Will grassroots movement hasten exit coal?

Germany will not sign off legislation to exit coal until early this year, but a strong grassroots environmental movement could force politicians to exit the dirty fuel many years before the proposed 2038 date. 

Listen to a summary of current German energy policy and the potential for a capacity squeeze in 2022. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guest: 

• Tobias Federico, Managing Director, Energy Brainpool. 

Transcript

0:00

Tobias Federico, Managing Director, Energy Brainpool

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:07

Hello listeners and welcome to the Montel Weekly podcast, bringing you Energy Matters in an informal setting. My name is Richard Sverrisson, and today we're sitting in Berlin. It's mid-December, but listeners, you'll be listening to this it early January, so happy new Year. Joining me today is Tobias Federico managing director and owner of Energy Brainpool consultancy and analysis firm. Welcome Tobias.

Tobias Federico, Managing Director, Energy Brainpool: 0:31

Thank you Richard, and happy New Year to all the listeners.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:33

What I would like to discuss with you, to be honest mainly is what's happening in Germany regarding to the climate law and the moves to exit from coal. I know we're in sort of mid-December now and things could change potentially within the next couple of weeks, but what's happening on the political level here in, in Berlin to be us? Maybe you can enlighten our listeners. About that

Tobias Federico, Managing Director, Energy Brainpool: 0:54

on the political level, the climate discussion or the climate package is something which, is being discussed quite a lot, but not between the government, much more between the government and the opposition. Or between the political Berlin on the rest of the population because it seems to be that the government is very satisfied with all the packages they have decided. So the climate package, the minimum price for CO2, also for the non ETS sectors, in addition to the coal exit plan. That on a long term perspective, they're going to reduce CO2 and they focus on the target to hit their 2030 CO2 emission target. But obviously in the general population, also in the opposition, they're not quite happy with that, especially looking into the younger generation. Friday for Futures, for example, is also very active in Germany, they say that's too little and too late.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:50

Okay. So there's a massive opposition to, or saying that it's not ambitious enough. What the government's laid forward, do you think that they would react to this?

Tobias Federico, Managing Director, Energy Brainpool: 1:59

It's quite difficult to say right now. We do have the COP 25 in Madrid. And yesterday the Ministry for Environment was, she was speaking there and saying we are very ambitious, so we are doing our work. They're very satisfied with what they have done up to now, but it looks like that's not enough. I don't want to say that we have to exit coal earlier because we do have other issues, especially regarding capacities. But especially looking into the CO2 prices could be quite interesting. Because the CO2 price level this year, so year 2019 was. So high that we have reduced CO2 emissions because gas power plants are in the money. With the clean spark spreads and they're running at much higher capacity than the hot coal power plants, which means we are going to reduce CO2 just by a CO2 price of 25 euro in average.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:48

But is there talk of, I know there has been some discussion around cap and floor. For carbon, do you think the likelihood of that or the calls will grow ever louder in, in Germany?

Tobias Federico, Managing Director, Energy Brainpool: 2:59

Well, the, the calls from the opposition, the calls from, from general population are getting louder, but they're not getting to be hurt by the government. Because they have their own issues. It's half year so half term for the government, another two years. We do have from the government, which is the great coalition, so C-D-U-C-S-U and SPD and the SPD have a new top management and it's very unlikely that this government will be reelected in that situation. So we won't have a great coalition. And they will fight each other somehow. Could. Very well be that we will have new elections within one or two years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:34

Okay. Because the new leadership of the SPD, the social Democrats, that's gone more to the left, has it not, what does that mean in terms of the coalition? I mean, can you see the coalition. Breaking down or, I mean, if there, you, you, you mentioned that you could see new elections and that maybe the election's already starting in a way because they're gonna be several disagreements, strong disagreements. But could you see that leading to the dissolution of the, of the government?

Tobias Federico, Managing Director, Energy Brainpool: 4:02

Well, it's, it's difficult to say somehow. It looks like that they are all on a sailing boat and it's stormy weather. But they're not sitting in a sailing boat anymore. The coalition. They're much more outside of the boat holding the handrail and hoping that they're not going to fall off. And a new election will mean that they're going to fall off from the boat. Because the likelihood of being reelected is very little right now.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:26

I mean, if we go back to the climate law, one of the key elements that emerged in in mid-December or early December was. The fact that, you know, allowances allocated to coal plants would be canceled in the event of these plants closing down. I mean, that's, that's quite a crucial element here, isn't it? That's sort of, uh, that's emerged in, in the detail here.

Tobias Federico, Managing Director, Energy Brainpool: 4:49

Absolutely. When we had. The decision regarding the coal exit. It was just a decision how it could be done, but not very specified in detail. And often details are really crucial to a price development. And it was said, well, there is a certain cancellation of. The capacities cancellation of the allowance connected to the cap coal capacities. But how it's going to be done in detail is very crucial to the price development. Lately, they said, yeah, we are going to cancel them, but the detail is really interesting. How many co twos are you going to be canceled? Are you really simulating how often the coal power plant will be running in the next. Years, maybe the power plant dispatching is a different one due to coal and gas prices. And so coal power plants would run more due to lower coal prices and higher gas prices. So it's quite unclear and very difficult to say, but it only works when you are going to cancel the allowances and if you are going to cancel the answers.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:48

And of course when it, in a way it's quite a. Brave move from a finance ministry to say, we'll cancel these because it could be a big earner, especially if you could earn them a lot of revenue in case, you know, they were, they were auctioned or put out to market.

Tobias Federico, Managing Director, Energy Brainpool: 6:02

Well, the thing is, it's it's quantity times value. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:06

Yeah.

Tobias Federico, Managing Director, Energy Brainpool: 6:06

So if you cut the quantity, but the value is going to increase with the TC O2 certificates. The earning for the government will be quite high. Yeah. So it's interesting to see how this is going to develop, but it needs further specification.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:18

Absolutely. I mean, for those who are not so familiar with the details of the, the, the coal exit law, if you like, when will the first coal plants come off? Off the grid.

Tobias Federico, Managing Director, Energy Brainpool: 6:30

Well, it's not a law, it's just a recommendation. Right now it's going to be a law and the recommendation was that it's going to start in 2025 if the first coal power plants are going to be exit. And it's much more connected to the age of the coal power plants, but not off to the. Type of the coal power plants. So it's ignite power plants. And they are emitting much more CO2 than hard coal power plants together with hard coal power plants. And the last coal power plant will exit in 2038. So it's a period of 13 years, the capacities will be quite high. But you must always remember that we are also in a nuclear phase out, and the nuclear phase out means that up to 12,000 megawatt of nuclear power plants, 2000 megawatts are already exited right now. So 10,000 megawatt will exit within the next two years. Until the end of 2022.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:23

If we return to the sort of lignite plants that could potentially come off first, I mean, this is, this is five years away when they'll come off. I mean, this is a long time. I mean, uh, five year continued massive amounts of emissions from these coal plants. But my question would be what kind of compensation, uh, are the operators gonna get? I mean, this must be a sticking point at the moment in negotiations between the operators and, and the government.

Tobias Federico, Managing Director, Energy Brainpool: 7:45

Absolutely. So, um. This is something the commission did not specify up to. Now just saying there will be a certain compensation, but, or how certain and how high are they going to be and how are you going to calculate that? And five years is a long time in a certain perspective, especially looking into the CO2 emissions. We always must remember that Germany is the biggest CO2 emitter within Europe. This is. Quite high, mostly due to the Lignite power plants. But five years is also a short period when you look into capacity compensation. Meaning that we do need additional capacities to compensate just the electricity co production from the Lignite power plants. But looking into the financial compensation. How do we evaluate that? So what's the loss? Is it is it the missed earning, the missed money until the debt of a power plant? But what's the death of a power plant? Is it 42 years running time? Is it six years running time? What's is with different other compensations? How are the few costs developing? So there are, it's a bunch of questions and the only number which has been given by the commission was. That we have a financial compensation in the region of 40 billion euros, but that's just for the region and not for the owner of the power plants, right? So we will have additional costs. And the second question is not only how high are they going to be, how are they financed? So there will definitely be an additional surplus on the consumer electricity prices for the financial compensation of the power plant owners.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:16

Yeah, absolutely. So I mean, it sounds like there's a lot of work here for, for lawyers, uh uh yeah. For lawyers

Tobias Federico, Managing Director, Energy Brainpool: 9:22

and consultants. That's Exactly,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:24

exactly, exactly. Yeah. Absolutely. It's obviously so, um, but you highlighted the nuclear exit and the. Combination that you have that with the, with the, the start of, of coal plants coming offline, what does that do to the capacity in Germany at the same time you have nuclear in France with flamanville not, not coming online. What does that do to the capacity in the region and potentially to prices?

Tobias Federico, Managing Director, Energy Brainpool: 9:48

One thing is clear that prices are going to be to go up. Somehow the problem is that when we look into plantable capacities I'm not speaking about the fluctuating energy. We are going out of nuclear power plants. We are going out of coal and ignite power plants in 2025, and there are not so many new power plants coming onto the system, at least plantable power plants. From the plantable capacity we will have. The situation where we right now have an over capacity going to an under capacity. Which is necessarily not really meaning that we're going to have a blackout because we still have to fluctuate in renewable and we still have the other European countries hopefully exporting the electricity to Germany. But they are certain where it. It could become quite critical in cold winter nights. If it's also cold in France and in Germany, then we will have certain under productions. And this is something where it definitely needs to be specified in what time, which type of power plants are going out and what additional incentives, new power plant, owners will have to build really new power plants. And that's missing. And looking into the plantable capacities, it's missing, but definitely also the renewable capacity because the incentive for new investments into wind and PV panels is really little.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:09

When you say plantable, you mean thermal conventional, say thermal plants. Absolutely. That's an interesting point. Without having, you know, there are very few new coal or certainly not coal, but gas, fire plants that are being built at the moment, and you have to provide the incentives for people to do that. Can you see someone building an operator building a gas fire plant in Germany without. Capacity mechanism in place or some way of guaranteeing a revenue for that capacity.

Tobias Federico, Managing Director, Energy Brainpool: 11:37

We could have certain trigger points there and one necessary trigger points to have an incentive could be a higher CO2 price, like a minimum CO2 price as it was or is still in the uk system. Because a higher CO2 price means that the conventional power plants emitting their CO2 have a much higher financial incentive than others. This could be an incentive. I'm not really a big fan of capacity mechanisms. That's a bit complicated. Because you don't know what the deviations of the whole market will be then later on. But for me, the trigger point and the game changer is the CO2 price.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:12

And that would be a domestic one or as part of the wider et s or both mean. The UK one exists. And then you have the ETS one on top of that?

Tobias Federico, Managing Director, Energy Brainpool: 12:20

Well it's, um, the ETS is great because it's European, but it has the big disadvantage that you have a, to have a European consensus looking into CO2 emissions and especially Poland is there very pon, the ETS system. So. In the case, we really want to stick to our emission reduction targets, then we have to have a national solution as it was or is in the UK system. Yeah. So we have a minimum price plus the ETS market.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:49

And how about. The growth of wind. I see that's really slowed down in Germany. You know, so these plants are coming offline, but wind's not really replacing them. What, what's going on here?

Tobias Federico, Managing Director, Energy Brainpool: 12:59

The problem is that the payment mechanisms are a bit complicated. We are looking into certain alternatives like PPAs, for example, the power purchase agreements. But here we have the issue that the CO2 price still is too low. So the electricity prices as we see them today, are not enough for refinancing wind power plants. Even when they have the cannibalization effect, but a much higher CO2 price would trigger people into investments of wind power plans in a situation when we will have, power purchase agreements as a standards also for new power plants, but the government is not doing a lot there. So we need, for the CO2 reduction targets in 2030, an average, I think of 2000 megawatt wind onshore, I'm not sure about that number, but currently we are at 500.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:50

Okay. Yeah. So, and that's really per, per annum? Per annum. Annum. Per annum. When you say cannibalization effect, what do you mean there?

Tobias Federico, Managing Director, Energy Brainpool: 13:56

Well, the thing is that usually wind power plants are producing at the same time when the wind is blowing. And this happens almost all over Germany. Yeah. And we do have the effect that the spot market price and that situation due to a high production of wind are quite low. So when you look into the yearly average prices, let's say 45 euro for 2021 wind power plant only could earn, let's say 80% out of that due to the cannibalization because in the moment when they are producing electricity, prices are lower.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:25

Yeah, absolutely. When we go on air, when we go out, we will be early January, 2020. What are your expectations for 2020 to BS in terms of the market developments, maybe the political landscape?

Tobias Federico, Managing Director, Energy Brainpool: 14:37

Well, I think we will. Come into a situation where we really have to ask us the questions, are we doing enough for the CO2 reductions? And, um, have we been waiting too long? Yes. Obviously we have that and what are the right mechanisms? And I think the climate discussion is not over yet. It seems to be over on the political level, but on the general population, not so I think that, the opposition against the current situations will increase. And maybe we are going to see some changes in the climate packages. Especially when we will have regional elections and they are involved into the law decision. Making process in Germany. So it'll be a quite exciting year, especially looking into this year, O2 prices. But it'll also be approved year because 2020 has been a focus year to reduce CO2. And we saw, and we see that we are not going to make it.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:32

Exactly so that there could be a kind of ground grassroots kinda movement adding press pressure, you think on, on people here and policymakers in Berlin.

Tobias Federico, Managing Director, Energy Brainpool: 15:41

Definitely. I think the fight of for futures movement in the beginning was, while these are only students not wanting to go to school on Fridays. Moving into a general movement. And I see at least also from my generation, most of them are really accepting what they're saying and to say, yeah, it's true. In the last 30 years, we haven't really done a lot. We have been talking quite a lot, but the real decisions, the instruments are there. And that's interesting. So we have the right instruments like the ETS, but we haven't really done a lot.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:08

Looks like it's gonna be quite an exciting and topsy-turvy year here in Germany. I look really forward to inviting you back and having to discuss this or discussing this further on the podcast. So thank you very much for joining us today. Thank you Richard, and thank you listeners. And we're signing off from Berlin. So happy, happy New Year. Please remember to keep up to date with all our stories on Montel News and follow us on Twitter and LinkedIn. And subscribe to this podcast on Apple Podcasts and Spotify. Goodbye.