friday, 17 january of 2020

Compensation

Germany strikes €44bn deal to phase out coal use in energy supply

The German government has struck a deal with the country’s coal-producing regions to phase out the use of coal power by 2038 in return for compensation and benefits worth €40bn. 

Berlin will also set aside €4.35bn for utilities such as RWE, which will close some of their coal plants early. The deal removes one of the last obstacles to a historic energy transition in Europe’s largest economy.

Angela Merkel’s coalition government pledged last year to switch off all coal-fired power stations but has since battled to secure political support from federal states such as North Rhine-Westphalia, Brandenburg and Saxony, where Germany’s mines and power plants are concentrated.

The deal, presented by senior ministers on Thursday, means Germany will end the use of nuclear and coal power at the same time, sharply increasing the country’s dependence on renewable sources of power such as wind and solar.

Berlin wants to meet at least 65 per cent of its electricity needs with renewable power by the end of this decade. 

"Germany, which is one of the strongest and most successful industrial nations in the world, is taking giant steps towards leaving behind the fossil age," said Olaf Scholz, the finance minister. 

Svenja Schulze, environment minister, added: "We are the first country that will exit from both nuclear and coal [power]. That is also an important international signal that we are sending out."

RWE alone is set to receive €2.6bn of the €4.35bn compensation package, with the remaining €1.75bn set aside for utilities in eastern Germany. Rolf Martin Schmitz, the RWE chief executive, said the deal was acceptable but would stretch the group "to the limit".

RWE said the early shutdown would impose financial costs of €3.5bn, significantly more than the promised compensation, and force 6,000 job losses by 2030. There would be no impact on the dividend, however. Shares in RWE were up 1.5 per cent in afternoon trading.

The accord presented on Thursday largely echoes the recommendations of a government-appointed coal committee last year, which brought together experts from industry, the environmental movement and politics to hammer out a compromise.

Despite strong misgivings about the long transition phase, Green campaigners signed up to the deal at the time — but have since urged the government to speed up the shutdown.

Berlin is now committed to a formal review of the phase-out plan at the end of the decade, with a view to ending the use of coal power in 2035. 

The timetable for plant closures agreed between Berlin and the regions calls for the first 300MW unit to be taken out of service at the end of 2020, with another 900MW due to go offline at the end of 2021. However, some of the biggest, most heavily polluting coal power stations will only be shut in 2028 and 2029. 

One area where the government deal departs from the expert recommendations concerns the newly built power station at Datteln, in western Germany, which has yet to start production. Billed by Uniper, its owner, as one of the cleanest and most efficient coal power stations in the world, it was nonetheless supposed to be shut down. Now, it will be allowed to start production as planned. 

The compensation package for coal states includes plans to move government institutions and military installations to the affected regions, in an effort to create jobs and revenues. Some sites will also benefit from the construction of new gas-fired power stations. 

News of the agreement — and of the planned opening of Datteln — was met with disappointment by some campaigners. Olaf Bendt, chairman of Germany’s Bund environmental pressure group, said the government had pushed the bulk of power station closures back to beyond 2030. "Once again the government has shown that it has not understood the seriousness of the climate crisis."

(Published by The Financial Times, January 17, 2020)
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