Germany Wants the Best of Both Worlds – Emission Reductions and Continued Energy Generation with Coal

Germany Wants the Best of Both Worlds – Emission Reductions and Continued Energy Generation with Coal

Germany has taken two significant steps regarding the future of its energy sector and climate protection. Firstly, it chose to dispel doubts regarding country`s pledge to reduce CO2 emissions by 40% by 2020 (in comparison to the values of 1990), by renewing its commitment to this goal. Secondly, it decided to phase out nuclear power by 2022 –which was triggered by the Fukushima nuclear disaster.

However, a tension arises as nuclear power – currently covering 15% of Germany’s demand – is CO2 neutral and will have to be replaced by other sources of energy. Despite a significant prospective growth in renewables to 47% by 2020, the energy network will continue to rely heavily on the base load capacity of conventional coal and gas power plants. In this context, with two essential documents being published by the German Federal Government in recent weeks, the role of coal power plants has returned to the focus of public debate around the Energiewende. So, it is difficult to imagine that coal, at least in the medium term, will not remain a major part of German power production.

On October 31st, 2014, the German Federal Ministry for Economic Affairs and Energy published a Green Paper on the future of the electricity market within the framework of the Energiewende. The paper underlines the transition that the German energy market will be going through up to 2022: greater integration into a European energy market, the nuclear phase-out, as well as the continuing expansion of renewables. Even under these circumstances, the main role of the energy market will remain to find a balance between power generation and consumption – an increasingly challenging task given the grid’s growing wind and solar components. Therefore, the future energy market must secure the existence of reserve capacity, and make it available when the wind does not blow and the sun does not shine. Currently, this task is mainly being fulfilled by coal power plants.

Understanding the German energy mix is essential to having a grasp on the challenges that lawmakers, regulators, and consumers face in the existing power market. In 2013, renewables and lignite covered a quarter of electric energy production each; black coal accounted for 19%, nuclear power for 15%, and gas for 11%. Consequently, coal covers a large proportion of the German energy needs, whilst it also represents the cheapest energy source available to Germany – a country already paying the highest electricity prices in Europe in comparison to the average purchasing power.

The German Federal Association of Renewable Energies predicts that, extrapolated from present conditions, by 2020, the share of renewables will rise to 47%, gas and black coal will defend their market shares, lignite will drop 8 %; and nuclear energy will be reduced to 1%, due to the phase-out. In this scenario, conventional generation remains fundamental, ironically due to the significant expansion of renewables in the grid.

 

The rise of renewables has also caused a jump in costly redispatch interventions from close to zero in 2008, to a projected 5,000 in 2016. Redispatches are requests by the German Federal Network Agency that power plants have to comply with in order to increase/decrease production in order to ensure the functioning of the grid. Moreover, the European Power Exchange introduced negative electricity prices for the first time in 2007. They reflect the situation in which, because of oversupply, power plants have to pay in order to “dispose” of their electricity, as the costs of limiting generation or shutting down would be even greater. According to the think tank Agora Energiewende in 2013, negative prices were registered for 97 hours, but given the current flexibility of conventional power plants, they are set to increase to over 1,000 hours by 2022. Coal and nuclear plants, which are shown to be the most inflexible in this regard, are most likely to be affected. While coal (and gas) power plants are regarded as essential to ensuring energy security and grid stability, redispatches and negative prices, along with current market conditions and regulatory uncertainty are not setting appropriate incentives for investors to keep offering these services – as required by the Green Paper.

 

At the beginning of December 2014, the German Federal Government published a second document, The Climate Protection Action Plan, meant to ensure that the country would reach the pledged CO2 emission reduction targets – no less than 62 to 78 million tonnes by 2020. At the core of the Action Plan are savings achieved through increasing energy efficiency – particularly in the housing and heating sectors – but gas and coal power plants are also supposed to contribute to this goal by lowering their emissions by 22 million tonnes over the same period. These targets have not only contributed to the uncertainty regarding the future of German coal power plants, but have also fuelled the coal phase out debate.

Consequently, as a result of tensions created by the technical requirements for grid stability, the shortfall of energy generation from nuclear power, and the emission reduction targets for 2020, Vice-Chancellor and Federal Minister of the Economy, Sigmar Gabriel, has been put under pressure to address the future of coal power plants.

On the one hand, business representatives, such as the Chairman of the German Union of Mining, Chemistry and Energy (IG BCE), issued a stern warning regarding the phase out of lignite power plants, as it would result in a price shock. Despite standing fully behind the CO2 reduction goal of the Federal Government, Mr. Vassiliadis pointed out that rumours regarding power plant closures would only increase investment uncertainty, and damage the business climate, ultimately lowering energy security.

On the other hand, the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety is sponsoring commercials shown in cinemas around Germany, letting cinemagoers know that a 5% reduction in household electricity consumption can help shut down one coal-fired power plant. Some experts are already bidding farewell to the climate goals in the absence of a coal phase out. Representatives of the Green Party, as well as the WWF, for example, argue that there is no way to sufficiently reduce emissions, without consistently closing lignite and black coal plants that have been in use for 35 and 40 years, respectively.

 

Against this backdrop, Minister Gabriel attempted to calm spirits on both sides, emphasising that Germany would reach its 40% CO2 reduction goal without a sweeping rejection of coal. He made it clear that coal will lose some of its importance over the next decades, but also declared that he did not consider pursuing a coal phase-out, simultaneously to the nuclear phase-out, to be constructive. In his opinion, such a “double phase-out” would bring massive problems in supply security, push energy prices up, and harm the country’s economic success.

Going even further, from an international, economic and geopolitical perspective, not committing concomitantly to a nuclear and coal phase-out, also supports the goals of maintaining the competitiveness of German products on world markets and pursuing a diversification of energy sources. Whilst it still remains to be seen what precise policies Germany will employ in shaping its electricity sector and achieving its climate goals over the next six years, it is clear that coal will remain an integral part of the German energy landscape.

Alexandru Zegrea Consultant, Pflüger International GmbH