Volkswagen is prolonging its use of coal due to Russian energy ‘threat’

Jessica Thompson

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Covering an area of 6.5 million square meters, VW’s huge manufacturing facility in Wolfsburg uses two cogeneration plants that provide it with heat and power.
Krisztian Bocsi | Bloomberg | Getty Images

The CEO of Volkswagen told CNBC Wednesday that the German automotive giant was keeping its options open in terms of how it powers its huge manufacturing plant in Wolfsburg, admitting coal would still be needed due to ongoing tensions between Russia and Europe.

Speaking to CNBC’s Annette Weisbach, VW chief Herbert Diess was asked how concerned he was about gas supplies from Russia stopping and what that would mean for his firm’s operations.

“That’s actually really a threat … because it’s very hard to predict what’s going to happen,” Diess said. “Here in Wolfsburg we still have coal-fired power plants which we wanted to — and we are — converting into gas.”

Covering an area of 6.5 million square meters, VW’s manufacturing facility in the city of Wolfsburg uses two cogeneration plants that provide it with heat and power.

The firm had been planning to replace its coal-fired boilers with gas and steam turbine units in a bid to lower carbon dioxide emissions, but global events would appear to have prompted a rethink for the time being.

“It’s all prepared but now we are a little bit hesitating, and we will look and see how the situation is going to develop,” Diess said. “We can [adapt] … to the situation. We can, [for] a little bit, prolong our coal-fired plants — hopefully it’s not for too long. Then we would like to change to gas once the supply is secured.”

On Wednesday, Reuters also quoted Diess as telling reporters that VW had “just decided to upgrade our coal-fired power plants to still be able to use coal or gas,” adding that this related to the company’s main operations in Wolfsburg.

VW reported results for the first quarter of 2022 on Wednesday. Operating profit before special items hit 513 million euros (around $541 million), up from 490 million euros in the first quarter of 2021. The firm reported sales revenue of just under 15 billion euros compared to 17.6 billion euros in the first quarter of 2021.

Diess’ remarks came on the same day the European Commission, the EU’s executive branch, put forward new sanctions against the Kremlin that will include a six-month phase out of Russian crude imports.

“We will phase out Russian supply of crude oil within six months and refined products by the end of the year,” Ursula von der Leyen, the European Commission’s president, said in a speech outlining the plans.

“Thus, we maximize the pressure on Russia, while at the same time – and this is important – we minimize the collateral damage to us and our partners around the globe,” she said. “Because to help Ukraine, we have to make sure that our economy remains strong.”

Russia was the biggest supplier of both petroleum oils and natural gas to the EU last year, according to Eurostat. Toward the end of April, Russia’s state-owned energy firm Gazprom stopped supplies to two EU nations, Poland and Bulgaria, because they had refused to pay for gas in rubles. The move led many to fear that other countries in the EU could see their supplies halted too.

Geopolitical instability, the volatility of energy markets and the Covid-19 pandemic have all sparked concerns in some quarters that any transition to a global economy centered around renewables could be delayed or prevented.

During an interview with “Squawk Box Europe” on Wednesday morning, the CEO of shipping giant Maersk offered a cautiously optimistic outlook.

Søren Skou said “a higher oil price, all things equal, will help the green transition because it will make the cost premiums, if you will, for greener fuels smaller.”

“So we see that more as a way of accelerating the green transition than pushing it back.”

— CNBC’s Silvia Amaro contributed to this report

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