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RWE sees lignite-fired power plants profitable into 2020s despite LCP BREF investment

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London β€” RWE sees its entire fleet of lignite-fired power plants profitable into the 2020s despite a "low three-digit million" euro investment needed to make all units compliant with tighter EU air quality rules from summer 2021, a spokeswoman for the German utility told S&P Global Platts late Monday.

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This comes as a report by environmental think tank IEEFA Tuesday called on RWE to drop plans to invest between Eur200-600 million ($230-690 million) to comply with EU air quality guidelines of Nox, Sox, dust and mercury, known as the LCP BREF.

The German government plans to implement the LCP BREF in time for August 2021, with technical analysis still underway.

"We expect that the federal government will implement [this] in the upper range of the EU emissions guidelines, which are already ambitious," the RWE spokeswoman said.

IEEFA calls on RWE to halve its lignite mining output and close up to 3.3 GW of lignite plant capacity.

"It does not make sense to invest funds to extend the life of marginally profitable power plants that are nearly 50 years old, as RWE is planning, to comply with emissions standards that come into force in 2021," report co-author Gerard Wynn said.

RWE rejects the report's analysis, the RWE spokeswoman said, with the utility expecting rising power prices in the light of the country's nuclear phase-out beyond 2022.

The IEEFA report sees falling wholesale power prices through to 2021 in contrast with rising carbon prices.

In the medium to long-term, abandoning lignite investment "would be fiscally prudent," the report said, noting however that "this could cut company profits due to foregone electricity sales in the short term."

COAL COMMISSION TO VISIT HAMBACH

Background to the debate is Germany's intention to phase out coal-fired generation, with the government-appointed coal commission visiting RWE's lignite mining region around the Hambach opencast lignite mine this week.

Earlier this month RWE said it would reduce output from the Hambach mine following a court order halting forest clearance needed to expand the mine's acreage. A final court decision on the contested acreage is not expected before end-2020.

RWE said lignite output at Hambach would be cut by 10-15 million mt/year from a planned 40 million mt/year, leading to an estimated 9-13 TWh/year shortfall in generation at its Neurath and Niederaussem plants.

A first report by the coal commission on the future employment prospects for mining areas is due by end-October, with recommendations for achieving Germany's 2020 climate target due before December.

A final report, with an end date for coal-fired generation in Germany, is due by the end of the year. Output needs to be cut by around 50% by 2030 to meet climate targets.

Neurath and Niederaussem generate some 15% of electricity in the state of North Rhine-Westphalia with three older units are already in a reserve mechanism with LCP BREF limits not applying to units running fewer than 1,500 hours annually.

--Andreas Franke, andreas.franke@spglobal.com

--Edited by Maurice Geller, maurice.geller@spglobal.com