22 Dec 2015, 00:00

Vattenfall's German brown coal: what's being sold and who wants to buy

(UPDATES with new details of sales process) Vattenfall is selling off its German lignite operations. This factsheet outlines the context and exactly what is up for sale.

Vattenfall, owned by the Swedish state, is Germany’s fourth largest power provider, supplying 2.9 million power customers in 2014. In 2013, lignite accounted for 81 percent of Vattenfall’s German electricity generation. In 2014, 94 percent of Vattenfall’s German power generation was from fossil fuels – mainly lignite (brown coal), alongside some generation from imported hard coal, largely at the Moorburg power plant in Hamburg, which went online in 2015. Vattenfall's lignite  and mining business unit employs 8,200 people, 5,700 of them in Brandenburg and 2,500 in Saxony.

Divesting from carbon-heavy lignite

Vattenfall announced in October 2014 that it was considering the sale of its German lignite operations - power plants and mines - to reduce its carbon footprint. In total, Vattenfall's German operations (including those unrelated to lignite operations) emitted a total of 72.2 million tonnes of CO2 in 2013.

Mining operations

Vattenfall is the sole operator of five opencast lignite mines – Jänschwalde, Nochten, Reichwalde, Welzow-Süd and Cottbus Nord – in the German Lusatia region (in Germany’s eastern states of Brandenburg and Saxony). Their combined output was 63.6 million tonnes of lignite in 2013. Reserves of coal in Vattenfall’s Lusatia mining fields are estimated at 1.3 billion tonnes.

The company was planning to extend two of the mines – Welzow-Süd and Nochten – but these plans have been thrown into doubt with Vattenall citing “uncertain energy policy conditions for lignite mining and power generation in Germany.” The company also had plans for three new opencast mines to start operating after 2025.

Power plants and other assets

In addition to the related mining operations, Vattenfall’s four lignite-powered plants in the region  are also up for sale. These are Boxberg, Jänschwalde, Schwarze Pumpe and Lippendorf block R, as well as a lignite refining unit at Schwarze Pumpe. Bidders also have the chance to buy Vattenfall’s 10 hydropower plants in Thuringia, Saxony and Saxony-Anhalt as part of the sale. The hydro operations will not be offered separately.

Value of assets

Vattenfall said in its invitation to interested bidders (in September 2015), that the lignite operations generated 2.3 billion euros in revenue in 2014, and the hydro operations 0.2 billion euros. Estimates of the value of Vattenfall’s lignite operations have varied due to uncertainty surrounding German policy on the carbon-intensive fuel, but analysts have suggested a figure of between 2 and 3 billion euros. But partly owing to political uncertainty, some investors offered considerably less, according to press reports about non-binding offers, which were due in mid-December 2015.

In July 2015, Vattenfall wrote down the value of its German lignite operations by 1.6 billion euros, citing “low prices and higher business risk.” CEO Magnus Hall did however welcome government's plans to transfer 2.7 gigawatts of Germany’s lignite-powered plants into a “capacity reserve” – meaning that operators would be paid for keeping plants on standby – saying the plans meant “greater clarity about the conditions for our work on finding a new owner for our lignite assets in Germany.”

Interested parties

The sale is expected to be finalised in mid-2016. So far, the leading contenders for the acquisition appear to be German utility Steag, as well as two Czech companies, CEZ and Energetický a Prumyslovy Holding (EPH), which already owns lignite mines in in Saxony and Saxony-Anhalt through its German daughter company MIBRAG. Greenpeace had also said it was interested in acquiring the lignite operations to make sure "the lignite is left in the ground". But the NGO was excluded from the sales process.

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