The Era of Coal to End With EU Strengthening Its Climate Ambitions

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The Era of Coal to End With EU Strengthening Its Climate Ambitions

Date: December 24^th 2020

Topic: Electricity , RES and EE , Coal , Energy policy , CO2 emissions

Around half of the capacities awarded closure payment in the first round of tenders for hard coal plant closures for this year in Germany were highly efficient plants built in the last five or six years. “This speaks volumes about how little room there is for coal in the future energy mix, if even the utilities that own these plants think that brand new units will not be able to survive,” said Nathan Witkop, Montel’s German correspondent, in the last Montel Weekly podcast for this year. Meanwhile, Siobhan Hall, Montel’s Brussels correspondent, assessed that the European Commission wants to move quickly with its package of legislative proposals in order to meet the target of a 55% reduction in greenhouse gas emissions.

At the level of the entire EU, one of the most significant things that has happened this year in terms of the energy sector is EU leaders deciding this December to back having a target for the EU to cut its emissions by at least 55% by 2030 compared to 1990 (MORE), thinks Hall.

“This endorsement by EU leaders will drive all the policy measures that we are expecting to come out next year. Thus, it is a really significant agreement, which still has to be made binding through negotiations with the European Parliament. However, we already know that the European Parliament was pushing for a target of 60% below the 1990 level. So, we can assume at this stage that that target of a reduction in emissions of at least 55% will be the absolute minimum that we can expect the EU to sign up for in terms of cuts in emissions,” explained Hall.

Looking forward, Hall mentioned that in June 2021 the European Commission will come up with “a massive package of legislative proposals in order to make the target of a 55% reduction achievable. That will involve changing the EU ETS, the goal of which would be to have an effect on carbon prices.”

Another of the goals of the package “is to raise the targets for renewable energy and improve the EU’s energy efficiency. The higher energy efficiency target is likely to reduce demand more for gas, so renewable electricity would end up having a bigger share overall as fossil fuels reduce,” said Hall.

Hall also mentioned the Commission’s plans for a carbon border adjustment mechanism. “The interesting thing is that EU leaders want this mechanism in place by 1 January 2023 at the latest. It normally takes a couple of years to get new EU legislation agreed and implemented, but this implies they want to move quickly with this package,” she concluded.

Germany’s coal exist might happen earlier than by 2038

Looking at Germany, Witkop assessed that “the biggest standout thing has been the coal exit law that was passed this year. It is perhaps less ambitious than the pace at which some countries are abandoning coal, but we have to bear in mind how central coal has been to Germany’s economic development and how central it has also been until very recently.”

According to Witkop, Germany plans to close its last 39 GW of coal capacity by 2038, “potentially as early as 2035. I personally think that it will probably end up abandoning coal earlier, as the pressure to do so will only mount over the coming years.”

Based on the result of the first hard coal closure tender, at which the German energy regulator awarded hard coal fired capacity closure payments of an average of 66,259 EUR/MW in early December, 4.8 GW of hard coal plants are to leave the grid in Germany by January 2021. The second tender was published on 7 December.

“What was interesting in the tenders is that as soon as the first round closed, Vattenfall already flagged that it had submitted its brand new Moorburg coal plant – two 800 MW units equating to 1.6 GW of brand new hard coal capacity that was only completed five years ago – in the bid. It had already applied to receive compensation to close the plant down this year. A stunning destruction of capital in a sense, but it says a lot about what utilities think the prospects of coal are in the coming years if they are already closing some of the most efficient coal plants currently in operation,” said Witkop.

“Together with Moorburg, around half of the first round of tenders for hard coal plant closures for this year were highly efficient plants built in the last five or six years. This speaks volumes about how little room there is for coal in the future energy mix, if even the utilities that own these plants think that brand new units will not be able to survive,” added Witkop. Read also Closure of Coal and Nuclear Plants in Germany Could Lift SEE Power Prices

From historically low prices in the Nordics to the green transition in Iberia

Meanwhile, low power prices have marked the Nordic power market this year, assessed Olav Vilnes, chief editor for the Nordic and Baltic region at Montel. “We haven’t seen lower prices in this market for 20 years. Average prices have amounted to around 10 EUR/MWh, while they were close to 40 EUR/MWh a year ago,” said Vilnes, adding that the low prices have hit the earnings of producers and have also created concerns in terms of future investment.

“The bearishness is quite strong when looking to the next few years, because there is a lot of new wind capacity coming online,” noted Vilnes, explaining that all Nordic countries have high renewable targets.

“On top of that there have been very mild winters recently, so the demand is also quite low during winter periods,” said Vilnes, adding that he thinks that in the short term, the risk of very low prices is high due to a big surplus of electricity. However, looking beyond 2025 to 2030, there is a lot of new demand coming in – he mentioned hydrogen, data centres, battery factories and even transport will use a lot more electricity than they do today – which could lift prices further. New interconnections coming in will also give some support to prices, added Vilnes.

Chris Eales, editor for France at Montel, mentioned that France has fallen into a COVID-19 rhythm this year, which is “fear, chaos, confusion and spikes (in prices; author’s note).” “That is what we have had in France all year because of COVID-19 and it is likely to carry on because nuclear power in France is so important (and also for Europe),” noted Eales.

The highlight of 2020 in the Spanish market is that the government has made sure that most of the recovery money will go into the energy transition. “The entire economic apparatus is shifting gear, and it is all around energy. A lot of it is green, there is a lot of solar and wind and we are even starting to consider offshore wind. It seems that it will be smooth sailing going forward,” assessed Andres Cala, editor for Iberia at Montel. He added that Spain could add as much as 6 GW of renewable capacity per year for at least the next 6-7 years, “which is a huge surge in power generation, a lot of which will go into hydrogen and storage.”

The whole podcast is available HERE.