Germany, one of the largest consumers of coal, has decided to shut down all its coal-fired plants by 2038. The country has made this announcement owing to its international commitments in the fight against climate change.

To make this a reality will require an investment of around $45 billion to mitigate the dependence on coal-fired plants, which accounts for 40% of Germany’s electricity production.

The decision to shelve all coal-fired plants comes after an earlier decision by the German government to shut down all its nuclear power plants by 2022 post-Fukushima disaster in 2011.

At that time, the decision was severely criticised by business leaders who were worried about the increase in electricity prices, thereby making the industry less competitive.

Germany has closed 12 out of 19 nuclear power plants to date. The plan to close coal-fired plants as well means the country has to rely on renewable energy which has to provide 65% to 80% of the country’s power by 2040. Renewable energy has overtaken coal as the leading source of energy as it accounted for 41% of the country’s electricity.



The phase-out target of coal-fired plants

The panel that recommended closing coal-fired plants was made by the government-appointed coal commission which included leaders from federal and state governments along with industry representative. The commission was set up to find the consensus on phasing out of coal-fired plants in the country. The coal-fired plants account for more than 25% of the country’s CO2 emissions which is more than that of the Netherlands and Austria combined. The country has the largest fleet of coal-fired plants in Europe which definitely makes the phase-out process more significant. Most of the coal-fired plants in Germany are lignite based which is cheap but at the same time causes more environmental issues.

The phase-out target of coal-fired plants will be reviewed every three years. As per the initial target companies such as RWE, Uniper EnbW and Vattenfall will be asked to shut down about 12.7 GW of capacity by 2022 which is equivalent to 24 coal-fired power plants. The country is targeting to reduce the coal-fired capacity to 17 GW by 2030 which is more than half of the current capacity. This will mean that just eight coal-fired plants will be operating by 2030 with the final closure by 2038.

Germany makes plans for compensation

The panel recommended a mutual agreement with the operators on a contractual basis with regard to the shutdown, which would also include the size of compensation. The compensation would be applied to plants in operation and those that have not yet entered service and still being built.

The compensation should depend on the ownership structure, linkages with mines, CO2 emissions by the plant and the respective number of affected employees. Compensation for companies and consumers paying more for electricity because of the phase-out is estimated at 2 billion euro a year, with the exact amount to be set in 2023.

The commission also recommended the utilities to scrap plans to clear the last 250 acres of the Hambach Forest, west of Cologne for a lignite open pit mine. Apart from that, easing of regulation on the construction of new gas-fired plants which could replace the coal-fired plants at the same location has also been recommended by the panel.

The coal exit timeline will be reviewed in 2023, 2026 and 2029. The latter two reviews will look at the end date while the 2032 review will consider a 2035 phase out.

In providing the recommendations the panel worked towards Germany’s existing climate goals to cut the greenhouse gas emissions of 55-56% below 1990 by 2030. This is within the EU goal to cut emissions by at least 40% below the 1990 levels by 2030. So this coal exit program would help the country to push the rate of achieving the emissions target.

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