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New German Government Adopts Coal Phase-Out in All But Name

The coalition accord between Angela Merkel and Martin Schulz includes an increase in the renewables target in the electricity mix from 50% to 65% by 2030. Jon Berntsen and Anders Nordeng of Thomson Reuters Point Carbon have analysed how this will impact the German energy sector and conclude that it is a coal phaseout policy in all but name.

On 12 January, Angela Merkel’s CDU/CSU party and Martin Schulz’ SPD announced they had reached a provisional agreement on several key elements of German energy and climate policy for the years to come.

The provisional deal explicitly admits that the self-imposed 2020 target of 40 percent greenhouse gas (GHG) emission reduction compared to 1990 levels is not realistic and will not be met. Hardly a surprise (it was a well known secret that the target would not be achieved), the acknowledgement by the country’s two top politicians nevertheless caused angry reactions from environmentalist NGOs.

Germany had cut 27 percent already by 2015, but the remaining 13 percentage points seem harder to achieve. According to forecasts by Agora Energiwende, a think tank, Germany is on track to achieve a 30 percent reduction by 2020.

However, Merkel and Schulz did stress their determination to stick to the 2030 goal of cutting 55 percent on 1990-levels. They intend to table a legislative proposal to that effect in 2019.

It will require tough political decisions to enable and finance the deployment of additional renewable generation capacity and the significant upgrades of the transmission network to integrate the increased renewables capacity

What is more, they also want to accelerate the deployment of new renewable energy, by raising the target for the share of renewables to 65 percent in 2030. The current target for that year is a 50 percent share. They explained that a market-oriented expansion of renewables is a “precondition for a successful climate policy”.

Furthermore, the two confirmed the mission of the special commission foreseen in the German Climate Action Plan 2050 that was passed by the previous CDU/SPD coalition in late 2016. It stipulates that a commission is to be set up, to present a draft proposal for the phasing out of coal (including a timeline and the types of regional development that should be put in place as compensation).

Merkel and Schulz now reiterated the promise that the commission will present a timeline before the end of 2018. That means the commission members will need to be designated shortly.

Without too much reading between the lines it seems reasonable to conclude that the discussion on coal phase-out in the years to come, both within the coal commission and the ensuing political debate, will revolve around a) the timeline (how fast/ambitious) and b) the support schemes to be put in place to compensate coal regions and to train/re-educate miners to change to different professions.

In this analysis we look into how the more ambitious RES (renewable energy sources) target for 2030 will imply a more rapid phase-out of coal, how this will affect power sector emissions over the next decade, and how this could impact carbon prices.

More renewables squeezing coal out of the electricity mix

Some 216 TWh of electricity was generated from renewable sources in Germany in 2017 according to AGEB Energiebalanzen. That equals a share of 33 percent of the total generation of 654 TWh in 2017, and more than twice the production in 2010 when the share stood at 16 percent.

Raising the 2030 target from 50 to 65 percent would mean another doubling from 2017, to 420 TWh in 2030, assuming constant electricity demand. It will require tough political decisions to enable and finance the deployment of additional renewable generation capacity and the significant upgrades of the transmission network to integrate the increased renewables capacity.

While clearly a challenge, in the following we assume these policies are followed through and that any technical and economical hurdles to reach the target are overcome.

A speedier phase-out of coal in Germany will have a dampening effect on the price for carbon allowances

We have looked at the electricity mix in 2030 under a 50 and a 65 percent renewables scenario, under the following common assumptions:

  • Nuclear power generation is phased out by 2022
  • Wind- and solar energy will take the majority of the renewables share in both scenarios due to low costs and short project lead times
  • Biomass and hydro will have smaller shares, while geothermal will be insignificant
  • Gas is in the money compared to coal, due to a combination of tougher EU-level emissions standards for coal, rising carbon prices and fuel price levels leading to favourable economic terms for electricity production from gas. Consequently, we assume that current gas capacity will run close to maximum capacity with no new capacity coming online
  • Total electricity demand is steady over the forecast period.

Figures 1 and 2 show the estimated electricity mix in Germany under a 50 percent and a 65 percent renewables target.

Assuming constant electricity demand around 650 TWh in both scenarios, Germany will have to produce 100 TWh more electricity from renewable sources in 2030 if the target is increased to 65 percent RES share by 2030. What will have to give?

As nuclear power generation disappears by 2022, electricity production from natural gas will play an important transitional role in Germany in order to fill the gap left open from the closing of nuclear capacity.

We estimate the share of natural gas to grow from 13 percent today, to 20 percent by 2025, and maintained at this level throughout the period until 2030. This would translate to a total production from gas of around 130 TWh, a level we estimate to be close to Germany’s maximum potential given current 30 GW of nameplate gas capacity. As illustrated by the figures, the role of gas is the same – at its maximum – in both scenarios.

As a consequence, we estimate that increased renewable energy production will take shares only from coal. In our 65 percent RES scenario, coal produces 100 TWh of electricity in 2030; down from current levels at 250 TWh and down from 200 TWh in our 50 percent RES scenario. The figures illustrate how renewable sources replace coal in electricity production, which shrinks from 30 to 16 percent across the scenarios, while gas remains relatively constant.

Figure 1: German electricity mix with 50 percent renewable energy – coal at 30 percent in 2030

Figure 2: German electricity mix with 65 percent renewable energy – coal at 16 percent in 2030

What implications for Germany’s emissions and climate ambition?

Assuming a switch of 100 TWh from coal to renewable energy by 2030, we estimate that Germany’s emissions will be reduced by around 550 Mt CO2eq over the total forecast period. This is equal to more than two years of emissions from coal power burning in Germany (which was roughly 250 Mt in 2016). –

In order to quantify the isolated effect of an increased RES target, we keep other variables constant. This is obviously a debatable assumption as one could for instance argue that a more rapid growth in renewable energy could allow for less energy efficiency gains and growing demand for electricity, or perhaps a prolonging of the coal industry at the cost of natural gas.

Germany will overshoot its abatement target by 85 Mt in 2030, reaching a 62 percent reduction instead of the 55 percent that is decided politically

Fewer emissions from increasing renewable sources in the electricity sector could also allow for increased emissions in other sectors like transportation.

Germany’s current GHG target is to reduce emissions by at least 55 percent by 2030. This target has remained unchanged in the government coalition talks. Figure 3 shows that in 2015, emissions were 27 percent lower than in 1990.

Factoring in the emissions reductions from the more ambitious 65 percent RES target, we find that Germany will in fact achieve 62 percent emissions reductions in 2030 compared to 1990, 7 percentage points beyond the current 55 percent reduction target, and a substantial overachievement of Germany’s 2030 climate ambition.

Figure 3: 65 percent RES will tighten Germany’s emissions target for 2030

Carbon market effect

A speedier phase-out of coal in Germany will have a dampening effect on the price for carbon allowances. Using our long term carbon price model, we have modelled the carbon price trajectory until 2030. We find that the additional emission reductions from the 65 percent RES target in Germany will leave the carbon price €4/t lower in 2030; down from €25/t.

Over the entire forecast period, we estimate that carbon prices will on average be €1.4/t lower compared to our base case which has 50 percent RES in the German electricity mix.

Figure 4: 65 percent RES in German power sector will lower the price for carbon allowances

Conclusion

Both the 50 percent and the 65 percent RES scenarios will be bad for coal. From a current level of 250 TWh per year, we expect coal power generation to drop to respectively 200 TWh and 100 TWh in the two scenarios.

In terms of GHG emissions, the effect will be significant. The German coal power plants let out around 250 Mt of CO2e in 2016. In our scenario, the remaining coal plants in 2030 are expected to emit 165 Mt.  This means that Germany will overshoot its abatement target by 85 Mt in 2030, reaching a 62 percent reduction instead of the 55 percent that is decided politically.

For German politicians it is clearly easier to say that yes to more renewables that to say no to coal

If that happens, it will no doubt be used as an argument by those who claim that Germany’s climate ambitions are already too high. On the other hand, cynics might question whether the ambitious targets will really be met. Merkel and Schulz recently decided to ditch Germany’s ambitious 2020 emission target that had been set last decade. If it is so easy for the government to simply say that targets will not be met, then what will keep it from saying e.g. in 2028 that the 2030 RES target was never realistic and will not be achieved?

In either case, it becomes clear that if Germany, in the years to come, pursues the 65 percent RES target, this will de facto mean a substantial cut in coal’s share of power generation. While not officially recognised as a coal phase-out plan, the effect will be the same. For German politicians it is clearly easier to say that yes to more renewables that to say no to coal.

Editor’s Note

Jon Berntsen (jon.berntsen@thomsonreuters.com) and Anders Nordeng (anders.nordeng@thomsonreuters.com) are senior carbon market analysts on Thomson Reuters Point Carbon Commodities Research & Forecasts team (@TRPC_Climate).

Original Post

Content Discussion

Willem Post's picture
Willem Post on February 6, 2018

Germany having that much wind and solar on its grid by 2030 and beyond, eventually would require many TWh of electricity storage, as outlined in these URLs.

The huge build outs of wind would have to be offshore to avoid environmental impact blowbacks, and of solar would have to be on many square miles of land.

Greatly increased capacity of highly visible North-South HVDC lines would be required.

http://www.windtaskforce.org/profiles/blogs/electricity-storage-to-cover-wind-solar-lulls-and-seasonal
http://www.windtaskforce.org/profiles/blogs/wind-and-solar-energy-lulls-energy-storage-in-germany
http://www.windtaskforce.org/profiles/blogs/wind-plus-solar-plus-storage-in-new-england

Jesper Antonsson's picture
Jesper Antonsson on February 6, 2018

As nuclear power generation disappears by 2022, electricity production from natural gas will play an important transitional role […] As a consequence, we estimate that increased renewable energy production will take shares only from coal.

Seems a bit like a sleight of hand – attributing increased gas to closed nuclear and then decreased coal to increased RE. In reality, RE is used first and foremost to close nuclear, and after that, it will save fuel in fossil plants. Fossil mix is fairly independent of that, even if it’s easier to match gas than coal to RE.

In 2019, Nord Stream 2 will make landfall in Germany, bringing an additional 600 TWh(th) worth of Russian gas. That supports the assumption that Germany will focus more on gas than coal going forward.

Mark Heslep's picture
Mark Heslep on February 6, 2018

Oct 2016
https://pbs.twimg.com/media/Cvvg4wsUMAA1Wc6?format=jpg
Reuters

Nov 2017

Germany razes entire town to support transition from nuclear to coal https://t.co/OEFNXqtmzL

— Mike Shellenberger (@ShellenbergerMD) November 12, 2017

Nov 2017

In shadow of Germany’s climate conference, a village disappears to make way for coal

WaPo

Nathan Wilson's picture
Nathan Wilson on February 6, 2018

So in 2030, 30 years into Germany’s renewable boom, and 20 years into Energiewende, Germany’s electricity will still be much dirtier than that of France, even only 20 years into their nuclear transition.

The proposal to increase renewables to 65% of Germany electricity is even more telling: in the scenario shown, all remaining coal usage is caused by the nuclear phase-out.

The author does make a good point in questioning whether Germany will achieve the new goal for 2030. If the main purpose of Energiewende is to save the coal industry (and I believe it is), then continuing to fall short of the renewables target would be the more likely outcome.

Jarmo Mikkonen's picture
Jarmo Mikkonen on February 7, 2018

German GHG emissions were about 1240 million tons in 1990 when Germany was unified. Thanks to closing the inefficient industry in the former DDR, 200 million tons were cut by the year 2000.

From 2000 to 2017, Energiewende policies managed to cut emissions by about 130 million tons, reaching roughly 910 million ton level.

By 2030, Germany’s target is to cut almost 350 million tons from the current emissions level. That’s more than the amount cut in the previous 27 years in less than half the time. It’s more than the total German power sector emissions in 2017.

In addition, at the same time Germany will permanently close over 80 TWh of carbon-free electricity generation and replace it with a combination of renewables, coal and gas.

I think they need to do more than put speed limits on autobahns….

Willem Post's picture
Willem Post on February 7, 2018

Addition to above comment:

If Germany closes its coal and nuclear plants, it has to:

– Increase its gas turbine plants to provide peaking, filling-in and balancing services for the increasing, variable, intermittent wind and solar.
– Provide increased storage; multi-TWh of battery, hydro and other storage.
– Increase its use of connections to nearby countries during hours of over and under production. These countries may install phase shifting transformers, PSTs, to limit flows that might otherwise upset their grids.
– Have a sufficient complement of spare gas turbine plants to cover simultaneous wind and solar lulls, that likely would occur during winter.

Bob Meinetz's picture
Bob Meinetz on February 7, 2018

As nuclear power generation disappears by 2022, electricity production from natural gas will play an important transitional role in Germany in order to fill the gap left open from the closing of nuclear capacity.

Jon, I’m at a loss to understand your optimism for Germany’s climate policy.

In 2018, despite 3 decades of German policy and €billions ostensibly devoted to reducing carbon emissions, Germany remains Europe’s largest emitter of CO2. The “important transitional role of gas in replacing nuclear” you describe doesn’t acknowledge 48 million tonnes of CO2 it will add to Germany’s emissions, only digging the nation’s carbon debt deeper.

To what non-intermittent reliable, clean source of electricity will gas transition, and when – or is that our kids’ problem to figure out?

Bas Gresnigt's picture
Bas Gresnigt on February 7, 2018

To save coal was never a target of the Energiewende. Its prime target: all nuclear out.
Then migration towards 100% renewable electricity, which implies that all fossil will end

Considering:
– the fast progress of the Energiewende in recent years; on av. the shift towards renewable >2%/a. When that speed continues, then they will reach >65% by renewable in 2030;

– the continued fast price decrease of renewable wind, solar, storage. So the costs of the Energiewende is expected to decrease in next decade;

– that Agora think tank also estimates the 65% share of renewable regarding electricity will be reached;

It seems to me that there is no reason for doubt!

Bas Gresnigt's picture
Bas Gresnigt on February 8, 2018

Their main storage will become Power-to-Gas. They plan to have a capacity of 2GW in 2023 in pilots which use different technology for different applications.
They have already >20 major unmanned pilots (mainly in sea-containers; easy to transport, etc).

Regular rollout is planned for 2024.

Bas Gresnigt's picture
Bas Gresnigt on February 8, 2018

Germany is one of the very few countries that surpassed the Kyoto 20% CO2 reduction (compared to the 1990 Kyoto reference level) targets! It’s already at -25%.