Germany’s energy bailout is too little, too late
A rush to shore up the country’s biggest power provider will not prevent a winter fuel crisis that threatens to spread across Europe
Britain’s energy crunch is bad, but it doesn’t come close to the nightmare that is unfolding across Europe, no more so than in Germany. If that is some consolation for British households, it shouldn’t be. No good can come from the severe recession that economists are now warning of in Europe’s largest economy if Russia turns off the energy taps.
The Continent is about to find itself caught in the eye of an energy storm unleashed by Vladimir Putin as retribution for the West’s support for Ukraine and its attempts to cripple Russia.
In obsessing about how Moscow can be brought to its knees with repeated rounds of sanctions, European leaders have failed to wake up to the severe damage that the Kremlin can inflict on its enemies by weaponising its vast oil and gas reserves.
Donald Trump was wrong about many things but he warned repeatedly that Germany had become far too dependent on Russian crude and gas. A speech at the UN general assembly in 2018 in which he urged Berlin to “immediately change course” prompted sniggers among the German contingent, though it may have been that they simply found it one hypocritical bridge too far given the spider web of connections between Trump, his associates and Putin.
After burying their heads in the sand on Russia for the best part of two decades, Germany’s elite is discovering with horror just how exposed it is to the whims of Putin’s frightening new antiwestern imperialism as German utility giant Uniper stands on the brink of bankruptcy. It is a vicious wake-up call for Berlin. Persuading voters that Germany’s failed energy policy means they must now pay a heavy price for defending Ukrainian sovereignty will not be an easy task.
Winter is still months away and yet, examples of energy rationing are already being witnessed in pockets of a country that not so long ago was widely feted as Europe’s “economic locomotive”.
Cologne has begun dimming its street lights, schools and gyms in one part of Frankfurt have turned off their hot water, and open-air swimming pools in Berlin have turned down the thermostat by two degrees. Even economy minister Robert Habeck has boasted of taking shorter showers.
Towns and cities are being encouraged to turn off traffic lights at night; shut off hot water in council buildings, museums and sports centres; adjust air conditioners; and stop illuminating historic buildings.
With Uniper, Europe’s largest importer of Russian gas, admitting at the end of last week that it could be bankrupt “within days”, the situation, not just in Germany, but wider Europe, is expected to get much worse. The company’s perilous state was obvious when it began to draw down on gas reserves it was storing for winter earlier this month, so that customer supplies didn’t dwindle.
Uniper, a spin-off created to house the fossil fuel legacy assets of utility titan E.ON in 2016, has been forced to tap into an emergency €2bn (£1.7bn) loan from state-backed bank KFW after the Kremlin cut supplies by roughly 60pc. Forced to buy the same gas in the global spot market, it has been racking up losses of €30m a day. It is on borrowed time. Ultimately, nationalisation beckons with a rescue package of around €10bn.
A similar fate awaits France’s largest electricity supplier EDF. The expectation is that these mega-utilities will be the first of a long line of dominoes to fall as the energy crisis rapidly escalates, with Bloomberg estimating that the entire bailout bill could eventually hit €200bn, an extraordinary sum that is likely to test EU solidarity to breaking point.
The mission to save Uniper will be a fascinating test case of continental unity as a row breaks out about who should pick up the tab. The company is 78pc-owned by Finland’s statebacked nuclear supplier Fortum, so predictably Germany believes that the Finnish state should shoulder some of the costs.
Unsurprisingly, this is not a view that appears to be popular among prominent Finns. Riikka Purra, chair of the Right-wing opposition Finns Party, has argued that Germany must take responsibility for its failed energy policy.
It’s not an unfair assertion given the extent to which Germany built its 21st century energy system on access to cheap Russian supplies at the expense of domestic coal and nuclear power, or more clean energy.
It’s a stance that has cross-party support including the backing of government minister Tytti Tuppurainen, who has rejected any chance of Finland stepping in, pointing out that the country has already provided an €8bn credit line.
She also points out that pumping further cash into Uniper is akin to throwing good money after bad because high gas prices “will not go away in the near future”. Finland has proposed an alternative plan in which the company is broken up and its gas and coal power assets end up in the hands of the German state, while its hydro and nuclear power interests remain under the ownership of Fortum.
A bailout isn’t entirely irrational. With Berlin in control, it can cushion customers from the shock of spiralling prices by forcing the business to take even bigger losses.
But that money will have to be recouped eventually, most likely in the form of higher bills, and Germany’s core problem remains an overwhelming and dangerous dependency on Moscow. Without a plan to address this extreme supply-side imbalance, the country still faces a bleak winter if Putin turns off the taps altogether.
‘A similar fate awaits France’s largest electricity supplier EDF’