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Germany takes the first steps towards the end of coal-fired power

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In 2018, the German government appointed a Commission on Growth, Structural Change and Employment, known as the Kohlekommission or Coal Commission with the task of evaluating a roadmap for the phase-out of coal-fired power production in Germany. The Coal Commission’s conclusions have now been published, setting the agenda for the next stage of the German energy transition (Energiewende).

Germany has been a pioneer of the mass deployment of wind and solar power generation. In 2018, its share of electricity generated from renewables (40.3 percent) exceeded that generated from coal (37.5 percent) for the first time. But 37.5 percent is still a lot of coal-fired power. On 26 January 2019, the Coal Commission passed its final (non-binding) resolution accompanied by a 336 page report. We summarise the effect of implementing its recommendations below.

1. Phase-out of coal-fired power production by 2038

The Coal Commission recommends the end of 2038 as the deadline for the phase-out of coal-fired power production in Germany. An integrated “opening clause” enables the phase-out date to be brought forward to 2035 in consultation with the operators if the electricity market, labor market and economic situation allow. This will be reviewed in 2032. In 2023, 2026 and 2029, the phase-out plan will also be evaluated in terms of security of supply, electricity prices, jobs and climate targets.

2. Gradual shutdown of coal power plants

At the end of 2017, Germany had operational coal power plants with a net capacity of 42.6 gigawatts (GW). They are gradually being taken off the grid anyway, however, the phase-out is supposed to be implemented earlier. 12.5 GW are expected to be taken off the grid by 2022, of which 3.1 GW are fed-in by lignite power plants that are particularly harmful to the climate. By 2030, no more than 17.0 GW may remain on the market. By 2038, all coal-fired power plants are to be shut down.

3. Compensation for (potentially) increasing electricity prices for consumers

To compensate for any increase in electricity prices triggered by the phase-out, the Coal Commission recommends reducing grid charges for private households from 2023 on. These grid charges can account for about a fifth of private households’ electricity bills, and the Coal Commission even goes so far as to suggest a subsidy for these network charges. The compensation would amount to approximately EUR 2 billion per year. But there shall be no new levies or taxes.

4. Compensation for (potentially) increasing electricity prices for companies

Energy-intensive industries are to be permanently relieved of costs arising from the price of CO2 pollution rights that coal and gas-fired power plants have to buy under the EU Emissions Trading Scheme (EU allowances). The current relief scheme for these indirect costs will expire in 2020. The government wants to apply to the EU (under state aid rules) for an extension of this compensation. Most recently, the relief amounted to almost EUR 300 million per year. Since EU allowances have become significantly more expensive, the sum will be higher in the future. The so-called electricity price compensation is to be extended until 2030.

5. Financial support for coal mining regions

Coal mining regions affected by the coal phase-out are to receive structural aids (Strukturhilfen) amounting to approximately EUR 40 billion by 2040. In addition to numerous transport projects, the establishment of federal authorities is being encouraged, which could create around 5,000 new jobs within the next ten years. Also, an investment subsidy for entrepreneurs is proposed.

According to the Coal Commission’s proposal, the aid could follow the Berlin/Bonn Act, which mitigated the impact of relocating the capital from Bonn to Berlin. By the end of April 2019, the cornerstones for a law of measures shall be in place that specifies how the German government will precisely promote structural change. Future federal governments of the individual German states are to be bound to it. The Coal Commission estimates the individual costs at EUR 1.3 billion per year over 20 years. In addition, EUR 0.7 billion is to be provided to the federal states that are not tied to specific projects. Furthermore, a special financing programme as well as an immediate programme amounting to EUR 1.5 billion in total will be set to improve the transport system. These expenses are already included in the federal budget until 2021.

6. Compensation for lignite power plants

The Coal Commission recommends contractual arrangements with power plant operators and compensation for decommissioning up to 2030, which should include both compensation for operators and socially acceptable arrangements. The older a lignite power plant is, the less compensation will be paid. If there is no contractual agreement with the operators by July 2020, the exit shall be subject to regulatory law also including compensation.

The Coal Commission also suggests that the amount of compensation should be based on amounts already paid in the past. Lignite power plants have already been taken off the grid and transferred to a reserve for climate protection purposes in the past. At that time, around EUR 600 million were paid per GW output. Of the currently more than 40 GW of coal-fired power plants still connected to the grid, about 21.8 GW are fuelled with lignite.

7. Compensation for hard coal power plants

There shall also be compensation here. However, since these power plants yield less return, a decommissioning premium shall be obtained by a series of tenders. In simple terms, this could work as follows. The German government specifies how much capacity is to be decommissioned. Power plant operators apply for this with bids for compensation. In each tender, whoever demands the lowest compensation or saves the most CO2 by shutting down the power plant will win the contract.

8. Support of coal workers and symbolic preservation of Hambacher Forst

For employees in the coal industry aged 58 and over who have to bridge the time until retirement, there will be an adjustment allowance and compensation for pension losses. Estimated costs amount to up to EUR 5 billion which employers and the state could jointly bear. Terminations of employment for operational reasons are excluded. There should be training and further education for younger employees, placement in other jobs and help with wage losses.

A piece of forest at the Hambach open-cast mine has become a symbol of the anti-coal movement. The report states that the Coal Commission considers it desirable that the Hambach Forest should remain. RWE wants to cut down the forest for brown-coal mining which was stopped by court order. Other villages and areas are also affected by opencast mining. The Coal Commission recommends a dialogue with the affected areas on the resettlements in order to avoid social and economic hardship.

9. Hedge of power supply

In order to avert the risk of blackouts due to a lack of electricity generation, the security of supply should be monitored more closely. The approval of more environmentally friendly gas-fired power plants is to be accelerated. Besides, investment incentives shall be created.

Conclusion

The publication of the Coal Commission’s report is only the start of the process of coal phase-out. In order to implement the recommendations into national and therefore binding law, many details will have to be worked out, and both the German government and parliament have to agree on their adoption. Nevertheless, it marks a hugely important step in the Energiewende, as Germany moves from merely being a champion of renewable power generation to pointing the way towards the kind of net zero carbon economy that climate science shows that we need to achieve sooner rather than later.