A potent signal of Europe’s power disaster might be discovered on the Marl Chemical Park in Germany’s industrial heartland of North Rhine-Westphalia. A coal-fired energy plant that had been resulting from shut by the tip of this yr will as a substitute preserve operating by way of the winter, and past, to supply power for the businesses on the positioning — serving to to keep up greater than 10,000 jobs.
The energy plant is owned by Evonik, one in every of Germany’s largest speciality chemical corporations, which additionally runs the park. And its prolonged lifespan displays the fears of energy shortages within the nation, as fuel imports from Russia have been lower following its invasion of Ukraine. Governments and producers throughout the continent have been introducing contingency measures to make sure energy provides proceed in the course of the colder months.
Many corporations have turned to coal and different fossil fuels to maintain their operations going. In Germany — which goals to section out coal by 2030 as a result of it’s rather more carbon-intensive than fuel — the federal government has briefly revived or prolonged the lifetime of a number of coal-fired energy vegetation. In addition, all three of the nation’s remaining nuclear energy vegetation, which had been resulting from shut down by December 31, will proceed working till mid-April 2023.
For energy-intensive industries, this energy disaster is “very acute”, says Harald Schwager, deputy chair of Evonik. He likens the state of affairs to a affected person “at the doctor”, however whereas the “diagnosis is known, so is the therapy”. In this case, the remedy is bettering provides.
“We have a supply shock,” he says. “One [therefore] needs to find ways and means with investments into energy infrastructure so that the supply can be improved, and prices will then automatically come down.”
Engineers at Evonik, which makes merchandise utilized in every little thing from toothpaste to tyres, began contingency planning in March. The firm screened all of its manufacturing websites to find out the way it might exchange fuel with different power sources. Some of its smaller websites have since began utilizing oil as a substitute of fuel however one of many largest modifications has been to maintain the coal-fired energy plant in Marl operating till 2024.
One problem, says Schwager, has been to make sure ample provides of coal to function the plant. Evonik has already stockpiled sufficient coal to maintain the plant functioning over the approaching winter months of 2022-23. While the value of coal has “gone up, the important thing is to make sure we can keep producing”, he provides.
The coal plant had been due to get replaced by a brand new gas-fired energy station. Fortuitously, given the present considerations over pure fuel provides, that plant had additionally been outfitted to burn different sources of gasoline, together with liquefied petroleum fuel or LPG — a byproduct from refining crude oil. Using a pipeline linked to a close-by refinery owned by BP, Evonik has been capable of pipe in LPG to assist energy the plant and scale back the quantity of fuel wanted.
The internet results of these measures is that Evonik has been capable of scale back its pure fuel wants by 40 per cent. Costs, nevertheless, have inevitably risen — the corporate’s power invoice has jumped roughly €500mn, says Schwager.
For chemical compounds teams, power is only one of plenty of prices which have risen this yr amid wider inflation. However, Schwager is eager to emphasize that Evonik has maintained its monetary outlook for the rest of the 2022 monetary yr. Earlier this month, the corporate reported broadly in-line core revenue for the third quarter as larger promoting costs offset elevated variable prices.
“Evonik has done a good job of cutting natural gas consumption,” says Sebastian Bray, chemical compounds analyst at Berenberg in London. “The company’s earnings have generally proven resilient. However, higher working capital requirements resulting from elevated energy and raw materials prices may make cash coverage of dividends in 2022 difficult.”
Evonik’s shares are listed on the Frankfurt Stock Exchange, however it additionally has a big cornerstone investor. Germany’s RAG Foundation, which was set as much as assist finance the social prices and long-term liabilities related to the ending of subsidised coal mining in 2018, holds a 56 per cent stake.
Not each giant producer has been capable of adapt to the power crunch in such a means, although. BASF, the world’s largest chemical compounds group by income and a big consumer of pure fuel for its processes, revealed in October that it had spent €2.2bn extra on fuel at its European websites within the first 9 months of 2022 than it did in the identical interval final yr.
Martin Brudermüller, BASF chief govt, mentioned the European fuel disaster, coupled with stricter trade rules within the EU, was forcing the corporate to chop prices within the area “as quickly as possible and also permanently”. The cuts had been essential to “safeguard our medium- and long-term competitiveness in Germany and Europe,” he added.
Brudermüller just isn’t alone in warning that the power disaster may have a doubtlessly devastating financial influence on Europe.
“Soaring energy prices are currently precipitating an alarming decline in the competitiveness of Europe’s industrial energy consumers,” the European Round Table for Industry mentioned in a letter to the European Commission final month.
Schwager, nevertheless, who was a board member at BASF till 2017, performs down fears of disinvestment, stressing that chemical worth chains are so interwoven that it could be tough to disentangle them. German trade, he provides, has a “task in front of us, we have the toolbox to hike energy efficiency”.
Nevertheless, he concedes that funding into energy-intensive “upstream areas”, reminiscent of new energy vegetation, can be extra seemingly occur in different areas the place power is cheaper. Europe, he says, will appeal to funding into innovation for “downstream” merchandise nearer to the client.
The chemical trade, he suggests, wants “massive investment” for the long run: “[The idea that] we will all run off and go somewhere else, that just won’t happen — we think in decades, and we want our investments to keep running for decades.”