Eight lignite units to be idled under German reserve plan -ministry

Published 13:24 on October 25, 2015  /  Last updated at 12:30 on October 26, 2015  /  EMEA, EU ETS  /  No Comments

Germany has reached agreements with three utilities to idle eight of their coal-fired power units with total generation capacity of 2.7 GW to help the country hit its 2020 emissions reduction target.

Germany has reached agreements with three utilities to idle eight of their coal-fired power units with total generation capacity of 2.7 GW to help the country hit its 2020 emissions reduction target.

The German energy and economy ministry on Saturday announced that it had inked deals with RWE, Vattenfall and Mibrag to gradually halt power production at the eight lignite blocks from 2016, temporarily shutting them down before decommissioning them fully over the course of the next seven years.

Under the plan announced in July, the units, which have been designated by the three utilities, will be put in a reserve to support baseload supply shortages, cutting Germany’s greenhouse gas emissions by 11-12.5 million tonnes of CO2 by 2020.

Energy and Economic Affairs Minister Sigmar Gabriel said the strategy is a “good and viable solution” for workers and companies, and will ensure that the country avoids blackouts.

The measure was deemed necessary to help the country both phase out lignite power, which accounts for around a quarter of Germany’s generation mix, and successfully reach its goal to cut its emissions by 40% below 1990 levels by 2020, which requires abatement of around 22 million tonnes from the power sector.

The country has already slashed its GHG output by 27% from 1990.

MOTHBALLED

The government did not identify which units would be mothballed, but Bloomberg reported that they would include Mibrag’s Buschhaus plant, five RWE plants spanning sites in Frimmersdorf, Niederaussem and Neurath, and Vattenfall’s Jaenschwalde plant and a second of the company’s stations.

Each unit will remain in the reserve for a maximum of four years before being decommissioned, with the last unit being idled in 2019.

The ministry estimated the lignite reserve’s cost at around €230 million per year over seven years, or more than €1.6 billion, and said this will lead to an increase in power prices of around €0.05/kWh.

It added that the plan will be re-evaluated in 2018, and should it not be on track to cut 12.5 million tonnes the government will propose additional measures.

LEGAL?

Some observers have questioned the legality of the plan under the EU’s state aid rules, but the German government reiterated its opinion that it’s legitimate.

“The bill for the design of the measure was also discussed extensively with the European Commission. On this basis, the Federal Ministry of Economic Affairs is confident that this measure is legally approvable aid and can be finally clarified in the current formal process,” the ministry said.

Gabriel, along with Jochen Flasbarth, State Secretary at the German environment ministry, have both said it is their understanding that the plan is legal.

Analysts have also predicted that the strategy will fall short, meaning supplemental measures are required that could be bearish for EU carbon prices.

However, increased certainty over the future of German lignite generation could increase utility hedging rates in the short term, which in turn would lift demand for EU Allowances.

The lignite reserve is to be approved by Germany’s federal cabinet in November, the ministry said.

Germany has also announced other measures to meet its 2020 target including efforts to increase energy efficiency and a doubling of financial support for combined heat and power (CHP) plants, strategies that are expected to cut emissions by a further 5.5 million and 4 million tonnes of CO2e respectively.

By Mike Szabo – mike@carbon-pulse.com

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