Private investment key in reducing German gas dependence: paper

Private investment can play a key role in the shift away from European and in particular German gas dependence, as increasingly volatile supply driven by geopolitical tensions highlights the risks deriving from the continent’s ongoing exposure to gas, according to the Energy Independence Council.

In a new paper released by the think-tank on Tuesday, it estimates that €526 billion of private investment could reduce German gas dependency alone by 78%.

Under the proposals, the funds would go towards electricity-based heat generation for buildings and industry.

In the industrial sector, investments worth €30 billion in electrification could help slash natural gas consumption by 83%.

And specifically in the food and tobacco industry, paper industry, cement and lime industry and basic chemicals sector, businesses could cut industrial natural gas consumption by more than 50 percent with investments of just €9.5 billion, the paper estimates.

Investments “bear low technological risks relying on available and proven technologies that are already competitive with natural gas in many cases,” the paper said.

For residential buildings, private homeowners and housing companies need €259 billion in capital for the conversion of decentralised heating from natural gas and oil to heat pumps or connecting buildings to district heating networks, as well as €120 billion for energy-efficient renovation.

Moreover, some €103 billion would be required for the expansion and transition of district heating networks to renewable generation.

In the proposals, replacing natural gas would mostly rely on renewables-based electricity.

For the electrification of heating in the residential sector “green hydrogen will be only needed in exceptional cases,” Joshua Meinke, Project Lead of the Energy Independence Council at the ZOE Institute for Future-fit Economies, told Gas Outlook.

“In industry, electrification is the preferred technology, however green hydrogen can be used for certain high temperature processes as well.”

In particular “green hydrogen is especially needed for substituting natural gas as a raw material,” she continued.

“In general, due to its scarce availability in the mid-term, hydrogen should be used very specifically.”

To enable the shift, the paper calls for support for private and institutional homeowners to access credit required, as well as secure access to credit for municipal utilities. Germany’s biggest utilities are expected to lose up to 50% of their revenue streams by shutting down their natural gas business, it notes.

Furthermore, it calls for changing the EU Taxonomy to support investments in technologies that allow the shift away from gas, as well as the implementation of Special Purpose Vehicle (SPV) companies to support municipal utilities’ investments by having access to preferential financing conditions.

In addition, it recommends the implementation of a state-backed default guarantee to enable banks to grant loans to vulnerable households with low incomes and poor creditworthiness.

The energy crisis is estimated to have cost Germany a total of €424 billion, with €264 billion related to funds set aside for aid packages and €160 billion to a lower economic output in Germany, the paper says.

LNG still accounts for 42% of Europe’s gas imports. At the same time, in light of current geopolitical tensions and Europe’s dependency on imports from Russia, Qatar, Azerbaijan, the U.S. and Algeria, the EU’s natural gas usage poses a threat to European energy security, it argues.

“Europe cannot rely on having a stable and secure supply of natural gas in the future,” Jonathan Barth, a spokesperson for the Energy Independence Council, said.

“Heat from electricity offers a tested opportunity to reduce Europe’s dependency on natural gas.”

“The financial sector holds the key to unlocking Germany’s and Europe’s path to energy security.”

“Mobilising private capital can not only mitigate future energy crises but also make Europe’s economy future-fit and competitive.”

“Governments need to act now to enable banks and insurance companies to play a pivotal role in the journey towards energy security,” he continued.

At the same time, the electrification of energy systems presents challenges related to supply chain risks, availability of critical minerals and regulatory risks.

However “most required technologies for electrification are already on the market and thus rely on established supply chains,” Besendorf maintained.

At the same time “the regulatory framework needs to be adjusted” to make selected technologies more competitive, he said.