This 1,600-MW lignite-fired power plant in Schwarze Pumpe in eastern Germany could stay online until 2038 under Germany's coal phaseout plan.
After a year of hand-wringing over climate change and negotiations involving some of its largest companies, Germany is close to charting its final course for phasing out coal power by 2038.
But the compromise, signed off by Chancellor Angela Merkel's cabinet in late January, left environmentalists and many of the affected utilities unhappy, despite a process painstakingly designed to find the most acceptable pathway for all.
Crucially for the power industry, the plan promises a starkly diverging future for owners of more-polluting lignite power plants, such as Germany's largest power company, RWE AG, and those that run units fired with hard coal, including municipal utilities and large domestic power producers as well as Sweden's Vattenfall AB and U.S.-based private equity firm Riverstone Holdings LLC.
Under the plan, which still needs to be passed by the German parliament, companies burning hard coal are forced to compete for subsidies and risk going home empty-handed. RWE, on the other hand, will get billions of euros as a result of direct negotiations with the government.
"[The] coal phase-out law represents blatant unequal treatment of the operators of hard coal-fired power plants," said Daniel Mühlenfeld, a spokesperson for STEAG GmbH, which is jointly owned by several municipal utilities and one of the largest owners of hard coal power plants in Germany.
The government's plan to close plants without any payments from 2027 goes against the original suggestions of Germany's coal exit commission, a stakeholder group of coal executives, politicians and environmentalists, and it represents "an unacceptable interference with the property rights of the companies," Mühlenfeld said. He added that STEAG would consider legal action if the draft does not change.
Uneven playing field
Germany still relied on coal to produce almost a third of its electricity in 2019. Around the country, there are about 21 GW of lignite-fired and almost 23 GW of hard coal-fired power plants, including several gigawatts in Germany's security reserve.
By far the largest power plants are fired with lignite and run by RWE and Lausitz Energiekraftwerke AG, or LEAG, which is owned by Czech investor Energetický a prumyslový holding a.s. and PPF Investments Ltd.
Under a deal reached with the government, RWE and LEAG will receive €2.6 billion and €1.75 billion, respectively, for closing about half of their lignite plants by 2030. RWE will take the first eight units, with a collective capacity of 2.8 GW, off the grid within the next two years.
By the end of the decade, some of Germany's largest lignite plants, including units at the RWE-owned Niederaussem Power Plant and LEAG-owned Boxberg ST and Jaenschwalde Cogen Power Station, will start to shut down. The remaining capacity, including plants owned by Uniper SE and EnBW Energie Baden-Württemberg AG, will then close without compensation over the following five to eight years.
RWE CEO Rolf Martin Schmitz grumbled about the heavy burden for his company but said he accepted the deal to finally put an end to the discussion and provide security for workers.
While RWE now has a large chunk of its costs for the phaseout covered and saw its share price rise on the news, LEAG has come under fire after German newsmagazine Der Spiegel reported that the company had originally planned to shut down its coal plants over the same timeframe as the government's phaseout stipulates. LEAG denied the charge.
According to the Der Spiegel report, the government is looking into whether the company is being paid for nothing. The EU commission still has to approve the compensation package, too.
Owners of hard coal-fired units face an entirely different playing field. They will have to outbid their competitors to close power plants at the lowest cost in a series of auctions between now and 2023, with maximum prices dropping each year. This way, the government hopes to get a large share of capacity off the grid by 2026. After that, hard coal owners will be forced to shut their plants without any payments.
EnBW said parts of the package were "urgently in need of improvement" and specifically took issue with the linear phaseout for lignite. This would mean older and more polluting plants will keep running while modern hard coal units are shut down.
"This is indisputably not in the sense of climate protection," the company said.
EnBW is also at a disadvantage because its coal plants, located in southern Germany, are judged as critical for grid security and are therefore excluded from early closure auctions.
The tight timeline for hard coal closures has ramped up the pressure on utilities to move quickly. Uniper announced a day after the law became public that it would aim to shutter all of its remaining hard coal plants by 2025.
"We now have a framework, which we want to use to our advantage," a spokesperson for the company said. Uniper will also be allowed to bring Datteln 4, Germany's last new coal plant, into service this year, despite strong opposition from environmental groups.
Germany also has several gigawatts of combined heat and power plants that run on coal, and the government is hoping to entice operators to switch to gas or biomass with a higher conversion bonus under the draft law, although many utilities said this would not be enough to incentivize a switch.
The most lignite-dependent states — Brandenburg, North Rhine Westphalia, Saxony and Saxony-Anhalt — will receive €40 billion in structural help to ease the transition. Germany stopped mining hard coal domestically in 2019, but RWE and LEAG still excavate lignite in vast open-pit mines.
That is also a key reason lignite operators are getting a better deal in the eyes of many, said Brigitte Knopf, secretary-general of the Mercator Research Institute, a think tank.
"Local policy-makers often have a strong interest in extending the lifetime of lignite power plants," Knopf said in an email. Coal mines support a large chunk of regional economies and have a high symbolic value. Knopf said it would have been better to focus on Germany's overall carbon budget.
"But distributional conflicts play a more important role in the German debate about the coal phaseout than the climate aspect," Knopf said.
Utilities are not the only ones unhappy about the phaseout. Greenpeace decried the law as a "half-hearted" effort to get rid of coal, while Ottmar Edenhofer, director of the Potsdam Institute for Climate Impact Research, said the price tag could have been much lower and that compensation payments send the wrong signal anyway.
"They undermine the polluter-pays principle, wherein anyone causing emissions should pay accordingly," Edenhofer said. "This is why operators have kept some power plants on the grid longer than is economically feasible — so that they can now collect compensation payments."