German reserve coal plant operators see challenges before return to market

Operators of German reserve power plants see a number of challenges that need to be tackled before making a decision to return the units back to the market, spokespersons for Steag and Uniper told S&P Global Commodity Insights July 27.

Energy minister Robert Habeck said July 13 that Berlin's new replacement power plant law (EKBG) could reduce gas-for-power demand by up to 20 TWh this winter allowing some 10 GW of older hard-coal, lignite and fuel oil units to run.

Steag is ready to contribute to security of supply some 2.3 GW of hard coal units under the scope of the EKBG law, but requires support and improved frameworks to finance the new requirements including on-site coal storage of 30 days, a spokesperson for the company with its roots in Germany's former hard-coal mining areas said.

Key questions are pre-financing of coal stocks amid near-record prices for coal into Europe as well as future economic risk on the estimated 600,000 mt of coal it would require to build up in storage before a return to market initially limited until April 2023 under regulation based on the EKBG which allows for extension into 2024.

Steag's two units currently in the grid reserve at Bexbach and Weiher in the Saarland region are currently contracted as reserve units until 2025, while two other units at Bergkamen and Voelklingen that were awarded closure compensation will see mandatory closure dates waived probably until 2024.

Talks to solve the issues and prepare for a re-entry to market are ongoing with politics and the regulator, the spokesperson said.

Coal supply logistics vary by location with Steag's Saarland units supplied via train, while units in the lower Rhine region are only slightly impacted by barging restrictions due to low river levels which are barely impacting shipping at the moment.

"No decisions have been made as yet," a Uniper spokesperson said regarding the 2.1 GW of coal and fuel-oil reserve units it operates for which the new law may apply.

Technical, organizational and economic problems would need to be solved first with currently no date set for such decisions, the Uniper spokesperson added.

EnBW to keep reserve units on the bench

EnBW, which operates four reserve units in Baden-Wuerttemberg in Southwest Germany with 1.4 GW capacity, already decided against returning the units to the market, but is preparing for increased operations this winter, a spokesperson said.

"Due to their age, our coal units currently in the grid reserve are not returning to the market as near baseload operation is not possible for technical reasons," EnBW head of generation Georg Stamatelopoulos said in a statement.

The company however reversed a plan to close its 517-MW RDK-7 unit at Karlsruhe this summer and keep it operating until spring 2024, it said.

EnBW is also preparing the four reserve units for increased running this winter to help stabilize the grid.

The company warned earlier this month that coal supply to RDK was impacted by low river levels on the Rhine.

River levels at the Kaub chokepoint are currently below those in summer 2018 which fell to all-time lows by October leading to widespread logistical issues for shipping on the Rhine.

Coal supply, on-site coal storage and workforce issues were additional challenges preventing a return of reserve units to the market, EnBW added.

Meanwhile, the 690 MW Mehrum coal plant near Hanover is set for a return to the market as soon as possible from August, according to a local media report with plant management not reachable immediately and the reserve unit currently not reporting via EEX transparency.

Czech-based generator EPH acquired the 40-year-old coal plant in 2017 planning to operate the unit until 2024.

The unit closed in 2021 after being awarded closure compensation, but was required to remain online by the grid operator as system-critical reserve unit.

Coal-fired generation margins have risen sharply over recent months as soaring gas prices lifted power prices to all-time highs with even the oldest coal units ahead of modern gas in the merit order.

Gas-fired generation costs for a 50% efficient unit were pegged July 25 at Eur386.02/MWh for the quarter-ahead compared to Eur193.40/MWh for 35% efficient coal units, S&P Global pricing data show.

Year-ahead coal into Europe CIF ARA was assessed July 26 at a record $301/mt, according to Platts assessments by S&P Global.

GERMAN RESERVE UNITS THAT MAY RETURN TO 2024

Source: BMWK, S&P Global Commodity Insights