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Watch: Crunch time for German coal phase-out decision

Contrary to US President Donald Trump's tweets, Germany has not got rid of its coal plants just yet, not least because the government in Berlin is yet to come up with a clear line on the issue.

In this S&P Global Platts Snapshot video, Andreas Franke, editorial lead for European electricity, looks at the latest developments with a government-appointed commission expected to draw up a plan before year-end. Meanwhile, German coal-fired output has fallen behind renewables in the power mix for the first time despite government policy at a virtual standstill following the 2017 elections.

View Full Transcript

Welcome to The Snapshot – our series which examines the forces shaping and driving global commodities markets today.

Contrary to Donald Trump's tweets, Germany hasn't got rid of its coal plants just yet, not least because the government in Berlin is yet to come up with a clear line on the issue.

Chancellor Merkel's fourth government has been paralyzed by internal arguments unlikely to change before regional elections in Bavaria in October and energy policy at a standstill.

However, just as the political pressure to close German coal plants has eased, economic pressure is rising with prices for EU carbon allowances tripling since last summer.

Combined with bullish coal prices, this has pushed generation margins for German coal plants to record lows despite power prices rising to their highest in six years.

In fact coal-fired generation dropped below renewables for the first time ever in the first half of the year.

The wind boom is slowing down with fixed subsidies ending, but with capacity approaching 60 GW the sector has fundamentally changed the face of German power.

Germany's nuclear exit meanwhile is now entering its final phase with the last reactors scheduled to close by 2022.

Consensus is that the shortfall will be covered by renewables and flexible gas, with plenty of spare gas plant capacity available to bridge across to a decarbonized system.

How long and wide the gas bridge will be is unclear. Some utilities argue it is not needed, and the country should go straight from coal to renewables.

Similar to the nuclear phase-out, the government has appointed a commission to develop a road map for the coal phase-out. Many expect this to be around 2040.

Nevertheless German coal output still needs to be cut by half to meet 2030 climate targets.

By then, Berlin wants renewables to provide two-thirds of electricity. Not impossible, but Germany's power grid is a weak spot. Delays to North-South links create internal bottlenecks and prevent a faster growth for wind. The energy minister has recognized this and plans to fast-track grid projects with a new law.

However sketchy on detail, Trump's tweets did highlight Germany's dependency on energy imports, with Russia supplying over 40% of the country's oil and gas needs.

A move to green heat and improved efficiency would lessen this dependency, but efforts to improve insulation and install electric heat pumps are barely scratching the surface of gas heating demand.

Now the focus is turning to transport, with the government increasing pressure on car makers to invest in EVs.

After some reluctance, Germany's auto industry is focused on an electric future with battery supply the key issue and car makers already investing 50 billion dollars into EVs by 2020 -- but Germany's first ‘giga-factory' for EV batteries will be built by China.

Until next time on the Snapshot -- we'll be keeping an eye on the markets.