Goodbye German Coal

Last week, all eyes were on Germany, which outlined its path towards a coal-free future: The instated Commission, consisting of industry representatives, trade association members, environmental group advocates, representatives of the German coal states and scientists, presented its final 330-page report, setting lignite and hard coal an end date by 2038 the latest. We identified the three key takeaways you need to know.

But First: What Happened?

After the latest coalition formation in June 2018, the German government appointed the “Commission on Growth, Structural Change and Employment” (the so-called Coal Commission) with three main objectives:

  • Determine a phase-by-phase plan and an end date to phase-out German coal-fired power stations. The commission decided to shut down the last coal plant by 2038, and around 12.5GW coal until 2022 (of which 3 GW will be lignite and the rest hard coal).
  • Present a pathway and respective plans to secure the economic and structural future of the German lignite-mining regions. In this respect, the report mentions structural compensation worth, 40 billion EUR for 20 years.
  • Identify measures to ensure Germany meets its national 2030 climate target by reducing emissions from the energy sector by 62 percent, compared to 1990 levels while at the same time proposing measures to close the gap to the 2020 climate target “as far as possible.”

In general, the commission focussed on how to secure jobs in the affected regions – and how and when the last station should be shut down. Throughout the seven-month long process, the commission was torn, to say the least. The different parties positioned themselves clearly, debates were heated and the public pressure was immense. While the coal regions for instance favoured a slow phase-out in combination with significant investments, NGOs on the other side called for a complete phase-out by 2030. Prolonged by an extended deadline (mandated by Chancellor Merkel), the commission finally issued its recommendations on 26 January.

The Three Things To Know

1. Coal is not coal

To be clear: the commission’s work was strongly lignite focussed, since it is locally available and the basis of a domestic industry. This explains the designated financial support of 40 billion EUR for affected lignite mining regions for around 600 projects. One prominent idea by the Federal Minister for Economic Affairs and Energy, Peter Altmaier, is a plan to install a large-scale battery factory, basically acting as a “replacement industry” in the East German lignite stronghold Lausitz. This is favourable for battery producers, car manufacturers and tech companies, engaging in e-mobility and advanced storage technology – creating significant opportunities for a broad range of industries.

Hard coal on the other hand is a different story. As it is mainly imported, the phase-out will mostly affect international suppliers – rather than domestic industry. Nevertheless, a lot of combined-heat and power plants in Germany still run on hard coal, providing electricity and (district-) heat to thousands of households.

2. Preventing the lights from going off

The German coal phase-out is a particularly delicate matter; the reason being energy security. The fear of blackouts in Germany is real. Whereas Finland or France have similar plans in regards to getting rid of coal, both states are always able to fall back on nuclear power to secure the energy supply. Following the Fukushima disaster, Germany, however, decided to be nuclear free by 2022. Aside from coal, this leaves primarily gas and partially biomass as the remaining dispatchable alternatives. Gas thereby is a highly political topic. The controversy surrounding an alleged dependency from Russia and the Nord Stream 2 pipeline are just one example.

On a positive note, many see the coal phase-out as a potential driver of technological research and innovation. Batteries, power-to-gas and other technologies are now needed more than ever to provide security of supply. It remains to be seen if Germany will turn out as a frontrunner.

3. What’s next? It’s Germany: so, it will take some time

The grand misperception is that the commission’s report is all you need to know, and that all action is taken immediately. While the recommendations are binding, they still need to be legally implemented – this will happen subsequently via the usual (federal and state) political channels. Although the government has declared to take the report seriously and follow its recommendations, Minister Altmaier has emphasised that climate protection and security of supply must be aligned with moderate power prices – only if this so-called energy trilemma is (at least partly) overcome, lawmakers will give the green light. Slight amendments and alterations nevertheless should be expected throughout this process.

So all in all, Germany’s plans for coal phase-out by 2038 are a milestone for the country’s energy policy, climate regulation and structural development. If successfully managed, other EU countries could follow. The challenges are severe – but so are the opportunities for companies with new and innovative approaches and offerings.