Germany is moving toward a future driven by renewable energy, but questions are rising about whether it can afford to do so. A new study estimates the country's exit from coal power, which provides 40 percent of electricity, would cost taxpayers €72 billion.
Germany may have one of the world’s most ambitious plans to convert to renewable energy, but it is also a country that still relies heavily on coal, much to the dismay of environmental groups.
The Germany branch of Friends of the Earth Germany, BUND for short in German, called coal-fired power plants “the focal point of environmental destruction” and said it would organise an anti-coal demonstration this coming weekend in the coal regions east of Berlin.
BUND, which has 500,000 members, is the largest environmental group in Germany, and by no means alone in its criticism of coal. The anti-coal legions have support across the political spectrum.
Phasing out coat quickly will not be easy. A new study by the Institute of Energy Economics at the University of Cologne estimates that eliminating the use of coal-fired plants between 2020 and 2045 will cost the country some €71.6 billion ($81.7 billion).
Most of these costs will come from switching from cheap coal to the more expensive natural gas. Most of the extra expense would be passed on to German consumers, who already pay some of Europe’s highest utility bills.
The institute’s study gives a financial perspective to an issue that has long been debated in environmental and political terms.
“If you decide to move forward with the phase-out policy, this decision has significant implications for the energy industry and for electricity customers. We wanted to identify these implications with our study,” said Harald Hecking, the chief executive of Energy Research & Scenarios and one of four authors of the study.
A renewed debate over winding down fossil fuels was triggered by another think tank, Agora.
Agora contends a phaseout of coal is essential if Germany is to meet its own CO2 emissions reduction goals. But such a phaseout comes up against a difficult reality: More than 40 percent of electricity in Germany comes from coal power plants.
Electric utilities such as RWE are fighting with all their might to keep their plants running.
Germany’s ruling coalition, led by Chancellor Angela Merkel’s conservative bloc along with the junior Social Democrats, is divided on the issue.
Environment Minister Barbara Hendricks, who belongs to the center-left Social Democrats, has said she welcomes an exit from coal, but her party leader and economics minister, Sigmar Gabriel, is more skeptical.
Ms. Merkel has yet to take a position on the issue.
A rapid exit from coal could offer major gains for natural gas.
“After the 2020 shut down, soft- and hard-coal plants will gradually be replaced by gas-fired plants,” according to the Cologne energy institute’s study.
That would be good for efforts to slow climate change. The CO2 emissions per kilowatt hour of electricity for gas power are well below those of coal-fired plants.
But while natural gas is more climate friendly, it is also considerably more expensive than coal. Switching from coal to natural gas is expected to significantly boost energy costs. According to the Cologne institute’s study, the switch would increase the demand for natural gas by 2040 to 18 billion cubic meters annually.
That represents about one quarter of Germany’s energy needs today.
The study found that phasing out coal would reduce German CO2 emissions by 859 million tons by 2045.
This is an impressive number, but it’s worth looking at more closely. Of that, 859 million tons represents 5.3 percent of the CO2 budget that Germany can use until 2050.
By then, Germany is meant to have reduced CO2 emissions by 80 percent of their 1990 levels. This reduction of CO2 emissions can only succeed, however, if the European emissions trading certificates are discontinued just as the German coal plants are removed from the grid.
Another effect of the coal phaseout is that German electricity exports to other European countries would likely fall, and more power would need to be imported.
The study’s calculations are based on a rapid coal exit scenario laid out by Agora.
“We focused only on the additional costs that would come about from the implementation of the Agora proposal,” said Mr. Hecking of the Cologne institute.
When the Agora group presented its concept in January, it proposed turning off the oldest coal power plants as soon as 2018 and setting a date certain when other plants would be closed.
That would ensure that newer coal power plants could stay in operation until 2040.
According to the group’s 11-point plan, the German government should provide funds totaling more than €6 billion in structural aid to regions that will be economically harmed by a withdrawal from coal power. Agora also argued that it’s critical that no new coal power plants be built.
Similar to Germany’s phaseout of nuclear power, the oldest coal power plants would be shut down after reaching a certain age, and this age limit would be lowered over time.
At the same time, no new coal plants should be added to the mix and no money should be awarded for shutting down plants. The CO2 allowances freed up by shuttered coal plants should be excluded from future emissions trading.
From the perspective of the coal power plant operators, the Agora plans are a nightmare.
For companies like RWE, Germany’s biggest electricity supplier, coal power plants had been their last hope.
It was at least possible to make some money off brown coal-powered plants. This business model has now been shaken. More and more often, wind and solar power flood the power exchanges and push prices down dramatically. But plant owners were hoping that the market could recover in the medium-term.
Should existing power plant overcapacity be dismantled and the last German nuclear power plant taken offline by 2022, as planned, coal power plants could become profitable again.
Yet many people dislike coal because of its harmful effects on climate change. Ms. Hendricks is happy to tap into this sentiment. In her own climate change plan, which is set to be adopted by Ms. Merkel’s cabinet before the summer break, Ms. Hendricks calls for a coal phaseout to take place “well before 2050.”
Beyond the borders of Germany, the debate over the future of coal is mixed. In 2015, the international community agreed in Paris to ambitious climate protection targets, increasing pressure on fossil fuels. This political position is reinforced by institutional investors, which are pulling out of utilities that rely on coal.
Yet while many industrialized countries are discussing plans for their own coal exits, energy-hungry emerging economies are seeing a coal renaissance, much to the chagrin of climate activists.
“When one country abandons coal, there’s more for the other countries, and they get this climate killer even cheaper,” said Ottmar Edenhofer, the chief economist at the Potsdam Institute for Climate Impact Research near Berlin.
If only one third of the coal power plants planned around the world end up actually being constructed, 113 billion tons more CO2 will be produced over the years, Mr. Edenhofer said