Transforming Germany’s energy landscape-Coal and the Energiewende

In 2013, coal-fired power stations contributed 45.5 per cent to Germany’s total power output
Credit: E.ON

As Germany’s energy transformation brings more renewables onto the grid, older coal-fired power plants are losing money… yet at the same time, coal use is on the rise. Tildy Bayar investigates what the future might look like for Germany’s coal plant operators.

Germany’s Energiewende – an ‘energy transformation’ as Germans aim to phase out nuclear power by 2022 and generate 80 per cent of their electricity from renewables by 2050 – is having dire consequences for the big utilities that own and operate coal-fired power plants, with historic profit losses and numerous plant closures slated.

But, somewhat surprisingly, the Energiewende also seems to be giving rise to growth in coal-fired power generation. Industry figures point to a 44 per cent rise in coal power in 2013 over the previous year – and in 2013 coal made up 45.5 per cent of Germany’s power output, the nation’s highest level in 20 years. New coal plants are coming online, and new coal mines are in the works.

So is German coal power in decline or on the rise – or is the question not that simple? How are coal plant operators planning to survive (and hopefully thrive) during the Energiewende, and what is the future for the nation’s coal plants?

In answering this question it is important to distinguish between anthracite ‘hard coal’ and lignite ‘brown coal’. In general, hard coal tends to fuel older plants which run continuously, while newer, ramping plants are more likely to burn brown coal. It is the older hard coal plants that are being shut down in large numbers – and some analysts say they were ready to retire anyway. Brown coal, on the other hand, is booming.

Replacing nuclear power as quickly as possible with large amounts of renewable energy has proved problematic for Germany – most crucially in regard to renewables’ intermittency. The sun does not always shine, and the wind does not always blow, at peak demand times, rendering a total switch to renewables impractical. When energy from renewables is unavailable, conventional baseload power is needed to ensure that there is no interruption in power supply.

Also crucially, integrating growing amounts of renewable energy onto Germany’s grid presents infrastructure difficulties. Even the current amounts of renewable power have proved difficult for the grid to handle; congestion is routine and significant work on the transmission system is planned. And costly upgrades are needed to bring power from large northern wind farms to the southern population centres.

The Energiewende’s rising costs for consumers are drawing increasing public criticism. German households must pay €64.2 ($88.3)/MWh for the so-called EEG (Renewable Energy Act) surcharge which funds subsidies to renewable power producers. A recent poll by the energy and water industries association (BDEW) showed that while 80 per cent of Germans still support the idea of the Energiewende, most disapprove of how it is being managed.

Industry has felt less impact so far, with energy-intensive sectors exempted from the EEG surcharge in order to preserve jobs, innovation and global competitiveness. But the energy ministry is considering revoking the exemption in order to recoup some of the Energiewende’s costs, and in early April a European Commission investigation into whether the exemptions give German companies an unfair advantage in the European marketplace was resolved when Germany agreed to reduce the number of exempted companies from 2100 to 1600.

Capacity gap

The nation’s electricity market, a relic of a time when no one foresaw today’s rapid growth in renewables, is increasingly failing to balance economics, sustainability and security. A 10 GW capacity gap is predicted to open up when the nation’s remaining nuclear plants are shut down, rendering flexible conventional power plants crucial for ensuring supply, especially during the winter months. But according to analysts, current market regulations do not often allow fossil fuel plant operators to run their plants profitably.

“Today’s power market design has not provided sufficient price signals to maintain the capacity of many power plants, nor does it offer incentives for new investment in flexible capacity or load management,” wrote Dr Udo Neihage, Siemens’ head of government affairs in Berlin, in the journal of European power and heat association VGB PowerTech.

With coal plants’ profitability dropping by a precipitous 23 per cent in 2013 and Germany’s big utilities posting historic losses, notably RWE’s first annual loss since 1949, coal’s numbers don’t look good. RWE’s loss came in at €2.76 billion after the company wrote down €4.8 billion in assets, most of which were power plants, while fellow ‘big four’ utility E.ON’s profits fell 46 per cent to €2.24 billion.

With the nation bent on switching to a renewables-led economy and distributed and self-generation becoming increasingly popular, it would seem that large conventional power plants could go the way of the fossilized vegetation from which their fuel is derived. Under the EEG, renewables get priority access to the grid, and while they are online many coal plants stand idle.

RWE is building two new hard coal-fired units at its Westfalen plant
Credit: RWE

Depressing prices

During good weather large amounts of renewable energy come on to the grid, depressing prices – a contributing factor cited by RWE in its March annual report. “At the current market price of less than €37/MWh, it is virtually impossible to operate conventional power stations economically,” said chief executive Peter Terium.

Operation and maintenance costs are also rising. “We are concerned about the way our [coal] plants are running,” says Markus Nitschke, an E.ON spokesman. “They are the substitute for fluctuating renewable energy because of changing wind and sun. There are many cool-down phases and starts. That means more deterioration for the material.”

Operating costs are higher for older hard coal plants. Christian Redl, senior associate in the European Energy Cooperation team at thinkthank Agora Energiewende, says: “With 2013’s average fuel prices [hard coal around €10/MWh, CO2 around €4/tCO2], an old hard coal plant with 34 per cent electrical efficiency would have generation costs of €33/MWh, meaning it would make money as 2013 power market prices amounted to some €38/MWh. Plants built in the second half of the 1960s to the 1970s would have this efficiency. But plants built in the 1950s would have 30 per cent efficiency, so a generation cost of €38/MWh.” These older plants are due to retire anyway, Redl says, while newer plants with an efficiency of 35 per cent and above “should do fine”.

Utilities are responding by shutting down their older, unprofitable hard coal plants, with 42 applications to close down 10 GW of power station capacity in the Federal Network Agency’s pipeline.

“The situation is clear: power plants that can no longer operate economically and that are not needed to maintain system stability will be withdrawn,” E.ON SE’s chief executive Johannes Teyssen said in March, and Nitschke confirms that, after already closing or mothballing 11 GW, the company will shut down an additional 5 GW in 2015. RWE will shut down 2.2 GW, while EnBW has also announced plans to mothball a number of coal plants, saying operating them is no longer viable due to competition from expanding renewable energy capacity.

In 2012, Peter Altmeier, then the environment minister, said Germany will require conventional fossil-fueled power plants “for decades to come” to complement intermittent renewable energy sources. The German Energy Agency (dena) estimates that coal and gas-fired power plants will still need to provide around 60 GW, or two thirds of the nation’s secured capacity, in 2050.

Many say Germany cannot afford to dump too much coal power too soon without grave consequences. EON’s Teyssen has warned that if the trend for coal plant shutdowns “continues unabated, we will very soon see serious capacity shortages. And in that case absolute security of supply would no longer be axiomatic.” Recognizing this, in late 2013, the Bundesnetzagentur network agency denied EnBW’s request to shut down four coal plants with a combined capacity of 668 MW, ordering the utility to continue running them until at least mid-2016.

Many believe gas would be a more desirable way of fueling the future than coal given its lower emissions.

But while gas has been hailed as a ‘bridging fuel’ between today’s fossil fuel-dominated economies and tomorrow’s carbon-free systems, it is simply too unprofitable at present given current high gas prices. German coal power is now half the cost of gas power, while profit margins at the nation’s gas plants have been negative since 2012, with losses growing by 62 per cent to over €20/MWh in 2013 and even the newest, highest-efficiency gas plants losing money.

Given all of this, it is no wonder that German coal use is at its highest level since 1990, with lignite, its cheapest form, generating 162 billion kWh or 26 per cent of overall power production in 2013, up from 160.7 billion kWh in 2012, according to electricity industry group EnergieBilanzen.

One reason is that new lignite plants are coming online in greater numbers than older plants are being shut down. In 2012, 2743 MW of new lignite plants came online, while 1321 MW were shut down. And lignite is simply the most affordable energy source that is domestically available in sufficient quantities.

Lignite mining is entering high gear, creating jobs (and controversy) in key regions across Germany. Vattenfall’s lignite mining operations employ 22,000 people in the eastern state of Brandenburg, while North Rhine-Westphalia is a traditional mining stronghold and home to powerful coal lobbies.

Vattenfall’s 827 MW Moorburg plant has an efficiency of 46 per centl
Credit: Vattenfall

Brown coal on the rise

As the pace of lignite mining steps up, whole villages are being moved to make way for new mines by, among others, RWE and Vattenfall. And a proposed €180 million is to be spent on re-routing three autobahns to make way for RWE’s lignite mines, of which the utliity will pay 44 per cent and taxpayers the rest.

In contrast, by 2018 Germany aims to phase out hard coal mining. But even hard coal plants are still being built: in November 2013, Steag commissioned Germany’s first new power plant fueled by hard coal in eight years, the 725 MW Walsum-10 plant, located near Dortmund.

Reducing carbon emissions is a central tenet of the Energiewende: emissions are planned to fall to 70 per cent less than 1990 levels by 2040 and to 80-95 per cent less by 2050. So far the expected emissions reductions have failed to materialise – a big reason why many Germans believe management of the Energiewende is off track.

Despite renewables now generating one quarter of Germany’s power, carbon emissions grew by 4 per cent between 2010 and 2012, and rose a further 0.8 per cent in 2013, with many saying brown coal plants are to blame. Lignite’s CO2 intensity is1153 g/kWh versus gas’s 428 g/kWh, according to Germany’s institute of applied ecology, the OekoInstitut. RWE’s lignite power stations at Neurath and Niederaussem are the European Union’s (EU) second and third largest CO2 emitters. If the current emissions upswing continues, analysts predict that Germany will fail to reach its target of 55 per cent reduction by 2030.

The current low price of CO2 emissions permits under the EU Emissions Trading Scheme (EU-ETS), which fluctuated between €3.71 and €7 in April, is partly responsible for the rise in lignite use. Low emissions prices have increased coal’s attractiveness, as well as offering utilities additional time before old plants must be decommissioned – but, given the nation’s climate targets, brown coal plants will inevitably come under fire.

Many label the ETS another great idea that has so far failed to produce results. By 2030, says Agora Energiewende’s Redl, an unrealistically high carbon price of €54/tonne would be needed to produce a positive effect on emissions.

The ETS alone will not allow Germany to meet its targets – an issue Redl says has not yet been addressed in any significant way by policymakers – in April Niels Ladefoged, a member of the European Commission’s Climate Action division, said the EC will move “soon” to redesign the system.

One solution to the emissions problem could be new, more efficient coal plants. Alongside the recent rise in lignite-fired power production, the Bundesverband Braunkohle (Debriv) lignite producers’ association claims efficiency improvements in modern coal plants reduced lignite use by almost 2 per cent in 2013. Ex-minister Altmaier has also said that new fossil-fueled power plants can contribute to climate goals.

“If one builds a new state-of-the-art lignite power plant to replace several older and much less efficient plants, then I feel this should also be acknowledged as a contribution to our climate protection efforts,” he said.

According to Debriv, new, more efficient generators can produce more power per tonne of coal – leading to a drop in lignite use even with a rise in power output. New-build coal plants are more efficient, reducing fuel consumption, and flexible in order to ramp up and shut down faster in response to the fluctuating grid presence of renewables.

RWE’s BoAplus lignite plant in Niederaussem, currently in the planning stage, is “a very high modern plant with an energy efficiency about 45 per cent. This will be worldwide the best result for lignite plants,” says André Bauguitte, a RWE spokesman. “In the last few years, we have increasingly invested in the flexibility of our power stations, in order to enable them to react better to fluctuations in feed-ins of renewable energy. A case in point is the lignite-fired power plant at Neurath, which has a capacity of up to 2100 MW.”

Grid-connected in February, Vattenfall’s newest coal plant in Moorburg has a capacity of 827 MW, an efficiency of around 46 per cent, and will emit 25 per cent less CO2 than older plants, according to the company. Pieter Wasmuth, Vattenfall’s chief representative for Hamburg and Northern Germany, says: “This new flexible power plant will make an important contribution to the security of supply in northern Germany. The A block can be started or shut down within 15 minutes at 250-300 MW. This corresponds to the output of more than 100 wind turbines.”

RWE will build a new lignite-fired unit at its Neideraussem plant if market conditions change
Credit: RWE

What will Germany do?

According to political analysts, energy minister Sigmar Gabriel is a bit stuck. He cannot cut renewables subsidies in order to reduce Energiewende costs, as it is illegal under German law to retroactively change set policies – and he needs coal, despite public opinion on emissions, to make the Energiewende work.

And, worryingly, EU subsidies for German coal are set to end in 2018 (after German lobbying won an extension of the previous 2014 deadline). Everyone – the public, politicians and the energy industry – agrees that the current policies need fixing, and soon, but it is unclear at this time what sort of fix will be chosen.

Among the mooted solutions are a version of the EEG surcharge for lignite producers, mandatory direct marketing for renewable energy, and the most popular idea, a shift to a capacity market for power producers. RWE’s Terium is in favour of quickly implementing the latter.

“We need the appropriate framework conditions in place as swiftly as possible,” he says. “If the market does not undergo a structural reform of this nature, conventional power generation… will become almost meaningless in economic terms. We need a reform of the electricity market that will provide an economic reward for security of supply, alongside electricity production.”

The government says a discussion on power market reform will be launched in early autumn, focusing on a capacity mechanism for power producers.

Exactly what kind of mechanism, though, is “unpredictable” according to Redl. He believes the power market design should “deliver investment incentives in technology – either demand-side, supply-side or storage – to help cope with the Energiewende’s technology requirements.”

Wind and solar power’s greater role will pose technical issues with regard to flexibility post-2020, and “a potential mechanism which remunerates capacity should incentivize those technologies best suited to cope with these challenges.”

Michael Vassiliadis, head of the IG BCE union which represents mining, chemicals and energy sector workers, has proposed that utilities could bundle failing hard coal plants together into a jointly owned group, which he argues would reduce operation and maintenance costs by as much as 10 per cent. In a response, an E.ON spokesperson said that, while the idea is “interesting”, a change to a capacity market would first be needed.

The future of German coal depends on the steps the government decides to take, and on what kind of energy market the nation eventually settles.

For the present – and for the foreseeable future – it seems as though brown coal, at least, is here to stay, with some new plants’ leases extending to 2070.

But far from being optimistic, coal plant owners and operators seem to exhibit a cautious, wait-and-see approach. After all, the coal plants coming online now were planned eight to ten years ago, when energy prices were significantly higher and overcapacity was not an issue. Building a new plant under current conditions is risky business.

“We only will build [the Niederaussem BoAplus lignite plant] if the market conditions will change. Currently it will be non-economic,” RWE’s Bauguitte says.

And E.ON’s Nitschke says:”We have to tighten the belts and observe how economically the plants are running. We won’t accept losses for a longer period.”

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