It seemed that German Industry Minister had firmly put his foot down and opposed the beginnings of a coal phaseout, but news has trickled in over the past few days that he is negotiating with the coal sector over more or less what was proposed the entire time. Interestingly, the coal phaseout looks a lot like the nuclear phaseout of 2002.
On Sunday, a document leaked to Reuters indicated that Gabriel would be discussing a proposal to shut down coal plants. Yesterday, German media began reporting (in German) on the content of the meeting between the government, utility lobby group BDEW, and plant owners.
Details are still unclear, but the goal seems to be a reduction of CO2 emissions to the tune of 22 million tons per year by 2020. The figure is surprisingly in line with the recent report by the DIW, which estimated that the decommissioning of 9 GW of coal capacity would reduce CO2 emissions by 23 million tons annually.
The government does not wish to decide, however, which plants should be shut down. Rather, it has asked the coal plant operators to divvy up the reductions among themselves. If the firms had not been asked to do so, they could be accused of collusion. This way, they can negotiate a compromise among themselves and then present the bill to the government.
Primarily, the firm’s seem concerned that the nuclear phaseout of 2011 not be repeated. One utility representative is quoted as saying, “We will not accept new interventions in the energy sector’s property, as happened in the accelerated nuclear phaseout” of 2011. Indeed, Merkel’s phaseout of that year was an astonishing overreach of government into private property, and the firms are now justifiably suing in various courts for foregone losses.
A much more clever approach was the 2002 nuclear phaseout (reversed by Merkel in mid-2010, just a few months before Fukushima changed her mind for good). It defined a nuclear plant’s service life as being 32 years and then calculated the average number of kilowatt-hours a plant would produce during that time. The power plant owners could then decide to shut down an older plant early and transfer the left over allotment of kilowatt-hours to a newer nuclear plant, which could then run a bit longer. (In 2011, Merkel forced the overnight shutdown of eight of 17 nuclear plants, and there is a fixed schedule for the remaining nine. The plant owners have no say in the matter.)
Gabriel is now taking the idea of allotments and applying it to carbon emissions for the entire coal sector. The firms can now figure out among themselves what should be switched off when, partly with an eye to supply security. It will be interesting to see whether they are proposals tally with the list (in German) of the five most useless power plants in Germany tallied by German grid expert and blogger Thorten Zoerner in August, based on re-dispatching.
Strangely, the BDEW insists that a capacity market be implemented at the same time. This demand makes no sense; as I explained in my report on the DIW paper, a 33 percent higher wholesale rate is enough incentive to ensure dispatchable capacity. The question is what the compensation should be for the specific coal plants that are decommissioned, not what special payments are needed for the remaining plants. Stay tuned for further details…
Source: Renewables International. Reproduced with permission.
Meanwhile, RenewEconomy’s Sophie Vorrath reports that Deutsche Bank has suggested that the actual implementation of such plan could not proceed without taking into account overall plans of a redesign of the German power market.
While stressing that too few details were known to make a reliable judgment of the news, Deutsche Bank analyst Alexander Karnick noted that potential impacts on the power sector – and in particular certain utilities – could be significant.
According to a DB report released on Wednesday, the background to this proposed law – which is due to be presented to parliament on Dec 3 – is that Germany may fail on its 2020 carbon target (a 40 per cent cut on 1990 levels) by 5-8 percentage points.
“This equates to a shortfall of 62-100 million tonnes; to be covered by 15m tons extra savings in transport, agriculture, waste, and 25 million tonnes from energy efficiency.” The remaining 22-60 million tonnes is expected to be contributed by generators between 2016-2020.
For 22 million tonnes savings, says Karnick, this would require around 41TWh of coal generation (8-10GW of capacity) to be switched into gas. To achieve 60 million tonnes in CO2 savings would require around three times more to be switched.
But Karnick says it is too early to gauge the impact of such a law without more details.
“Compliance with EU ETS rules, how security of supply can be sustained against tightening reserve margins as well as associated costs and
who bears them are questions left unanswered,” he writes.
Although it is Deutsche’s view that utilities would seek compensation if faced with forgone profits or additional costs. Another outcome, says Karnick, could be higher power prices in the longer run.
Overall, the cost of such a scheme – based on “a highly simplified analysis” – might cost around €500 million, in the case of a coal-to-gas switch, and €900 million costs in the case of a lignite-to-gas switch, says DB.
And while the draft plan aims for the pain to be shared equally among Germany’s utilities; “RWE as larger generator and with a higher share of
‘highly profitable’ lignite capacity seems more negatively affected (in the absence of compensation),” says the Deutsche report.