12 Nov 2019, 16:59

Spelling out the coal phase-out - Germany’s exit law draft

Germany plans to phase out coal-fired power generation by 2038 at the latest, and the government has now prepared a draft law detailing an exit plan. The document stipulates auctions for operators of hard coal plants to take capacity off the grid according to the government’s timetable. But the draft leaves out the key question of how to deal with lignite plants, as the government is still in talks with operators about compensation payments for the shutdown of plants and mines. The law has yet to be agreed by the cabinet, and will then be sent to parliament for the regular legislative process. This factsheet explains key contents of a draft dated 11 November 2019.

In early 2019, the German coal exit commission recommended to end coal-fired power generation in Germany 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 cabinet has already adopted a draft law in August 2019 which aims to strengthen mining regions following the country’s coal exit.

The coal exit law planned by the government would put the coal exit commission’s energy policy recommendations into German law.

The draft seen by Clean Energy Wire has yet to be adopted by the government cabinet, before being sent to the Bundestag (federal parliament) to enter the regular legislative process. This is planned for early December, but could still be postponed, as it is tied into a legislative package with other more controversial amendments, such as tightening minimum distance rules for wind turbines to the nearest settlement. A spokesperson of the environment ministry told news agency dpa that there were “many points that have yet to be intensively debated”.

What does it stipulate?

The 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:

  • 15 gigawatt (GW) hard coal and 15 GW lignite capacity by the end of 2022
  • From 2023-2030, capacities will be cut by roughly equal amounts each year (linear reduction)
  • 8 GW hard coal and 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

The law says that by 2032, the government will examine whether Germany could exit coal power before 2038, but no sooner than 2035.

Graph shows installed coal power capacity in Germany according to coal exit proposal. Graph: CLEW.

How will the capacity reductions be achieved?

For hard coal:

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.

  • 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.

For lignite:

The government is currently in talks with lignite power plant operators about a shut-down timetable and compensation payments, and shutting down open pit lignite mines earlier than planned.

In the current draft, the chapter on the reduction of lignite power remains blank. It will likely be added once the talks have come to a conclusion.

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 would allow utility Uniper to start up its new 1.5-billion-euro Datteln 4 coal-fired power plant, reported news agency dpa. Germany's coal exit commission recommended not to start up the plant, and to compensate Uniper. A spokesperson from the economy ministry said on 13 November 2019 that talks with Uniper were ongoing and the government tried to convince the company not to put the plant into operation.

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 receive an 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. But in contrast to the coal commission recommendations, the current draft does not stipulate that allowances are cancelled to avoid simply shifting emissions to European neighbours.

All texts created by the Clean Energy Wire are available under a “Creative Commons Attribution 4.0 International Licence (CC BY 4.0)” . They can be copied, shared and made publicly accessible by users so long as they give appropriate credit, provide a link to the license, and indicate if changes were made.

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