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24 Jun 2020, 17:30
Julian Wettengel

Germany takes next coal exit step with contract for company compensation

RWE hard coal power plant Westfalen. Photo: RWE AG.
Photo: RWE AG.

Germany is one step closer to finalising legislation on the planned coal exit by 2038 at the latest, as the government approved a draft contract between the state and companies to flesh out the country’s farewell to lignite. Among other things, the draft lays out details on how the announced 4.35 billion euros in compensation will be paid to lignite operators and stipulates its use to restore the landscape after mining has finished. Environmentalists noted with relief that the contract in its current form would not prevent an earlier exit from coal should market conditions turn coal plants uneconomical. The government also aims to improve phase-out conditions for hard coal, following months of complaints by companies that they were at a disadvantage compared to lignite companies. Hard coal operators have to win auctions for early shutdown remuneration. Draft amendments seen by Clean Energy Wire stipulate higher maximum remuneration in the planned auctions and a one-year extension of the scheme. Researchers said that despite the proposed changes, the legislation still deviated significantly from the compromise reached by the coal exit commission in early 2019. The amendments will now be debated in parliament. The German government still wants the package to be decided before the summer break. [Update adds paragraphs on possible earlier shutdowns if conditions change.]

Germany has taken the next step towards finalising its planned coal exit as the government cabinet presented a draft contract between the state and lignite operators with details on compensation for affected companies. Once approved by parliament, the contract will provide legal certainty and planning security for Germany’s mining regions, said the government.

“The coal exit is coming. The first lignite-fired power plant unit will already be shut down this year,” said environment minister Svenja Schulze in a press release. “At the same time, we are supporting the affected regions in their structural development and creating new future-proof jobs locally.”

Environmentalists noted with relief that the contract in its current form would not prevent an earlier exit from coal should market conditions turn coal plants uneconomical. Some had feared that the agreed coal exit path would actually give companies an incentive to keep plants online despite factors such as rising CO₂ prices or an accelerated surge in renewable energy sources. Coal commission member Kai Niebert, president of the environmental NGO umbrella organisation DNR, said he stands by the general agreement to provide compensation to lignite operators, and that the shutdown dates are latest possible moments and plants could be taken offline earlier. “Lignite will be generously buried, but not kept artificially alive.” He added that the coal exit will happen “faster than the eye can see”, due to high CO₂ prices and more ambitious climate targets.

Chancellor Angela Merkel’s government cabinet today (24 June) also agreed on first amendments to lignite phase-out legislation it had presented earlier this year to reflect the contract’s content. The changes will be part of a larger package of amendments to the coal exit legislation presented in January and not alter the general timeline of the phase-out. In addition, the government plans to improve certain conditions for hard coal operators under the country’s coal exit plan, according to draft legislative amendments seen by Clean Energy Wire, which were not yet approved today. Following strong criticism by the industry, operators will be able to bid for early shutdown remuneration in auctions one year longer than planned and maximum amounts are set to be increased.

Germany has officially set in motion the gradual withdrawal from coal, joining other major economies in the global farewell to the climate-damaging fossil fuel. With the planned amendments, the general timetable for shutdowns and remaining capacity remains intact, which means Germany still aims to exit coal by 2038 at the latest. Lignite plants will be shut down according to a set timetable, which was approved in January along with a deal to pay compensation to operators for taking several plants off the grid by 2030. For hard coal plant operators, auctions will be used to remove capacity from the grid according to the government’s timetable until 2027. After that, there will be forced closures.

The cabinet also approved amendments to the law draft that stipulates financial support for coal regions during the transition. One major change is that sustainability has now become a basic condition for projects to receive support through the legislation.  

Today’s decisions and the plans for hard coal are meant to pave the way for the legislative process. An economy ministry spokesperson told Clean Energy Wire that the government still aims to have the legislative package agreed before the summer break. Deputy head of the Social Democrats’ parliamentary group Matthias Miersch cautioned that all of the government’s decisions still needed approval by MPs in the Bundestag. “We will see whether we can reach an overall agreement,” he said.

Lignite phase out contract “cements” compensation amounts

German economy minister Peter Altmaier called the draft contract a “milestone” and added that this meant Germany would “end the age of coal-fired power generation in a plannable and economically sensible way” while supporting mining regions in the transition.

The compensation will also be paid should lignite operators decide on an earlier shutdown of their operations. The contract says that compensation payments have to be used to restore the landscape after mining has finished.

In addition, it stipulates that “significant changes of the conditions”, could lead to a renegotiation of the agreement. This would happen, for instance, should a future government decide a faster shutdown timetable. However, the contract explicitly excludes certain developments from the list, which it calls “not significant”. These include changes to the EU Emissions Trading System which could increase the CO₂ price, and changes in the support system for renewable electricity sources. Such developments could change whether coal is economical even before planned shutdowns. In that case, however, there is no right to renegotiate the contract and operators receive compensation as planned, but might still take plants off the grid sooner than stipulated in the schedule.

“On the one hand this is positive, because there is no incentive to keep plants online even if they are not needed anymore,” said E3G’s Reitzenstein. “However, this provision cements the compensation amounts as they are now – and they are very likely too high.”

Opposition MP Lisa Badum of the Green Party took issue with the fact that the cabinet approved the amendments without having presented a planned assessment of the lignite companies’ operations in order to see whether the envisioned compensation payments were justified. Reitzenstein said that there continued to be “significant doubt over whether the level of compensation is appropriate”.

Coal exit law still not in line with commission compromise – NGOs

Meanwhile, researchers and environmental NGOs point out that the amendments to not address criticism that the coal exit law is not in line with the deal the coal exit commission had reached in 2019.

“The legislation continues to deviate significantly from the coal commission recommendations,” Alexander Reitzenstein, senior policy advisor at energy and climate think tank E3G, told Clean Energy Wire. The main point of critique is that the exit path is still not linear.

In view of the length of time it took the government to draft the legislation, Reitzenstein said the draft now appears anachronistic when taking into account recent government decisions, such as the green alignment of the coronavirus recovery package or the commitment to a higher 2030 EU climate target. “The coal exit law is outdated, despite the government having had enough time to make necessary changes.”

Environmental NGO Greenpeace also criticised the legislation. “The coal exit law disregards the coal commission recommendations,” said Karsten Smid. The contract binds future governments and restricts their room to manoeuvre, he added.

Uncertain whether higher maximum auction remuneration will ever be paid – Aurora Energy Research

Hard plant operators for months criticised that the original coal exit law draft had disadvantaged their fuel over lignite, because there would be no guaranteed compensation.

“There are now certain concessions after all the discussions concerning the disadvantage of lignite over hard coal during the past months,” said E3G’s Reitzenstein. The auctions for shutdown remuneration are now scheduled to be held until 2027 – one year longer than in the earlier draft. In addition, the maximum possible amount for each year of auctions was raised significantly.

Whether these maximum amounts will actually ever be paid remains to be seen, Hanns Koenig of energy think tank Aurora Energy Research told Tagesspiegel Background. “Should the European Green Deal by the European Commission be implemented as planned, it will significantly reduce the value of hard coal plants,” he said. “Should gas prices remain low then it is not a done deal that the maximum remuneration will actually be paid.”

According to the draft amendments, the first auctions for early hard coal shutdowns will take place on 1 September.

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