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Germany lays out €40B coal exit plan; RWE accepts deal through gritted teeth

SNL Image

The Garzweiler coal mine in Germany will be the only source of fuel for RWE's coal-fired power plants from 2030.
Source: RWE

The German government on Jan. 16 presented a plan outlining the financing and timeline of the country's exit from coal power generation, putting the country on a path to eliminating the fuel from its mix by the late-2030s.

As part of the deal, the coal-heavy states of Brandenburg, North Rhine Westphalia, Saxony and Saxony-Anhalt are set to receive €14 billion until 2038 at the latest to help them through the transition. An additional €26 billion has been earmarked for those regions specifically reliant on lignite coal mining, to improve infrastructure and lay the foundations for new industries such as science and hydrogen.

The plan, presented by government spokesman Steffen Seibert, also includes an option for an earlier phaseout target for coal, by 2035. Workers in the coal mining and power plant operations sectors are set to receive compensation until 2043 — a move welcomed by utility RWE AG, which will be among the hardest hit.

RWE is set to receive €2.6 billion in compensation for shuttering its lignite powered plants, the company's CFO Markus Krebber told reporters on Jan. 16. Operators in eastern German will receive €1.75 billion, German Minister of Finance Olaf Scholz said in a separate news conference on the same day, according to Reuters.

RWE said that while the compensation fell short of its original demands, it decided to enter a compromise with the government in order to move forward and carry out its role in the energy transition. The plan for the coal exit "is a significant hit for RWE," CEO Rolf Martin Schmitz said. "We went to the limits of what is possible but that is the price for allowing a solution." According to RWE, the financial damage of the closures will be €3.5 billion.

'Emotional burden'

For RWE, a first 300-MW lignite power plant will go offline this year, and by 2030 only the company's three newest lignite plants will be running, Schmitz said. In the short-term, 3,000 employees in mining and power plant operation will lose their jobs, and by 2030, another 3,000 will go. The total equates to around a quarter of the company's current workforce. The news is "an enormous emotional burden," Schmitz said.

As a result of the plan, the clearing of the West German Hambach forest for coal mining, and resettlement of affected communities, will now not go ahead, ending an extended political and social debate in the country, as well as RWE's plan to access the region's coal supplies. The Garzweiler open pit mine nearby will be expanded, however, with some communities being resettled — a move the government described as necessary from an economic perspective. "From 2030 only the Garzweiler coal mine will be available to supply our power plants," Schmitz told reporters.

Rival utility Uniper SE's planned Datteln 4 hard coal power plant is set to be given the green light to start operating under the coal exit plan, Reuters reported. While Schmitz said he did not see a link between the two outcomes, he added, "Not everyone is as capable of compromise as we are."

Investors were less gloomy: RWE's share price Jan. 16 climbed to its highest level since September 2014 on the news of the compensation payment. Dividends would not be impacted by the financial hit, Krebber told reporters.

The government said it wants to enshrine the pathway out of coal into law "in due course," and said it would start the process in January, with completion by the first half of 2020. "To compensate for the exit from coal generation in the electricity market, the expansion of renewables will be sped up in line with the 65% target in 2030," Seibert, the government's spokesman, said.

The end of coal

BEE, the German trade association for renewable energy, said the plan, while "timid for a country aiming at energy transition," finally sends a signal to operators and investors that "the era of coal generation in Germany is over."

The country's emission reduction targets will not be achieved with the plan, BEE said. The group added that without "ambitious development pathways" for renewables, the country could face a gap in its power supply.