The 46,000MW of black and brown coal fired generation currently in service in Germany will be worthless in little more than a decade if the country adopts the targets embraced at the Paris climate change conference, a new analysis from Barclays says.
The analysis, from leading energy analyst Mark Lewis, says coal fired power generation would have to be almost completely eliminated by 2030 in a scenario that would require a substantial carbon price (€45/t) and the end to the current energy market design.
The conclusions of the report should not be a surprise, but are important because the fossil fuel industry appears to remain in complete denial, hoping that the Paris climate agreements amount to a “fell-good” gathering that will have no follow through.
The value of the brown coal generators for both E.ON and RWE would be wiped out completely, and considerably reduced for hard coal
But the latest data on soaring global temperatures, and the biggest jump in greenhouse gas emissions on record, suggests this hope is misplaced. Or at least should be. The analysis has implications too, for Australia, which faces a similar transition to Germany, which a growing level of renewables on top of a huge surplus in coal generation, and no effective carbon price to influence energy choices.
Even the most ambitious fossil fuel generators in Australia, such as AGL Energy, say their coal assets, particularly their brown coal assets, will continue generating as late as 2048. The Barclays scenario shows that this would be impossible. Indeed, The Climate Institute says all coal fired generation must cease by 2035 at the latest.
Merit order
But back to the Barclays report. It suggests that coal will have to be displaced to meet greenhouse gas targets embraced by the EU and implied by the Paris agreement. In Germany, under current policies, total generation will reduce by 15 per cent under energy efficiency measures and its target for 50 per cent renewables.
To meet the emissions goals, however, that remaining fossil fuel generation will have to come nearly exclusively from gas, meaning a carbon price is required to upturn the “merit order”. Currently, the lack of a carbon price and the presence of cheap coal means that gas fired generation is marginalised.
Gas displaces coal and lignite over the decade while coal and lignite plants see lower average utilization rates and shorter average operating lives
Lewis says by 2030, Germany will have dumped its energy system- where a plant is longer dispatched on the basis of its relative cost for the next half hour – and replace it with one where renewable generation is backed up by energy storage and sophisticated demand-side responses facilitated by smart-grid technologies.
“It will still be some time before we reach that world and before the last half hour of competitively priced power is dispatched,” he notes.
But he says this will occur, which is why the biggest utilities in Germany, E.ON and RWE, have decided to split their assets into new and old companies, jettisoning their old “centralised” generation assets to focus on a new business centred around solar, storage, smart grids and electric vehicles.
Strategic reprioritization
“The Energiewende requires a complete strategic reprioritization away from conventional generation and towards renewable energy so that the companies can prepare for the power system of the future,” Lewis says.
He believes that only a handful of coal plants would still be operating by 2030 – the Datteln 4 (1.1GW) and Maasvlakte 3 (1.1GW), and the Westfalen E (765MW) hard coal plants, all of which have very high efficiency rates of 46 per cent.
The only lignite plant still running would be the BoA 2 & 3 units at Neurath (2.1GW), which have a very efficiency rate for lignite plant of 43 per cent. The value of the brown coal generators for both E.ON and RWE would be wiped out completely, and considerably reduced for hard coal. The value of gas-fired generation, though, would increase.
Implications
Barclay’s base-case scenario assumes current targets, an average baseload power price over 2020-30 of €28/MWh in real terms (constant 2019 €), and an average EUA price in real terms of only €5/MWh.
Its 2°C scenario would require an average EUA price [i.e. for 1 tonne CO2 emisson allowance] of at least €45/t in real terms (constant 2019 €) and hence average baseload prices of €55-60/MWh (again in constant 2019 €) over 2021-30.
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By 2030, total coal and lignite output in the entire German market is only 50TWh (versus 190TWh in the base case) while total German gas-fired output in 2030 is doubled from the base case to 150TWh.
“The implications of our analysis … of the German power sector – especially when taken together with Germany’s own 2030 targets for energy efficiency and renewable energy – are that very little coal and lignite could run by 2030,” Lewis writes.
Gas displaces coal and lignite over the decade while coal and lignite plants see lower average utilization rates and shorter average operating lives, with what little plant is running by the end of the next decade pushed to the margin.
Editor’s Note
This article was first published on Reneweconomy and is republished here with permission.
Pat Hackett says
If coal powered plants are to be no more then no revenue will be collected from these P stations. The point of the carbon tax here is not to raise revenue. Why not just regulate. There will be no more new coal power plants built and existing will cease by year ——. A carbon tax will still be beneficial in other areas but will not need to be determined to be at the value to stop coal power plants. Simple and effective…why are we scared to ask for regulation?
Bas Gresnigt says
“why are we scared to ask for regulation?”
Because regulation implies less competition, which implies that electricity generation becomes more behind, expensive, etc.
As vested interests will then successfully defend (via lobbying, etc) their luxury position. You can see that situation in regulated areas in USA.
Such regulations hinder new developments such as the cheaper virtual power plants in Denmark. Now also upcoming in Germany. Etc.
Pat Hackett says
Poor regulation can lead to less competition. Good regulation can drive effective competition upwards working in a synergetic manner. Improved efficiency can be a good example whereby raised minimum standards are achieved by a combination of market forces/competition and regulation. The reality is that we do this all the time. It is just simplified political rhetoric that allows the political extremist to prevent the best approaches by reducing our options. For some reason this is pervasive in energy related matters.
http://actiononclimatechange.blogspot.com/2016/03/denial-of-political-pathways.html
Neil says
The production from the new renewables in Europe took its share at first place from the power generation from gas, not from the nuclear power and coals as it was probably expected some time ago.
David Dirkse says
The CO2 reduction goal is crackpot science. More CO2 will make the earth greener, increase Agricultural production. Climate change is minimal and manageable as the real greenhouse gas is water vapour.
Technology to end the fossil fuel era does not yet exist. Jules Verne type innovations are needed. Otherwise, with unreliable renewables or limited biomass, we regress to the lifestyle of previous centuries. More likely, wind and solar power will bring back a feudal system with energy for the rich at the cost of many poor people.
So, to generate sufficient energy to maintain our prosperity and freedom, the only source other than fossil is nuclear in whatever form (thorium MSR, fusion).
Presently our society is under siege of the environmentalists.
Wind- and solar power, burning biomass, is the way to destruction.
Unfortunately, we have turned our back to the enlightment.
Current objectives are anti-human, anti-progress.
We have never lived “sustainable” but innovation came to our help.
We should do research and show the real strength of humanity: our brains and ingenuity.
Bas Gresnigt says
Seems that Lewis doesn’t quite understand the Energiewende;
neither the highly competitive free German electricity market;
neither the consequences of technology developments such as the new super-critical coal power plants which utilize the low temperature burning, circulating fluidized bed process (which generate with only marginal more CO²/KWh than gas).
The new flexible coal plants can generate for ~2.5cnt/KWh, substantial cheaper than gas and oil plants can.
So in past 5yrs the share of coal increased (from 42.7% => 45.5%) while the share of gas decreased (from 14.5% => 9.9%).
As these coal plants are enough flexible to complement wind+solar, they will continue to compete gas and oil off the market.
Even if the CO² emission costs become more substantial.
CO² emission rights & pricing is an EU matter, which implies that raising that price will go very slowly…
His conclusions also don’t fit with those of the scenario studies of leading German think tank Agora.
Jeffrey Michel says
If this report is accurate, then thousands of people would have been uselessly displaced from their homes for the purpose of lignite mining. It has long been apparent that Germany’s ruling politicians were preaching the water of climate protection while drinking the wine of mining union influence. Elections are still not being won in the cause of renewable energies or improved building insulation.
Angela Merkel’s Christian Democratic Party, which remains responsible for lignite policy, will soon be signing the Paris Agreement on inhibiting global warming. On such occasions, the government propagates the very standpoints of its mining victims to sustain the illusion of climate policy coherency. Yet the recent takeover of Vattenfall’s lignite assets by the Czech-owned EPH indicates that eastern Germany will remain an important energy platform for delivering electricity from both lignite and renewable generation to the Central European market.