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German energy policy and phasing out coal

By Dave Elliott

The influential German Advisory Council on the Environment (SRU) has mapped out how it sees the future of coal. It notes that the Federal Government Coalition agreement (2013) states that: ‘the conventional power stations (lignite, coal, gas) remain an indispensable part of the national energy mix for the foreseeable future’, but it tries to put more flesh on that vague timescale, so as to better meet and exceed the 80% carbon reduction goals of the existing energy transition plan – it wants that raised to 95%. In particular it says that, with nuclear now being phased out (all of it by 2022), ‘an integrated energy policy should synchronise the phasing out of conventional power generation capacities and the increasing use of renewables’.

So far the phase out of fossil fuel use has not occurred in a coherent way. Overall national greenhouse gas emissions have fallen (by 26% since 1990 according to the Agora Energiewende group), but although, as I reported in an earlier post, the government has closed/mothballed some old dirty lignite plants (4GW in all), other plants remain and some new (more efficient and long-planned) coal plants have started up, with 10TWh of coal output added by 2014, set against 7TWh of lignite output reduced. Coal is still relatively cheap and, as zero marginal cost renewables eat into peak electricity demand markets, it has been the higher cost gas plants that used to serve these markets that have mostly closed. This is not helpful in energy system terms, since flexible gas plants will be needed for some while to balance variable renewables. SRU says ‘the electricity system must be restructured to integrate widely fluctuating inputs from renewable sources. Eventually, there will be no need for base-load power stations, i.e. power stations which for technical or economic reasons should operate at a constant production level. In the transitional period, flexible gas-fired power stations will have a significant role to play’.

How can the availability of gas plants be assured? The UK has set up a 50GW capacity market to achieve this, with extra payments for capacity that can be made available to aid grid balancing/ temporary shortfalls, most of it so far being existing capacity (including nuclear!). The German government does not like this ‘subsidy’ approach and, as I noted in an earlier post, in its new White paper on its so-called Electricity Market 2.0 proposals, it argues that, suitably structured, the market will ensure that the right balancing capacity is available: www.bmwi.de/EN/Service/publications,did=721538.html

That’s a bit of a stretch, but SRU seems to agree: In the near future, there will only be a need for flexible peak-load power stations which can contribute to the provision of a widely fluctuating residual load. For new plants, the market itself will introduce the necessary structural change from base load power stations to peak load plants in the medium term’. So, in theory, the market should see off old baseload plants. SRU says in future ‘it would be uneconomical to continue to burn fossil fuels when power can be generated from technology operating without fuel costs’. However, that surely also applies to gas plants, so it’s not clear how or why they will be supported. Moreover, as noted above, in reality for the moment in the absence of high carbon prices (since, with weak carbon caps set, the EU Emission Trading System doesn’t work well), coal is cheap, and not all the coal plants will go, while gas plants may.

So it may take time before coal starts to fall. SRU says ‘by 2040 at the latest, all coal-fired power stations should have been taken offline, preferably beginning with those with high specific greenhouse gas emissions’. Certainly by 2050, when renewables are planned to supply 80% of German electricity, ‘the remaining power requirement must then be generated in flexibly controllable plants and can therefore not be provided by coal-fired power stations’. This seem quite a slow phase-out programme. But SRU says ‘if coal-fired power stations are taken offline at a faster rate this will lead at first to an increase in electricity prices. However, the increase will be moderate and will more or less make up for the fall in wholesale electricity prices in recent years.’ It notes that actually, given the structure of the green energy subsidy system, an increase in market prices for electricity would lead to a reduction in the renewables surcharge in Germany, so that in fact private households and non-privileged commercial customers would hardly be affected. Only industries not subject to the renewables surcharge would face appreciable additional costs. But even if the wholesale price rose to approximately 50 euros per MWh, this would only neutralise the effect of the fall in prices since 2011’.

While that may be true, consumer retail prices may well rise, as they have done due in part to the Engiewende programme (but see the Agora data below), and that can be very politically sensitive – and is one reason why support for the renewables programme is being revamped. Nevertheless, part of the overall energy price escalation is due to fossil fuel price rises, and the Engiewende programme will, over time, help reduce that with, if SRU’s approach is adopted, renewables progessively replacing fossil use and creating wider economic gains. SRU says ‘the timely elimination of excess capacity in the fossil-fired power plant fleet does offer macroeconomic advantages when the dynamics are viewed over the longer term’. Moreover, like the federal government, SRU is hopeful that improvements to the EU-ETS (its proposed new market stability reserve) will help it to accelerate these developments in a way that spreads the cost across the EU. Though the SRU says thatthe price signal it provides will remain too weak for Germany’s more demanding national targets, even after the reform’.

So, with its ambitious renewable targets, Germany will have to go it alone to an extent. And in a welcome move away from short-term market thinking, the SRU says ‘Germany cannot and should not compete to offer the lowest electricity prices, but should rather focus on innovative, high-value products and processes that are environmentally compatible’. That will build lucrative green markets, more than replace the jobs lost as fossil and nuclear are phased out and avoid costly fossil fuel imports. And of course help reduce the costs and impacts of climate change for everyone. www.umweltrat.de/SharedDocs/Downloads/EN/05_Comments/2012_2016/2015_09_KzU_14_Future_of_Coal.html

Meanwhile, the costs should not be too excessive. The Agora Energiewende group claims that, after significant increases in previous years, household electricity prices have been relatively stable since 2013: the EEG surcharge actually fell slightly last year to 6.17 Euro cents/kWh from a peak of 6.24 cents in 2014. Renewable energy deployment lowers wholesale market prices, partly compensating for the increase in the EEG surcharge, which is expected to increase moderately until 2023, reaching about 7.20 cents/kWh, and then fall to 4.4 cents/kWh in 2035. Agora says that the current costs of supporting renewables include large historic development costs; future costs will be moderate. It puts the integration/backup system cost for wind and solar  in Germany at €5-20/MWh, small compared with their generation costs of €60-90/MW, with the highest total still coming to less than that for new nuclear, put at €113/MWh, based on the Hinkley CfD, this being used as a proxy, since of course there are no plans for new nuclear in Germany.                     www.agora-energiewende.de/fileadmin/Projekte/2015/Understanding_the_EW/Key_Insights_Energy_Transition_EN_Stand_7.10.2015_web.pdf
www.agora-energiewende.de/fileadmin/Projekte/2015/Understanding_the_EW/Agora_Understanding_the_Energiewende.pdf

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