Germany‘s dash for coal revisited
Back in 2014 Craig Morris and I wrote a paper on the German coal conundrum. The question was whether Germany is building new coal plants to replace nuclear power despite the country’s climate ambitions. Many observers in the Anglo-Saxon world concluded so, given Germany’s nuclear policy shift in the aftermath of the Fukushima accident. But, as our report shows, the growth of renewables has more than replaced nuclear power over the past decade. Coal was not needed to implement the nuclear phaseout. And coal is not making a comeback in Germany.
It was almost a year later that I read a paper very similar to ours: Germany’s dash for coal: exploring drivers and factors. What struck me most was the fact that this paper had already been published back in July 2010 and sneaked under our radar when we were digging into the topic. Congratulations to the author Michael Pahle from Potsdam Institute for Climate Impact Research for providing this analysis with an early warning to utilities that these new coal plants would not pay off.
To some extent, the report comes to similar conclusions as ours, with different nuances. It identified as main reasons for new coal plants in Germany the onset of a new investment cycle in the power market, favorable economic and technological prospects for coal compared with natural gas in the long run, a status-quo bias of investors in regard to future renewable deployment, explicit political support for coal, and the ineffectiveness of public protest in hampering new projects.
Pahle also argues that those utilities operating nuclear power plants were looking into replacement investments to respond to the initial phaseout from 2002 – and found hard coal. At first this might seem at odd with our analysis: we claim that more coal wasn’t needed to replace nuclear. In the utilities’ thinking it was, because hard coal was the only fuel which could be used at the exact same or nearby location of their nuclear sites. Though new hard coal plants were not needed to provide a stable energy supply for the country, in the micro-economic analysis of the utilities they were needed to replace their nuclear capacities.
The reason I blog about a five year old paper is its foresight. Think about it: The analysis was published in the summer 2010. Germany’s nuclear phaseout from 2002 was still in place. Fukushima was still a year away and the word Energiewende wasn’t known outside German-speaking countries (which is a different story today). What struck me most were the following findings:
- Germany’s dash for hard coal was already happening in 2010, a year before Fukushima. Pahle explains this with the big four utilities looking to substitute both old, overaged coal plants but also nuclear power plants. Lignite, a very dirty form of coal, was no option in most places. Due to its high transportation costs, lignite power plants are operated close to the mines. These are usually rather remote locations, but not close to the utilities’ nuclear or hard coal plants. What’s more, only financially strong investors had the cash to build large hard coal plants. While others struggled and eventually cancelled projects, Germany’s Big Four were able to exploit their economic scale and (at the time) high financial rating to gain favorable conditions from banks. High equity from rising electricity prices and windfall profits from the emissions trading system surely helped, too. Similar to our analysis in which we mapped out how the ETS triggered a switch from old to new plants, not from high to lower carbon fuels, the author concludes: “Much in disregard of its intention, the EU-ETS has thus eventually fostered a dash for coal.”
- Even more than coal, Germany underwent a dash for gas in the mid-2000s. Between 2001-2008, 5.5 gigawatts of natural gas combined-cycle gas turbines (CCGT) were built. Basically three out of four new power plants at the time ran on natural gas.
Pahle identified political motives as a driver for this development. To be in accordance with the EU energy directive, the EU Commission forced Germany to take back an existing input tax on natural gas in electricity generation. (This did not affect the tax on natural gas used to heat homes.) The decade old natural gas tax for power generation documents the strong influence the coal lobby has had for many years on German politics. In the early 2000s, I was a staffer in the German parliament for the Green Party and experienced the lobby grip first hand. Back then, the SPD-Green coalition implemented a comprehensive ecological tax reform, which would increase taxes on a variety of fuels and lower payroll taxes in return with the extra revenue. As part of this package, the Greens pushed to remove the gas tax because efficient natural gas plants would be needed in the transition from nuclear and coal to renewables. As long as the tax was in place, investments in natural gas plants didn’t pay off. The coal and industry wing of the Social Democrats fought tooth and nail to keep the gas tax. After tough, all-night negotiations and several interventions from the state government of Northrhine-Westfalia (the German coal heartland), the coalition agreed to remove the tax briefly, allowing a round of investment coming through.
- Already in 2010, it was clear that utilities (and their consultants) underestimated the growth of renewable energy. In our report, we highlighted how experts in Germany underestimated the deployment of wind and especially solar power. Even Eurosolar, the solar lobby group, underestimated the growth of solar.
Five years ago, Pahle didn’t have today’s data, but he added that the government updated its target based on the new realities. In 2007, the 2020 target for renewables was 25-30%. Only two years later, it was updated to 35%. With this fast changing energy landscape Pahle indicates that the government adjusted its targets, but the utilities didn’t adjust their investment plans. He surprises with two concluding remarks. First, the historic differentiation between base load generation and peak load will gradually dissolve. And second, new coal plants might eventually become unprofitable.
And that is exactly what is happening.