Argus White Paper: German coal and lignite phase-out Germany’s final hard coal mine closed at the end of 2018 and the country is now moving to eradicate lignite mining. To this end, its commission on growth, structural change and employment (WSB) has published recommendations for phasing out coal and lignite-fired power generation. The WSB recommends, as a first step, the closure of around 20pc of coal and lignite-fired capacity by 2022 — the same timeframe as for Ger- many completing its exit from nuclear power generation. This white paper highlights the impact on the gen- eration mix and wholesale trading in Europe’s largest power market. THE WSB PROPOSAL The WSB has recommended the closure of up to 8.6GW of into the night. This reflects the difficult task of weaning lignite and hard coal-fired power capacity by 2022, and an end Germany off power sector coal and lignite burn, given that the to power sector coal and lignite burn in 2038. country’s economic prosperity continues to centre around The commission on 26 January presented its final industry in the west and south, leaving east German lignite recommendations on Germany’s phase-out from lignite and states fighting for their mines. coal-fired power generation, as well as on support for lignite The recommendations, if implemented, will have a strong mining regions because these economies will go through a impact on the German merit order, as they would force a structural change. significant amount of coal and lignite-fired capacity off line in WSB members had struggled to come to an agreement in the short to medium term, and offer additional state support the previous meeting, which began on 25 January and lasted for gas-fired combined heat and power (CHP) generation. German generation mix TWh German coal and lignite generation GWh Lignite Gas Hard Coal 50.0 14,000 Renewables Nuclear Lignite Hard coal 45.0 12,000 40.0 35.0 10,000 30.0 8,000 25.0 20.0 6,000 15.0 4,000 10.0 2,000 5.0 0 0 Jan 18 Dec 18 Jan 17 Dec 18 Copyright © 2019 Argus Media group - www.argusmedia.com - All rights reserved. Trademark notice: ARGUS, the ARGUS logo, ARGUS MEDIA, ARGUS DIRECT, Power ARGUS OPEN MARKETS, AOM, FMB, DEWITT, JIM JORDAN & ASSOCIATES, JJ&A, FUNDALYTICS, METAL-PAGES, METALPRICES.COM, Argus publication titles and Argus illuminating the markets index names are trademarks of Argus Media Limited. Argus White Paper: German coal and lignite phase-out Short-term measures 2018-22 European coal and lignite phase-out plans The WSB recommends reducing the lignite and hard coal-fired Country Possible closure year capacity available to the wholesale power market to 15GW each by 2022. This would be a 5GW reduction for market- Denmark 2020 based lignite-fired capacity compared with 2017, and a 7.7GW Austria 2020 fall in installed hard coal-fired capacity over the same period. But additional capacity closures would be below this 12.7GW, France 2022 as market-based lignite and coal-fired capacity fell in 2018 UK 2025 and additional closures or exits from the wholesale market are already earmarked for 2019-20. Italy 2025 Lignite-fired capacity stood at around 20GW at the end of Hungary 2025 2017. Around 1.1GW joined the existing lignite plant reserve in Portugal 2029 October 2018. Another 700MW will join it this October, leaving 18.2GW available to the wholesale market by the fourth quarter. Spain 2030 An additional 3.2GW then has to shut down to get to the 15GW Netherlands 2030 of market-based capacity proposed by the WSB. The WSB said in its final document that it would prefer the Hambach Ireland 2030 forest in North Rhine-Westphalia to be preserved, suggesting Finland 2030 that its proposal on near-term lignite-fired closures could hit German utility RWE’s Neurath and Niederaussem plants, which Germany 2038 are supplied primarily by the Hambach mine. A court order on — Argus research logging in Hambach forced RWE to scale back output at Neurath and Niederaussem by 9-13TWh in 2019-21, as the mine would have to be extended to allow the plants to run at full load. Energy sector emission targets The hard coal capacity closures are less certain. Coal- fired capacity stood at 22.7GW at the end of 2017. The WSB’s Emissions, actual/target in mn t/ CO2e 600 20 final document pegs the closures in 2018-20 at 3.2GW. Nearly Cut in % relative to 1990 900MW shut down last year, around 1.4GW is earmarked to Cut in % relative to 2018 10 500 close by the end of March, and another 200MW is scheduled 0 to shut by 2020. And the WSB includes the potential closure of 400 -10 German utility Uniper’s 760MW hard coal-fired Scholven plant -20 by the start of the next decade. The firm plans to replace the 300 -30 unit with a smaller gas-fired CHP plant at the same site. These closures would cut hard coal-fired capacity available 200 -40 to the market to 19.5GW by 2020 if Uniper’s 1.1GW Datteln 4 -50 100 plant does not come on line, or to 20.6GW if it does. Uniper -60 intends to bring the delayed Datteln 4 on line next summer. 0 -70 But the WSB recommends that the German government 1990 2014 2018 2030 German power sector emissions by fuel 2017 % Emissions by lignite plant 2017 mn t 300 250 200 150 Coal Gas 100 Lignite 50 Nuclear 0 Oil Neurath Boxberg Wahlitz Deuben Schkopau Weisweiler Buschhaus Lippendorf Goldenberg Martinswerk… Janschwalde Fortuna Nord Frimmersdorf Niederaussem HKW Merkenich Schwarze Pumpe argusmedia.com 2 Copyright © 2019 Argus Media group Argus White Paper: German coal and lignite phase-out seek negotiations with the owners of under-construction coal- based on the process used when the previous government set fired plants — which only applies to Datteln 4 — to ensure that up the 2.7GW lignite-fired reserve, or through an auction. these plants are not commissioned. Energy sector greenhouse gas (GHG) emissions would fall Based on the 2020 outlook for coal-fired capacity by at least 45pc against 1990 levels with the implementation available to the market, Germany would have to shut down of the proposed measures, the WSB said. Energy sector GHG 4.5-5.6GW of hard coal capacity by 2022 to get to 15GW of emissions stood at 427mn t of CO2 equivalent (CO2e) in 1990. installed capacity, depending on the future of Datteln 4. The outlook for market-based coal-fired capacity in 2021- Medium-term measures: 2023-30 22 is uncertain, according to the WSB report. Gas-fired CHP Market-based capacity should fall to 9GW for lignite- projects could replace up to 1.2GW of coal-fired capacity over fired plants and to 8GW for hard coal-fired units by 2030, that period, although it is uncertain whether these projects which would force the closure of another 6GW and 7GW, could be completed by 2022, according to the WSB. respectively, in 2023-30, the WSB recommends. Added to this, local utility Steag’s Bexbach and Weiher 3 Compensation payments would be higher the earlier coal-fired units, with total capacity of 1.4GW, could return to plants shut down over that period, although this applies only the market at the start of the next decade. Steag had planned to to plants with a life span of 25 years or more. mothball the units but they have been declared system relevant For lignite closures, Berlin should enter bilateral talks on and, as a result, have been part of the grid reserve since 2017. compensation payments. If these talks fail to conclude by the And hard coal-fired plant operators have signalled plans to end of June 2020, the government should set compensation close 2GW of capacity in 2020-22, but could withdraw plans for within the framework of what is legally required. shutdowns, the WSB added. This means that coal-fired capacity For hard coal-fired plants, the government should available to the market could rise by up to 1.4GW in 2020-22, if introduce an auction scheme where plant owners could bid the Steag units return and there are no additional shutdowns. for a shutdown premium. If tenders are oversubscribed, the But the WSB’s base-case scenario sees market-based coal-fired premium would be awarded to the plants with the highest capacity little changed in 2022 against 2020, at 19.3-20.3GW. CO2 emissions. There would be no tender in years where The WSB recommends no longer issuing permits for new commercial coal-fired plant closures are sufficient to lower lignite and coal-fired plants, and that the 2.3GW of hard coal- CO2 emissions to meet the target for that year. fired capacity in the grid reserve be replaced by gas-fired units. The WSB wants power sector GHG emissions to fall steadily Compensation for plant closures in 2018-22 should be in 2023-30 so that they reach 175mn-183mn t of CO2e by 2030. Utility reactions to the WSB recommendations German utility RWE said the 2038 end date for a coal phase- The firm’s business plan, which includes mining beyond out and the scope of plant closures recommended by the 2040 in the Lausitzer territory, would be negatively affected WSB is ambitious, especially as Germany is phasing out if the WSB recommendations go ahead with a 2038 deadline. nuclear energy by the end of 2022.