of polluting coal power in the short term. While the move has been welcomed by German industries, the government's seeming commitment to still phase out nuclear power by year's end is raising some eyebrows.

Even as the current crisis highlights some hard realities about the need for fossil fuels now, the sense of being on a war footing is translating into stronger policy action on longer-term transition goals. In the wake of Russia’s invasion, Berlin announced plans to reach 100% renewable power by 2035 against a previous target of around 2040. The coalition government had already announced plans to double the land available for onshore wind farms, easing permitting bottlenecks, a step complemented by Brussels’ decision in May to slash permitting times in so-called “go-to” areas for renewables.

The energy-saving measures Germany is adopting to survive the current squeeze on Russian gas could have a lasting effect, even as the tightness drives home some realities about gas' role. Europe, for example, may need to be willing to sign 15-20-year LNG import contracts to secure supplies also being sought by Asian buyers. And Germany’s coalition government is handling its accelerated coal phaseout differently from the country’s nuclear shutdown: The aim to stop using coal power by 2030, versus an earlier 2038 target, is conditional on a sufficient renewables buildup.

Topics:
Policy and Regulation, Security Risk , Nuclear Policy, Low-Carbon Policy, Coal, Renewable Electricity , Ukraine Crisis
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