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Germany strikes €44bn deal to phase out coal use in energy supply

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Via Financial Times

The German government has struck a deal with the country’s coal-producing regions to phase out the use of coal power by 2038 in return for compensation and benefits worth €40bn.

Berlin will also set aside €4.35bn for utilities such as RWE, which will close some of their coal plants early. The deal removes one of the last obstacles to a historic energy transition for Europe’s largest economy.

Angela Merkel’s coalition government pledged last year to switch off all coal-fired power stations but has since battled to secure political support from federal states such as North Rhine-Westphalia, Brandenburg and Saxony, where mines and power plants are concentrated.

The deal, presented by senior ministers on Thursday, means Germany will end the use of nuclear and coal power at the same time, sharply increasing the country’s dependence on renewable sources of power such as wind and solar.

Berlin wants to meet at least 65 per cent of its electricity needs with renewable power by the end of this decade. 

“Germany, which is one of the strongest and most successful industrial nations in the world, is taking giant steps towards leaving behind the fossil age,” said Olaf Scholz, the finance minister. 

Svenja Schulze, the environment minister, added: “We are the first country that will exit from both nuclear and coal [power]. That is also an important international signal that we are sending out.”

The €4.35bn compensation package for the private sector will be split in two, with operators in western Germany receiving €2.6bn and those in the east €1.75bn.

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RWE is the only utility that operates coal plants in the western part of the country, suggesting it stands to receive the entire €2.6bn. The group’s shares rose almost 3 per cent in response to the news.

The accord presented on Thursday largely echoes the recommendations of a government-appointed coal committee last year, which brought together experts from industry, the environmental movement and politics to hammer out a compromise.

Despite strong misgivings about the long transition phase, Green campaigners signed up to the deal at the time — but have urged the government since to speed up the shutdown.

Berlin is now committed to a formal review of the phase-out plan at the end of this decade, with a view to ending the use of coal power in 2035. 

The timetable for plant closures agreed between Berlin and the regions calls for the first 300MW unit to be taken out of service at the end of 2020, with another 900MW due to go offline at the end of 2021. However, some of the biggest, most heavily polluting coal power stations will only be shut in 2028 and 2029. 

One area where the government deal departs from the expert recommendations concerns the newly built power station at Datteln, in western Germany, which has yet to start production. Billed by Uniper, its owner, as one of cleanest and most efficient coal power stations in the world, it was nonetheless supposed to be shut down. Now, it will be allowed to start production as planned. 

The compensation package for coal states includes plans to move government institutions and military installations to the affected regions, in an effort to create jobs and revenues. Some sites will also benefit from the construction of new gas-fired power stations. 

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