The idea that is on the minds of many people in this country during the war in Ukraine is called “Freeze for Peace”: If Germany is so dependent on gas from Russia, then you heat less than usual. One degree less room temperature saves around six percent of the heating energy, experts calculate. The idea is that Putin should see who he’s selling his gas to.
But Leonhard Birnbaum, 55, shakes his head. “That’s a contribution, but that’s not the solution,” says the head of Germany’s largest energy supplier Eon. Of course, private individuals can save money and protect the climate if they heat less. Go ahead, one would like to say. Nevertheless, “Freeze Peace” conveys the false impression that one could solve the energy crisis with a sweater, Birnbaum states. With this reminder, the gentleman over 14 million electricity and gas customers in Germany is not alone, as a look at politics shows.
Natural gas and oil are still the most important sources of energy in Germany. Gas fires heating systems and power plants – and is also used as a raw material and fuel in industry. Most recently, Germany imported more than half of its gas from Russia. With the war now, calls for an embargo are growing louder. Russia, too, has sometimes threatened not to send any more gas through a pipeline like Nord Stream 1 to Europe in the future.
Leonhard Birnbaum has been CEO of Eon since April 2021.
(Photo: Henning Kaiser/dpa)
But Federal Minister of Economics Robert Habeck points to impending bottlenecks next winter if Germany were to stop importing energy from Russia in the short term. The consequences of a possible boycott also shaped Eon’s annual balance sheet.
Contingency plans for a period without Russian energy imports
“In the long term, we must and will fundamentally end our energy dependency on Russia,” says CEO Birnbaum: Europe is already importing more liquefied natural gas (LNG) as an alternative, and gradually more houses are being heated with electricity-powered heat pumps instead of gas. Sectors such as the chemical industry are hoping for hydrogen as the energy carrier of the future. “But that’s all long-term,” says Birnbaum. “That won’t help us next winter and in the next two, maybe three years.”
The Eon boss therefore praises – like other business representatives – the federal government. But at the same time, the industry is digging out contingency plans: for the possible day when no more gas from Russia could actually end up in local networks and storage facilities.
The supply would then be secured during the ongoing heating season 2021/22, says Birnbaum. “But I can no longer promise that for next winter.” If necessary, the state would first force factories to reduce their gas consumption. “The end customers are the last to be switched off,” says Birnbaum – which is exactly why “Freeze for Peace” contributes so little to the solution in the short term.
A scary look at the gas meter: Anyone who has been looking for a new provider in recent months has already felt the rise in prices.
(Photo: Stephan Jansen/dpa)
The Eon boss also fears that wholesale gas prices will continue to rise after an import freeze. The longer this phase would last, the more likely would be further tariff increases for private individuals. The gas price consists not only of the procurement costs of the suppliers, but also of taxes and network charges.
The people of Essen are distancing themselves from Gazprom
Municipal utilities and suppliers like Eon usually buy energy in long-term supply contracts – and use them to tie up tariffs for private individuals. Electricity and gas have already become more expensive on the energy exchanges in recent months. This particularly affects suppliers who have to order volumes for new customers. As a result, some suppliers temporarily no longer offer new contracts with fixed terms. If they do, new customers will have to pay significantly more than they did a year ago.
According to its own statements, market leader Eon does not have any long-term gas supply contracts with Russia. Instead, the company buys gas through intermediaries such as Gasunie from the Netherlands or the former Eon subsidiary Uniper from Düsseldorf. So far, however, the sellers have also included European trading subsidiaries of the Russian Gazprom group. That is now over, says Birnbaum: “Against the background of the Ukraine war, we have stopped purchasing new quantities from these companies.”
The fact that Eon in the company’s history – with predecessor companies such as Ruhrgas – is definitely interwoven with Russia is evidenced by a somewhat older participation: More than 15 years ago, the Essen-based company co-financed the first Nord Stream pipeline through the Baltic Sea, as did its partner Wintershall Dea from Kassel. Eon now wants to hold on to this minority stake worth a good one billion euros. “There’s no market for it,” Birnbaum says. “But what would be gained and what kind of punishment would that be?” Birnbaum asks rhetorically.
Nord Stream 1 receiving station in Mecklenburg-Western Pomerania: Gas has been flowing from Russia to Europe through the Baltic Sea pipeline for a good ten years.
(Photo: Stefan Sauer/dpa)
With the war, all the dependencies and uncertainties, is there anything edifying left in the world of energy? In the case of Eon, it may be this number: the group installed 125,000 new solar systems and battery storage systems in 2021 alone, a quarter more than in the previous year. In times of high electricity and gas prices, the energy conversion of houses is now even more economical, Birnbaum advertises: “The energy transition will gain momentum.”