PHASING OUT COAL IN THE GERMAN ENERGY SECTOR INTERDEPENDENCIES, CHALLENGES AND POTENTIAL SOLUTIONS § INSTRUMENTS TRANSFORMATION COSTS COSTS TRANSFORMATION TECHNICAL FEASIBILITY CLIMATE CHANGE MITIGATION CLIMATE º C ENERGY ECONOMICS ENERGY IMPRINT PUBLISHED BY German Institute for Economic Research (DIW Berlin) Mohrenstraße 58 10117 Berlin Wuppertal Institute for Climate, Environment and Energy Döppersberg 19 42103 Wuppertal Ecologic Institute Pfalzburger Strasse 43/44 10717 Berlin ENERGY ECONOMICS Pao-Yu Oei, Hanna Brauers, Philipp Herpich, Christian von Hirschhausen (DIW Berlin), Andreas Prahl (Ecologic Institute) CLIMATE CHANGE AND MITIGATION TARGETS Timon Wehnert, Anja Bierwirth, Manfred Fischedick, Jenny Kurwan, Florian Mersmann, Anna Peters, Sascha Samadi (Wuppertal Institute), Pao-Yu Oei (DIW Berlin), Andreas Prahl, Katharina Umpfenbach (Ecologic Institute) TECHNICAL FEASIBILITY OF A COAL-FREE ENERGY SUPPLY Timon Wehnert, Anja Bierwirth, Manfred Fischedick, Stefan Lechtenböhmer, Arjuna Nebel, Anna Peters, Sascha Samadi, Oliver Wagner (Wuppertal Institute), Hanna Brauers, Casimir Lorenz (DIW Berlin) STRUCTURAL CHANGE AND TRANSFORMATION COSTS Pao-Yu Oei, Hanna Brauers, Isabel Teichmann, Claudia Kemfert (DIW Berlin), Timon Wehnert (Wuppertal Institute) INSTRUMENTS FOR REDUCING THE USE OF COAL IN THE ENERGY SECTOR Katharina Umpfenbach, Andreas Prahl (Ecologic Institute), Pao-Yu Oei (DIW Berlin) LAYOUT Beáta Welk Vargová, O. Bruhn, Lena Aebli (Ecologic Institut) TRANSLATION TL TRANSLATIONES GmbH Engeldamm 14, 10179 Berlin DATE February 2019 ACKNOWLEDGEMENTS Martin Kittel, Leonard Göke (DIW Berlin and TU Berlin), staff of the CoalExit Research Group at TU Berlin, Benjamin Görlach, Stephan Sina, Melanie Kemper, Mona Freundt and Franka Pätzke (Ecologic Institute) This publication was financed by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) with resources from the Energy and Climate Fund, Chapter 6092 Title 68602. The authors bear the sole responsibility for the contents of this publication. The contents of the publication and the positions represented in it do not necessarily reflect the position of the BMU. CONTENTS INTRODUCTION .......................................................................................................................................................................... 4 1 ENERGY ECONOMICS 1.1 Coal-fired power plants and cost structures ...................................................................................................................................................... 8 1.2 Cost structures of coal-fired power generation and open-cast mines .................................................................................................... 17 1.3 Pricing on the electricity market and competition between coal and natural gas .......................................................................... 19 1.4 Energy-economic arguments for a reduction in coal-fired power generation ................................................................................... 22 1.5 Monitoring to ensure security of supply ............................................................................................................................................................ 26 2 CLIMATE CHANGE AND MITIGATION TARGETS 2.1 Impact of climate change in Germany and worldwide ................................................................................................................................. 32 2.2 International climate policy targets and available carbon budget concept ......................................................................................... 35 2.3 Global trends in coal-fired power generation ................................................................................................................................................... 37 2.4 Implementation of climate policy targets in Germany ................................................................................................................................ 40 2.5 Pathways towards a reduction of coal-fired power generation in Germany ........................................................................................ 44 3 TECHNICAL FEASIBILITY OF A COAL-FREE ENERGY SUPPLY 3.1 The energy system of tomorrow ............................................................................................................................................................................ 50 3.2 Expansion of renewable energy sources and electricity grids ................................................................................................................... 54 3.3 The role of natural gas and synthetic gas ........................................................................................................................................................... 57 3.4 Significance of storage technologies ..................................................................................................................................................................... 59 3.5 Security of supply in the power sector ................................................................................................................................................................ 61 3.6 Transformation in the coal-fired heating sector .............................................................................................................................................. 65 4 STRUCTURAL CHANGE AND TRANSFORMATION COSTS 4.1 Regional economy in the lignite regions ............................................................................................................................................................. 72 4.2 Employment effects .................................................................................................................................................................................................... 77 4.3 How to make the structural change a success .................................................................................................................................................. 80 4.4 Costs and benefits of the coal phase-out ............................................................................................................................................................. 83 4.5 Securing renaturation costs of open-cast mines .............................................................................................................................................. 86 5 INSTRUMENTS FOR REDUCING THE USE OF COAL IN THE ENERGY SECTOR 5.1 Existing intruments ..................................................................................................................................................................................................... 90 5.2 CO2-Minimum Price and other price instruments .......................................................................................................................................... 95 5.3 Shut-down of generation capacity......................................................................................................................................................................... 98 5.4 Limitation of annual production by coal-fired power plants ...................................................................................................................... 101 5.5 Combining instruments ............................................................................................................................................................................................. 103 REFERENCES AND ANNEX ....................................................................................................................................................... 107 2 FIGURES Fig. 1.1.1: Locations of coal-fired power plants in Germany ........................................................................................................ 9 Fig. 1.1.2: Structure of lignite coal-fired power plants in Germany .......................................................................................... 10 Fig. 1.1.3: Structure of hard coal-fired power plants in Germany .............................................................................................. 11 Fig. 1.1.4: Coal mining and power plants in the Rhineland coalfields (2017) ........................................................................ 14 Fig. 1.1.5: Coal mining and power plants in the Lusatian coalfields (2017) ............................................................................ 15 Fig. 1.1.6: Coal mining and power plants in the Central German coalfields (2017)............................................................. 16 Fig. 1.3.1: Merit Order in Germany 2015 ................................................................................................................................................ 20 Fig. 1.3.2: Short-term generation costs of hard coal, lignite, conventional gas and combined-cycle power plants . 20 Fig. 1.4.1: Development of German electricity exports and imports and the exchange electricity price ................. 25 Fig. 2.1.1: Surface air temperature - global average annual values from 1860 to 2005.. ................................................... 32 Fig. 2.2.1: Emissions budget – cumulated emissions per period are the key climate impact factor ............................ 36 Fig. 2.3.1: CO2 intensity of power generation in EU countries ....................................................................................................