Krefeld (energate) - How are local municipal utilities reacting to the gas supply crisis? In an interview for the summer series "The energy sector in the gas price crisis", Carsten Liedtke, spokesman for the board of Stadtwerke Krefeld (SWK), talks about old and new bridging technologies, challenges in the energy price crisis and why he thinks a protective umbrella for municipal utilities makes sense.
energate: Mr Liedtke, in view of Russia's invasion of Ukraine, there is often talk of a turning point. Has the turning point in energy supply already arrived in Krefeld?
Liedtke: The term "turning point" describes the geopolitical situation quite aptly, but I find it inappropriate for the situation of the energy industry. Because there is no completely new situation for energy supply. Rather, it is now necessary to accelerate what should have been done anyway. New tasks have been added to the energy policy agenda, especially concerning the heating market. We have always criticised the fact that the energy turnaround has so far been primarily an electricity turnaround; now we need to attend to the heat turnaround even more urgently.
energate: At the centre of the debate is gas, much of which still comes from Russia. How should things proceed here?
Liedtke: In the perception of some, the gas bridge that was supposed to last until the 2040s in the coalition agreement has actually shrunk to a small footbridge. We have to be careful not to throw out the baby with the bathwater in a panic reaction. It is true that we have to detach ourselves from Russian gas because, politically speaking, it has put us in an awkward position. Nevertheless, gas will remain an important energy source in the medium term. The political situation has not changed that. In the long term, of course, we have to see what alternatives we can find for gas: Large-scale heat pumps, hydrogen and so on. But that won't help us in the short term.
energate: What sense of urgency are you talking about?
Liedtke: Pressure comes from two directions, on the one hand certainly from politics, which is striving for an accelerated shift away from fossil fuels - here especially gas. The pressure also comes from consumers who, driven by the extreme price increases, are looking for alternatives. We perceive a great deal of uncertainty.
energate: What do you attribute this to?
Liedtke: Fatally, people no longer dare to replace an old oil heating system with a modern gas heating system. Just a few months ago we were literally drowning in applications for new gas house connections. Now we hardly receive any. This standstill on the part of consumers is dangerous, because the heating stock is still old and in need of renovation. And we know that the alternative solutions - heat pumps and district heating - only make sense for some of the customers. In addition, we are not in a position to install a heat pump for tens of thousands of customers in a very short time. As a result, the heat transition is currently coming to an almost complete standstill.
energate: The supply crisis is also manifesting itself in enormously high trading prices. How concerned are you about this issue?
Liedtke: The high trading prices present us with challenges across the entire value chain. In procurement, questions arise as to when we will purchase quantities for 2024 and 2025 and where we will get them at all. At the moment we have a gas market that is almost illiquid, especially for forward procurements. Then we still have a collateralisation issue in procurement because the counterparty default risk is high in the current market environment. On the grid side, we are currently massively concerned about the potential disconnection of gas customers in the event that the emergency level occurs.
We have to prepare for this now. And on the sales side, we have to constantly recalculate our acquisition prices - sometimes several times a week. In business customer sales, we are glad that we have been working with a tranche-based product for a long time, with which we divide the procurement into smaller parts at different times. This is currently the product of the moment, because no one would think of buying the entire energy volumes in one go at the current prices.
energate: How do you see the effects of the current situation on the revenue situation of Stadtwerke Krefeld?
Liedtke: As long as the government manages to get to the root of the gas shortage - i.e. at Uniper, VNG & Co. - and contain it there so that existing supply contracts are maintained, I think the situation is manageable for us municipal utilities. I think the German government's entry into Uniper is the right step. I also consider the apportionment mechanism, with which the additional costs of replacement coverage are distributed to all gas customers via a levy, to be appropriate and reasonable. After all, we should spread the consequences of the war broadly over all shoulders. Nevertheless, we have to cope with the price increases. This will bring economic challenges for the municipal utilities. Nevertheless, I think it is bearable if politics does not tumble at this point.
energate: What do you mean by that?
Liedtke: Recently, the discussion came up about suspending gas and electricity disconnections. Of course, that can't just be decided, because there has to be someone to pay for our supplies. If there are more defaults, which is not completely out of the question in the current market environment, then we as a company cannot bear that alone.
energate: A protective umbrella for municipal utilities is also under political discussion. Do you think such an instrument is necessary and makes sense?
Liedtke: Yes, municipal utilities are indispensable as companies providing services of general interest. In my opinion, that alone is reason enough to set up a protective umbrella in case the dams in the energy market burst. If, for example, suppliers had been allowed to adjust their contracts via section 24 EnSiG, we would have been faced with serious market distortions. Then we would also be in the position of having to touch existing contracts and cancel price guarantees. And that triggers a chain reaction that quickly becomes uncontrollable: then there is the threat of bad debts, liquidity bottlenecks and additional collateral problems. Such a scenario must be avoided. This is why we need such a protective umbrella. We must not forget that municipal utilities are predominantly active in OTC trading. These OTC trading transactions are not covered by the protective measures in the EnSiG.
energate: How should a rescue umbrella work?
Liedtke: It has to be a simple instrument. I could imagine the state using the umbrella to provide blanket protection for procurement activities from a certain point in time with certain trading partners. Then the municipal utilities would still be in a position to obtain liquidity from banks, which is needed to compensate for the cost differences. I very much welcome the fact that the state of North Rhine-Westphalia has already signalled its readiness for such a support instrument.
The questions were asked by Rouben Bathke.
