The adoption of the law follows two years of intense debate among energy industry, trade unions, regional governments and environmentalists about the speed and intensity of Germany’s green energy transition.
Coal utilities, federal states get compensation
A compromise was reached on the basis that the Government agreed a 40 billion Euros support program that compensates both coal plant operators and supports the economic transition of coal region such as Rhine-Ruhr region and the Lusatia, situated at Germany’s eastern border with Poland.
In view of Germany’s 2021 election year, the adoption of the coal exit law allows the current coalition government to implement long-delayed measures though this topic will keep influencing election campaigns. How to best manage the costs of decarbonisation conjures up much controversy among Angela Merkel's conservative CDU/CSU alliance, the Social Democrats (SPD) as their current coalition partner, the Liberals (FDF) and the Green Party.
RWE’s earning from lignite, nuclear may vanish by 2023
In an analysts’ call, RWE chief executive Rolf Martin Schmitz stressed the company “bears the main burden of the lignite phase-out, which will stretch it to its limits.” Earnings from RWE 2.9 GW lignite and nuclear portfolio may fall to €200 million, or even net zero from 2023 due to mandatory plant closures.
Schmitz stressed, however, the Essen-based utility will implement the required capacity reduction by 2023, as mandated by the German coal exit, “nearly entirely on its own account.”
The first lignite power plant to be shut down by RWE is Niederaussem. The massive 3,641 MW facility will be taken offline this year, and RWE also agreed to close its Inden and Hambach opencast mines much earlier than originally planned. For complying with the coal exit timeline, RWE will get some 2.6 billion in compensation from the German taxpayer.
Critics had dismissed the compensation payments as too high and unjustified given that most of the plants, scheduled for closure, are amortized and are getting close to the end of the technical life-time.
Going forward, RWE is keen to get rid of its dirty coal image and has hence lined up a substantial share of green energy investment. A total of 2.7 GW in renewables capacity is currently under construction,” CEO Schmitz said, adding, the group has a sizeable project pipeline of over 20 GW, which will add to RWE’s current 9 GW of wind and solar power assets. New capacities will be predominantly added in the onshore wind and solar segment, with RWE saying these projects are hoped to achieve an adjusted EBITDA of between €500 million and €600 million.
Lockdown accelerates Energiewende
Looking at the German wholesale power market, there has been a sharp decline in coal-burn during the Covid-19 lockdown period. Demand for coal-fired energy fell to less than 16% of the energy mix in April due to ample wind and solar energy supply with near-zero operating costs.
Some analysts argue this shows Germany’s 2038 coal exit date has been “overtaken by reality.”
In fact, nearly 90% of Germany's coal plants were not profitable last year, according to E3G, an independent climate change think tank. The lockdowns to contain the virus have exacerbated the speed of the green energy transition, whereby he share of coal power dropped to a record low of 16% in April.
Renewables energy supply rose 6% in the first quarter of 2020, compared to Q1-2019, while the contribution of oil fell by-3.2%, natural gas by 5.5% and the share of nuclear power plunged by -17%.
Power prices turn negative, grid remains resilient
During April and May, electricity from wind and solar power sources covered a very large share of Germany’s overall electricity demand. On some days, an actual oversupply of wind and solar energy resulted in negative wholesale power prices at the European Energy Exchange (EEX) in Leipzig.
Plentiful sunshine and mild weather in April and May provided good conditions for solar PV generation, and when combined with high levels of wind power, led to overall supply outstrip demand. Already in March, the German wholesale power market logged about 130 hours of negative prices, mostly during periods of high wind production; that was up from 90 hours in March 2019.
“The hours are now increasing in which a high feed-in of renewable energies, especially from wind energy, meets low demand for electricity and leads to negative spot prices,” enervis analyst Tim Steinert said. The consultancy expects the number of hours with negative prices to increase by 80% to 150%.
On a positive note, the surge in renewable energy supply has put much strain on grid operators’ balancing capability, especially during times of low demand. But it has proven the resilience of the German power grid, exemplifying that the system could run with much higher levels of green energy than anticipated earlier. An encouraging sign that system stability does not hinge on lignite, though the Germany’s simultaneous exit of coal and nuclear energy will pose some challenges along the way.