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Europe's Uniper bets on green gas, carbon capture to decarbonize

SNL Image

A protester at the Maasvlakte coal power plant in the Netherlands, owned by Uniper. The company is now betting on gas instead.
Source: AP Photo

Uniper SE is planning to eliminate the carbon footprint of its operations in Europe by 2035, capitalizing on government-mandated coal phaseouts and relying on as-yet unproven technologies to decarbonize a growing fleet of gas-fired power plants.

In a strategic update alongside its 2019 earnings release, the German power producer said it will cut emissions in its European Generation segment from 22 million metric tons to net-zero and invest more than €1.2 billion between now and 2022 in projects that contribute to the target.

Uniper, formed in 2016 by separating E.ON SE's fossil fuel assets into a different company, plans to get there with a two-pronged strategy: switching off coal plants while growing gas-fired generation and eliminating its remaining carbon footprint by capturing emissions for use in industry as well as trading and burning hydrogen instead of natural gas.

"We think switching to gas is the right way for the coming decades," Uniper CEO Andreas Schierenbeck said during a press conference March 10. But the chief executive, who has been in the job for less than a year, also warned that governments need to incentivize technologies such as carbon capture and green hydrogen, which is produced through electrolysis using renewable power.

Uniper has successfully run pilot projects for both technologies. But to reach economies of scale in hydrogen, for example, "we will need support like the wind industry," Schierenbeck said.

The pivot from one of Europe's largest producers of fossil fuel-derived electricity comes as many governments are moving to phase out coal, providing an opportune moment for companies such as Uniper to ditch their most polluting assets.

SNL Image

It also brings the company more in line with Finnish state-controlled utility Fortum Oyj, Uniper's majority shareholder, which received conditional approval last week to acquire a controlling stake in the company.

Analysts welcomed the strategic update, noting that it comes after many of Uniper's competitors have already moved to cut their carbon emissions. "Better late than never appears to be management's motto as they jump on the decarbonization bandwagon," Bernstein said in a note to clients.

Uniper had announced in January that it would close nearly all of its hard coal-fired power plants in Germany over the next five years, with the exception of Datteln 4, a new plant coming online this summer that has become a focus point for environmentalists. Schierenbeck confirmed March 10 that Uniper will participate in reverse auctions, which will see the government pay operators to close their older coal stations before 2027.

Uniper is also set to close its remaining coal plants in the U.K. by 2025 and in the Netherlands by 2030 at the latest, in line with those countries' own phaseout schedules.

Uniper's net-zero target does not include its vast power plant fleet in Russia, where it is adding another 800-MW coal unit, or its extensive trading business, but the company said it will seek to work with its customers to reduce the carbon footprint of those business areas. The company's Scope 1 carbon emissions, which capture a company's own operations, are already down by over a third since 2016, Schierenbeck said.

Stepping on the gas

While it is mostly quitting coal, Uniper said it plans to expand its already sizable gas business, including more than 17,000 MW of power generation, and gradually replace natural gas with greener alternatives in both its power plants and trading business.

Uniper is already one of Europe's largest gas importers and storage operators, and Schierenbeck said imports could rise by about 14 percentage points over the next 20 years. Uniper is planning to build a new LNG terminal in Germany and is involved in the controversial Nord Stream 2 pipeline from Russia.

But the future success of Uniper's gas business will depend on decarbonization. Public lenders such as the European Investment Bank have started to turn their backs on natural gas, and environmentalists have been warning countries against building infrastructure that will lock in carbon emissions for decades to come and could end up as stranded assets.

Uniper also owns hydropower and nuclear stations in Germany and Sweden, and Schierenbeck said the company will increase its activity in renewables, mainly by buying and trading power from wind and solar producers.

If avoiding or capturing all emissions is not possible economically by 2035, Uniper said it will seek to compensate for its remaining CO2, leaving the door open to buying certificates or other offsets.

"We don't know today what we will have at our disposal in 2035," Schierenbeck said. The net-zero target also means Uniper can continue to emit carbon as long as it is offset, he said. "We want to to become CO2-neutral, not CO2-free."