Phasing out fossil fuels a challenge in Europe

For the past four years, the Bavarian city of Augsburg has been warning homeowners that gas supplies could be switched off by 2030 as fossil fuels are phased out.

It’s a blunt message on the potentially seismic impact of the shift away from natural gas in Europe. Not only could households be landed with redundant gas boilers, but those that can’t afford to install heat pumps or aren’t connected to district heating systems could be saddled with higher bills as grid operators pass on costs to a dwindling pool of customers.

“We wanted to warn our customers early on that they should think twice about making an investment in a gas boiler now,” said Ulrich Langle, sales director at Augsburg’s grid operator.

The challenge for the German government also extends to the supply side, as more than 700 grid operators in the country risk being left with stranded distribution assets worth as much as $290 billion.

“There’s a substantial cost associated with exiting the distribution grid,” said Georg Zachmann, a Berlin-based senior fellow at the Bruegel think tank. “If the companies cannot recover those costs from the tariffs anymore, it is effectively a sunk investment.”

The debate in Germany follows a provision in the European Union’s gas package that asks large grid operators to provide information on infrastructure that can be decommissioned. The European Commission says that’s partly to avoid stranded assets across an EU network with more than 124,000 miles of major transmission pipelines, plus a distribution system in excess of 1.2 million miles.

But the reality is that many European nations are finding it hard to contemplate ditching the fuel anytime soon. For example, Poland and the Czech Republic are still investing in new gas infrastructure to wean their economies off coal-fired generation.

Even in Germany, there are contradictions: despite the push to exit fossil fuels, the country has ramped up investments to import liquefied natural gas after Russia curbed pipeline flows. It’s also signed a 15-year deal with Qatar to import the super-chilled fuel.

But, as the letters to households in Augsburg show, there’s an over-arching shift toward clean energies, highlighting the cost of decommissioning aging gas networks. Those pipelines have a depreciation period of as long as 50 years, giving utilities little room to work with as Berlin targets net zero by 2045 — five years before the rest of the EU.

Larger pipelines could be retrofitted to transport cleaner fuels like hydrogen and biogas. However, that’s unlikely to be an option for the smaller distribution lines that connect to homes, given the security and pricing concerns around hydrogen.

“Many network operators have already told us that they have a problem with how they can earn back their assets,” said Klaus Muller, president of Germany’s energy regulator. The agency has suggested companies start passing on higher grid fees to consumers to spread the depreciation costs over two decades.

The country’s Association of Local Public Utilities estimates that about 70% of the assets will no longer be needed.

To fill the gap left by gas, Europe’s biggest economy aims to triple district heating networks that supply hot water to homes by 2045. What’s still undecided is who pays for that expansion.

Some customers are well advanced in their preparations for the transition, with Augsburg’s university hospital already using district heating and energy from its own biomass plant. It also plans to move to a new site in 2038 that will run entirely without fossil fuels.

“That’s why we are very relaxed about the gas phaseout discussion,” said Peter Stalitza, head of technology and construction at the hospital, which only uses the fuel to produce steam for disinfection purposes and to clean large kitchen utensils.