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Germany unveils hard coal exit plan to outcry from operators

After laying out its exit plan for lignite power plants and open cast mines, the German government on Jan. 29 presented the full draft of its legislation to phase out coal by 2038, including the closure strategy for the country's 23-GW fleet of hard coal plants.

A maximum of just 8 GW of hard coal capacity will be allowed to operate past 2030, the energy ministry said. Until 2026, plants will be incentivized to shut down via a series of compensation auctions. The government will order the rest to close from 2027, but without any compensation.

If the draft passes through Parliament intact, the government will start the auction regime this year for up to 4 GW of capacity. Companies will get up to €165,000 for each MW closed, with the lowest bidders receiving compensation. The maximum payout is set to fall over time. In 2026, the last year of auctions, only a maximum of €49,000 will be paid to owners per MW closed.

Unfair burden

Much of Germany's hard coal capacity is owned by local municipalities. Many of them are unhappy with the way the burden of the phaseout has been split between them and the large lignite operators such as RWE AG and Lausitz Energiekraftwerke AG, part-owned by Czech group Energetický a prumyslový holding a.s.

"The maximum compensation is way too low and the price degression is not justified," VKU, the association of municipalities, said in its response to the draft law Jan. 29, pointing out that the compensation falls by 70% within the plan's six years.

Those plants not successful in the auctions by 2027 risk being "disowned without compensation," VKU said. This could affect especially those communal plants providing both district heating and power. Utilities association BDEW added Jan. 29 that heat security could also be jeopardized by the plan.

When it comes to the different approaches to lignite and hard coal, there is also a broader sense of injustice. "The decisions … were made for political reasons," BDEW CEO Kerstin Andreae said, referring to the funding dedicated to supporting the local economy of the coal regions, which rely heavily on the commodity. While lignite is mined in Germany, the country relies on imports for its hard coal supplies, some of which come from the U.S.

'Final decision'

The curtain is also set to fall for Germany's lignite plants, with the final closures planned for 2038, although any plants shutting after 2030 will not receive compensation. "Hard coal should not be used as a stopgap for the years in which no lignite plants go offline," Andreae said.

Analysis by VKU shows that the negotiated exit "will lead to new, more efficient hard coal plants being closed earlier than [previously] agreed, and much earlier than significantly older lignite plants," Managing Director Michael Wübbels said last week in response to a leaked version of the draft law. The draft that ultimately came to light was not an improvement, the group said Jan. 29.

Utility Uniper SE will be allowed to put its new Datteln 4 hard coal-fired plant into operation, a move criticized by environmental groups.

STEAG GmbH, a power provider owned by several municipal utilities and running 5.5 GW of hard coal capacity, said the draft law showed "glaring differences" in the treatment of hard coal operators compared with lignite operators. The initial plans by the so-called coal commission, tasked with designing the coal exit, did include an "appropriate" compensation, it added.

While politicians have been asked to revise the law, the trajectory has now been set, with a plan for renewables expansion to follow. Germany's prosperity was largely built on coal, Finance Minister Olaf Scholz acknowledged Jan. 29. This shows how big a step the decision to abandon the power source is for the country, Scholz said.

But "this is our final decision," Scholz said. "We are really doing this."