The German government over the weekend agreed with some of the nation’s biggest utilities on terms of an unprecedented deal to shut down coal-fired power plants, a further step in the country’s move toward renewable energy.
Under terms of the arrangement with RWE, Vattenfall and Mibag, Germany will pay €1.6 billion, or $1.76 billion, to the operators of coal-fired power plants as compensation for shutting down the facilities.
The sum, roughly €230 million per year, will be paid to the utilities over seven years. The plants will initially stand by to produce electricity if needed, before being wound down completely by 2019, according to the economics and energy ministry.
The move will enable Germany to reduce carbon emissions by 12.5 million tons. It’s another step toward meeting Berlin’s 2020 target of a total reduction of 40 percent, compared to their level in 1990.
“This is an important measure to enable us to achieve our climate goals and also to make protect the regions affected.”
Economics Minister Sigmar Gabriel called the pact a good solution for climate and industry.
“This is an important measure to enable us to achieve our climate goals and also to protect the regions affected,” said Mr. Gabriel, who is also vice chancellor and head of the Social Democrats, the junior partner in the governing coalition.
Currently, coal-fired plants are operating in the German states of Brandenburg, North Rhine-Westphalia, Saxony and Saxony-Anhalt.
Hours after the pact was announced, RWE, Germany’s second-largest energy producer, announced plans on Sunday to cut up to 1,000 jobs. RWE is Germany’s biggest producer of coal-fired electricty and will close five plants, a total production capacity of 1,500 megawatts, starting in October 2016. The affected plants are apparently two blocs each in the towns of Frimmersdorf and Niederaussem, and one in Neurath. The job cuts would take effect between 2017 and 2023.
According to industry circles, Vattenfall, the Swedish energy company that operates coal plants in eastern Germany, will close two plants, each producing 500 megawatts of electricity, in 2017 and 2018.
Mibrag, which runs lignite coal mining operations in central Germany, will close a plant that produces 200 megawatts.
These closures together will reduce capacity by 2,700 megawatts, with plants on standby if reserves run low, though this is unlikely given the high capacities in Germany and Europe.
The move is part of Germany’s transition to renewable energy sources, which has disrupted the German electricity industry and sent utilities scrambling to switch to cleaner energy production even as they struggle under the falling value of their traditional energy operations.
Germany is keen to take the lead in the United Nations climate talks planned in November this year.
The country is working to reduce its carbon emissions but still generates one quarter of its electricty from lignite, or brown coal. In 2014, lignite power stations generated 158 million tons of carbon emissions, more than half that generated by the electricity market. The 2.7 gigawatts that will be saved by closing the five plants makes up 13 percent of Germany’s lignite coal production.
Green party politicians criticized Saturday’s decision as a pay-off to the utilities industry. “Gabriel is paying billions to create a coal-based reserve that nobody needs,” said Oliver Krischer, parliamentary group deputy for the Green Party. “This is just a bonus for RWE, Vattenfall and Mibrag for closing their run-down facilities.”
Mr. Krischer alleged that electricity customers and taxpayers would eventually shoulder the costs of the shutdowns.
According to the ministry, the cost for the public will be low at 0.05 cents per kilowatt hour, which would mean additional costs of €1.75 per year for a three-person household using 3,500 kilowatt hours.
The decision is a compromise after the government considered more radical measures but backed down under pressure from unions, states and industry lobbyists.
“This is a concrete agreement which ends the insecurity for employees and companies,” said Michael Vassiliadis, head of the mining, chemicals and energy trade union.
The decision apparently followed talks with Brussels, and the German government is confident the plan will not encounter criticism from the European Union that the move constitutes an illegal subsidy for the industry.
Next, the cabinet is expected to pass the draft law in November before it is debated by the Bundestag early next year.
Allison Williams is deputy editor in chief of Handelsblatt Global Edition. To contact the author: firstname.lastname@example.org