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Green and black paradox

Berlin’s push for a green economy is ringing changes through Germany’s energy sector, but ‘dirty’ coal has retained a crucial role in the transition.

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Energy policy rarely comes with a brand, but in Germany it has, in the shape of Energiewende, or “energy transition”. Since 2010, the policy has pushed for clean, reliable and affordable energy supply. Targets for emission cuts are an ambitious 80% to 95% down from 1990 levels by 2050.


The influence of Energiewende on modern German life is touted as being as transformative as reunification in 1990. Preferential tariffs for renewable energy have helped solar panels and wind turbines proliferate across the country. Meanwhile, Energiewende proponents have deemed the days of coal-based energy infrastructure of power plants, railways, river barges and port terminals as numbered.


But German energy policy remains deeply paradoxical. The leader in ‘green’ power in Europe, Germany emits the most greenhouse gas. Far from being in retreat, the coal-fired power sector remains central to its energy needs.

Germany has had to expand its coal operations due to the decision to close all its nuclear power plants – which emit no greenhouse gases – by 2022, following the Fukushima disaster in Japan five years ago. With ‘clean’ energy providing just a quarter of its power, Germany’s policymakers have turned to coal to fulfil the energy demand once catered for by nuclear.


Germany generates 31% of its electricity from renewables, up from less than a tenth a decade ago. Yet coal remains the backbone of German power, with domestic lignite, or brown coal, and imported hard coal making up 44% of the mix in 2015.


Hard coal is imported through the Low Countries’ ports and German ports including Wilhelmshaven, Hamburg and Bremen, with rail and river barge linking destinations further inland. Rail brings coal from Eastern Europe. While this developed logistics infrastructure has handled increased volumes of coal in recent years, Germany finds itself on course to miss its 2020 target to reduce greenhouse gas emissions by 40% from 1990 levels.

Frau for turning

But Germany’s move to wean itself off nuclear and fossil fuels and subsidise wind and solar has saddled its energy users with some of the highest electricity retail prices in Europe, despite low wholesale prices. The phase-out of nuclear, which provided a quarter of its electricity back in 2011, has cut a reliable and affordable energy source.


Meanwhile, subsidies for renewables, as well as the cost of natural gas in Europe, have made gas-fired power plants unprofitable. The unintended beneficiaries of Energiewende, for the moment, are coal-fired power stations that have become cheap to operate amid the low cost of global coal imports.

In this mix, Chancellor Angela Merkel has an eye on her fourth term, and the need to navigate the conflicting demands of environmentalists and industry. In pragmatic mode, the chancellor is already starting to drag her heels over emission targets.


Her government indicated in January that coal power generation could be phased out by 2050, while a policy document prepared in June expressed nervousness over a commitment to schedules prior to the September 2017 elections. A strategy that specified timings for the closure of coal-fired power stations, and complies with last year’s Paris Agreement on climate change, remains politically troublesome.

Changes to Energiewende are under way. Berlin this summer reformed rules that require utilities to buy wind or solar power at a flat, long-term ‘feed in’ tariff with open bidding from 2017. Sigmar Gabriel, the economic affairs and energy minister, called the move a “paradigm shift” towards free-market pricing.

Gabriel is also concerned that the national grid needs upgrading to handle additional renewable power. His ministry wants to rein back on north German wind farm developments, so as not to exceed the construction of transmission capacity to the south. Renewables will be kept below 45% of the power mix until 2025, to stabilise prices, opening the way for utilities to import more coal.


Nuke and coal


Gabriel, who is also vice-chancellor and chairman of the Social Democratic Party (SDP), has maintained that Germany will struggle to wean itself of both nuclear and coal – the governing coalition’s treaty also declares coal as indispensable for Germany’s energy mix.

The SDP chairman, following the Paris Agreement, has raised concern about an overly hasty exit from coalfired power generation alongside the planned shutdown of nuclear plants by 2022. Renewables, which remain at the mercy of the weather, cannot replace entirely coal-fired power plants, he argues. Coal bridges the gap created by the retreat from nuclear.


The German energy minister has taken a pragmatic stand over coal and the need for stable energy supplies. The government’s Climate Protection Plan 2050, which was leaked as a first draft this summer, acknowledges modern coal- fired plants, together with gas-fired facilities, as vital technology to provide for the nation’s power in the transition to almost neutral CO2 energy generation by the mid-century.


Meanwhile, hard coal capacity will be cut to between 11 and 23 GW by 2030 from 26 GW. Despite the plan recommending a coal phase-out schedule by mid-2017, Gabriel told utilities in June that he would not set up a commission to manage the exit.


Germany’s big utilities have agreed to place brown coal-burning plants into reserve, prior to closure, by 2019, to help the coalition meet its CO2 emissions target by 2020. In June, Brussels gave the go-ahead for a €1.6B state compensation package for the utilities as recompense for loss of revenues.

The eight facilities include Mibrag’s Buschhaus plant and units at RWE’s Frimmersdorf, Niederaußem and Neurath, as well as at Vattenfall’s Jänschwalde, and represent 2.7 GW, or 13% of Germany’s lignite power capacity and 24% of its electricity supply.


Meanwhile, investment in modern coal-fired facilities since the 1990s has largely focused on eastern Germany. This year, no new lignite powered plants are under construction.

Love lignite

Germany remains the world’s top producer of lignite, mostly for its domestic power stations, and the world’s eighth biggest overall coal producer.


But Germany’s coal mining sector is in retreat too. Production levels fell by 2% to 187 Mt in 2014, for the first time this decade, with mined lignite down slightly to 178 Mt, according to the latest available International Energy Agency (IEA) figures. Germany will end subsidised hard coal production in 2018, but lignite mining will continue into the 2040s.

Although production of brown coal is expected to reduce under Energiewende, the phase-out of nuclear energy has meant Germany has had to rely heavily on lignite and imported hard coal.

RWE, Vattenfall, E.ON and Mibrag’s opencast lignite mines have remained profitable, with production used in nearby power stations. Lignite is mined in eastern Germany’s Lausitz region and Saxony-Anhalt, while more than half of national reserves are in the Rhineland. Around 5.6 Gt of lignite is accessible, and total reserves amount to 34.8 Gt, according to the IEA Clean Coal Centre, the London-based think tank.


IG BCE, the mining union, has warned Berlin not to abandon this single sizeable energy source and play “Russian roulette” with supply security. Domestic sources ensure that Germany does not become even more dependent on world markets, the union argues. “Our lignite can guarantee this in a balanced energy mix,” it says.


Energiewende is ringing the changes for the big utilities, however, particularly for RWE and E.ON whose coalfired plants generated more than two-fifths of German power in 2015. E.ON is hiving off a new firm, Uniper, for its fossil fuel assets, and RWE will list its newly spun-off renewable business, Innogy, in Frankfurt for up to €5B by the end of the year.


In September, Swedish state-owned Vattenfall completed the sale of its eastern Germany lignite operations, including Jänschwalde, to Czech utility Energetický a prumyslovy (EPH). Analysts believe that EPH, which owns Mibrag, is looking to export lignite to the Czech Republic when mining licenses expire, or has made a play for state compensation for future German mine closures.


Long farewell

As Europe’s largest economy moves towards the goal of an almost carbon-free footing by 2050, the German Coal Importer Association (VDKi) acknowledges that coal plant closures and a reduction of demand for coal imports are
inevitable over the coming decades.

By 2030, according to German power network operators, the nation’s hard coalfired power station capacity will fall from 26 GW in 2014 to anything between 11 and 23 GW, which amounts to a 12- 52% reduction.


But in the interim, the prospects for the coal handling sector in Germany look brighter than in the UK, where all fossil fuel burning power stations are due to close by 2025.

VDKi notes that worldwide coal production has started to decline, down by 3% to 7 Bt in 2015, while seaborne hard coal trade was down 8.5% to 1.2 Bt. But forecasts for the prospect of coal over the coming decades vary greatly.

The International Energy Agency estimates that, by 2040, around 30% of power generation will be from coal, down from 41% today, with renewables responsible for a third. Meanwhile, power demand will have grown by 40%. However, estimates for the Paris Agreement suggested coal will contribute only 2% and renewables 57% in 2040. VDKi president Dr Wolfgang Cieslik says the view that the world will change over completely from fossil to renewable
energy is unrealistic. Germany’s coal import surge this decade slowed in 2015, and a similar volume of hard coal is likely to be handled by German ports and railways this year, says VDKi. But rising demand from Germany’s steelmakers has offset lower usage in power stations as the country turns to renewable energy, according to the Hamburg-based association.

Meanwhile, weather conditions this year have also given rise to higher levels of renewable power. In 2015, coal imports edged up 2.3% to 57.5 Mt. Germany used largely imported hard coal for 18% of its electricity in 2015, while a quarter of power generation came from domestic brown coal.

Off peak

Germany’s paradoxical energy policy has skewed coal imports too. As Germany has headed towards the phase-out of hard coal mining, imports of coal have risen by 19% since 2011. The German coal industry recorded peak imports
of 57 Mt in 2014, up by 12.8% from 2013, following the closure of mines including in the states of North RhineWestphalia nd Baden-Wurttemberg. In 2015, imports accounted for 89% of German hard coal.


Around two thirds of German coal imports (67%) are for the German power sector, with a little under a third (30%) to the steel sector (the remainder is for domestic heating), amid falling coal prices and a demand slump elsewhere in Europe (British coal imports fell 37% in 2015).

In 2015, Germany remains one of the EU’s largest steam coal importers. Russia has continued to grow its share of the German steam coal import market, with 14.9 Mt supplied by ship and rail in 2015, compared with 12 Mt in 2013.

Last year, Colombia overtook the US as Germany’s second biggest supplier of steam coal, with a 23% share, or 9.9 Mt, while the US stood at 7.7 Mt and 18% of steam coal imports in 2015 and 2014, down from 8.9 Mt in 2013. South
African exports also declined last year to 3.2 Mt, down 36% from the previous year. Polish shipments edged up by 7% to 3.2 Mt last year.

Germany continues to be a major importer of coking coal for its steel sector, which has undergone a recovery since May that could give a lift to import volumes for 2016, according to VDKi. In 2015, Australia has increased its share of supplies to Germany’s mills by 5.8% to 5.6 Mt, which represented 46% of coking coal imports.

US shipments also represented more than a quarter of the coking coal delivered to German industry, although the 3.2 Mt supplied in 2015 was down by almost 6% from the previous year. Canadian shipments were also down by 10%. However, Russia increased its supplies of coking coal to Germany in 2015 by 39% to 1.6 Mt, or 13.3% of the market.

Germany’s North Sea coal ports last year saw an upsurge in imports for the domestic power market, with hard coal volumes through Hamburg up 30% to 7.7 Mt, and Wilhelmshaven up 32% to 4.1 Mt.


German ports handled 16% more hard coal in 2015 (to 16.5 Mt), while a large proportion of the 52 Mt of coal handled in 2015 by the ports of Amsterdam, Rotterdam and Antwerp was for the German market. Initial figures for 2016 suggest volumes are down, however, with Hamburg handling 3.7% less coal in the first half.


Germany’s coal sector still has to contend with policy preferences for renewables, says VDKi. But coal looks to have secured a crucial ‘bridge’ role in Energiewende and the nation’s retreat from nuclear and fossil fuels.

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