16 Jan 2020, 13:59

Spelling out the coal exit - Germany’s phase-out plan

Germany plans to end coal-fired power generation by 2038 at the latest and has agreed on shutdown schedule for individual lignite power plants as well as compensation payments for operators. For hard coal, meanwhile, an early draft of the coal exit law foresees auctions for plant operators to take capacity off the grid according to the government's timetable. The government plans to implement the full coal exit law within the first half of 2020. [Update adds lignite agreement from 16 January]

In early 2019, the German coal exit commission recommended an end to coal-fired power generation in the country by 2038 at the very latest. It proposed a step-by step reduction of coal plant capacity, compensation agreements for lignite plant operators, and a support package for regions affected by the phase-out.
The government decided to adopt the recommendations in general and already adopted a draft law in August 2019, aimed at strengthening mining regions over the course of the phase-out.

The coal exit law pwill enshrine the coal exit commission’s energy policy recommendations into German law, clearly distinguishing between the pathways for lignite and hard coal. A lignite phase-out has greater effect on mining regions and workers than a hard coal phase-out. Germany’s last hard coal mine closed in 2018.

In meetings with coal operators and premiers of the affected states on 14 and 15 January 2020, the federal government reached an agreement on when to take which lignite plants offline and how much compensation would be paid.

In a draft coal exit law from late 2019 the government had already stipulated auctions for operators of hard coal plants to take capacity off the grid according to the government’s timetable.

What is the general timetable?

The coal exit law serves to spell out in detail the step-by step reduction and end of electricity production using coal in Germany. It follows the coal exit commission's recommendations from earlier this year, and states how much coal power generation capacity will remain in the German power market at future dates. The exit will happen in three stages:

  • 15 gigawatt (GW) hard coal and 15 GW lignite capacity by the end of 2022 (from 22.8 GW hard coal and 21.1 GW lignite in 2019)
  • 8 GW hard coal and about 9 GW lignite are to remain by the end of 2030
  • In 2038 at the latest, there will be no coal power capacities left as the phase-out is completed
  • Two reviews in 2026 and 2029 are scheduled to decided whether the phase-out can already be completed by 2035
Graph shows installed coal power capacity in Germany according to coal exit proposal. Graph: CLEW.

How will the capacity reductions be achieved?

For lignite:

In January 2020 and after months of talks, the federal government announced it had found an agreement with coal operators and premiers of the affected states.

The shutdown schedule for the country's lignite plants will be set down in contracts with lignite operators RWE, LEAG (EPH), Uniper and EnBW. The phase-out will start in western Germany to dampen the effects in economically weaker eastern German mining districts.

From 2021 to the end of 2022, RWE is solely responsible for the shutdowns and will take almost 3 GW in the Rhenish coal mining region offline.

Running up to the target dates of 2030 and 2038, plant closures will take place towards the end of these time periods. There are major closure waves in 2028-2029, 2034-2035, and 2038. There are no closures planned for 2023-2024 (immediately after the German nuclear phase-out) and 2030-2033.

The government also said it would follow the coal commission’s recommendation to assess in 2026 and 2029 whether the shutdowns planned for post-2030 could take place sooner to allow for a coal phase-out by 2035.

It added that the phase-out schedule allows the country to keep the embattled Hambach forest, which was slated for clearing to make room for an extension of a lignite mine.

Graphs shows closure schedule for German lignite plants 2020-2038. Graph: BMWi 2020.
Graph: BMWi 2020.

Finance minister Olaf Scholz said that the government had agreed with operators to pay a total of 4.35 billion euros in compensation for the planned shutdowns. Sources told the news agency Reuters that 2.6 billion euros would go to RWE and 1.75 billion euros to Czech energy group EPH, which owns operations in central and eastern Germany.

In addition, the government would introduce adaptation payments for older workers in lignite mines and hard coal and lignite power plants who lose their job due to the coal exit plans.

For hard coal:

The coal exit law draft states that the capacity reductions will be implemented using auctions organised by the Federal Network Agency (BNetzA) until 2026. In these auctions, coal plant operators can tender capacity volumes to be taken offline, and how much money they demand for the closure. The following dates and volumes could still change in the final law:

  • first auction in July 2020 to take 4 GW offline by the end of the year
  • a second auction in early 2021 with the volume necessary to reach the target of having 15 GW left at the end of 2022
  • a third auction in late summer 2021 for capacity to be taken offline by the end of 2023
  • yearly auctions will take place about three years before capacity has to be offline by the end of 2024/25/26 – the first of these auctions will take place in late 2021
  • for the years 2027-38, the federal government will present an amendment to the coal exit law by the end of 2022

The draft does not yet contain a maximum price per megawatt hour of capacity taken offline for the auctions. The relevant provision is marked with “X”.

Winners of the auction are announced three months after the deadline for auction bids. The coal plant operators receive a “hard coal premium” for the capacity they take offline. Operators who win the first auction in 2020 must stop selling electricity generated in the affected coal plant one month after the announcement, and must stop burning coal in the plant half a year later. In the meantime, the plant is to be kept ready in case grid operators need it to secure supply security.

Contrary to an earlier draft, the law no longer stipulates that utilities would be forced to deactivate hard coal power plants by 2026 if not enough closures happen voluntarily, reports news agency Reuters. The amendment for the following years, which the government plans to present by 2022, could also contain provisions on forced plant closures, if necessary, said an economy ministry spokesperson.

Ban of new coal plants - with one exception

The law prohibits putting new hard coal or lignite power plants into service, unless an immissions permit has already been granted by the time the law enters into force.

This clause allows utility Uniper to start up its new 1.5-billion-euro Datteln 4 coal-fired power plant – a move heavily criticised by environmental NGOs. Economy minister Peter Altmaier confirmed that Datteln is set to come online in summer 2020.

Other provisions

  • the federal government will regularly assess how the capacity reductions affect supply security, heat supply and power prices
  • the expert commission that publishes the annual energy transition monitoring report evaluates the government’s assessment and makes recommendations
  • if power supply security is in danger, the economy ministry can cancel auctions or adapt the their capacity volume
  • from 2023, energy intensive companies in international competition can receive an “reasonable” annual compensation for additional power costs that derive from the coal exit law (details will be laid out in directive)

As Germany phases out coal, the demand for emission allowances in the EU’s Emission Trading System (EU ETS) will fall. German media reports that allowances are cancelled via the market stability reserve to avoid simply shifting emissions to European neighbours. However, the details are not yet spelled out in the draft seen by Clean Energy Wire.

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