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Europe waits on Germany

Despite being a leader in renewables, the country can't kick its coal habit

Ireland has just become the 11th European country to pledge the phase-out of coal-fired power, boosting prospects for increased use of natural gas to complement renewables. The pressure is on Germany, which consumes more coal than these 11 countries combined, to do something similar—but the wait for concrete moves from Berlin goes on.

Admissions of failure don't come much bigger than the acknowledgement by Germany's incoming "grand coalition" government that the nation's 2020 carbon emissions target will not be met. No country in Europe has done more to promote the uptake of renewable energies—a policy so entrenched and well-publicised that the German word for "energy transition", Energiewende, has become part of the lexicon.

The blame lies with continued dependence on coal.

"Despite a massive scaling up of renewable energies, CO2 emissions in Germany are virtually unchanged since 2009," said Mario Mehren, chief executive of Germany's Wintershall, which has major interests in the country's gas sector. He noted that emissions have remained "alarmingly constant" at around 750m tonnes a year.

"The energy transition costs a great deal—but it doesn't achieve much because Germany is replacing nuclear power with coal," he said. "At the moment Germany is producing 40% of its electricity from coal. The share of natural gas in the power mix is just 10%. In terms of climate policy, that is ludicrous."

It is also at odds with much of the rest of Europe, where nation after nation has pledged to phase out coal-fired power.

The trend was set in motion in 2015 by the UK, which declared its intention to cease all unabated coal-fired power—that is not using carbon capture and storage—by 2025. Last January, the government confirmed its intention and said the primary policy measure would be a carbon dioxide emissions intensity limit of 450g of CO2 per kilowatt-hour (kWh), which it said was "broadly the emissions of an unabated gas generator".

Rounding up reinforcements

In November 2017, at the COP23 UN climate change talks in Bonn, the UK and Canada launched an alliance of nations, states and cities "committed to moving the world from burning coal to cleaner power sources". Among the 25 members of the Powering Past Coal Alliance were several European nations. The latest to make a phase-out pledge and join the alliance was Ireland, in March.

Mandated phase-out dates imposed by governments are far from being the only threats to coal-fired power in Europe. In April 2017, a committee of EU member states agreed a new round of pollution controls for large combustion plants that will take effect in 2021.

A report analysing the impact, published by the Institute for Energy Economics and Financial Analysis (IEEFA), concludes: "More than 100 separate power plants—representing one-third of Europe's large-scale coal-fired power plant capacity—face costly air-quality upgrades or closure."

40%—Share of German electricity provided by coal

Yet another threat is an emissions performance standard of 550g of CO2/kWh—proposed by the Europe Commission as part of its proposed Clean Energy for All Europeans reform package. According to Euracoal, a trade association: "The proposed standard would effectively ban all coal-fired, most oil-fired and even many older gas-fired power plants from participating in capacity markets."

Finally, coal-fired power is also under pressure from reforms to the European Emissions Trading System (ETS).

At first sight the 11 countries that have pledged coal phase-outs make up an impressive list. However, in 2016 they accounted for only a quarter of EU coal consumption—60.2m tonnes of oil equivalent out of 238.4m toe.

To put that in context, Germany's consumption was 75.3m toe. A look at the top 10 coal consumers in Europe highlights the scale of the challenge. Of the top five, none has yet pledged to phase out coal-fired power. Only in Germany is a serious debate about a phase-out under way.

Competing coalition pressures

Following elections last September, Angela Merkel last month began her fourth term as chancellor. Forming a coalition proved unusually difficult. An attempt to team up with the Greens and the liberal FDP collapsed. So, Merkel's conservative CDU/CSU bloc has once again formed a "grand coalition" with the social democrat SPD.

While the coalition talks were under way there were hopes that Germany might soon join the list of European countries pledging to phase out coal-fired power, because of the influence of the Greens. Those hopes were dashed by the grand coalition treaty, which acknowledges that the 2020 CO2 emissions target—a 40% reduction from 1990 levels—will be missed, and sets out a broad framework for future energy and climate policy.

The new government proposes to set up a special commission that will spend the rest of this year deliberating on a range of controversial energy and climate issues, including whether and how quickly coal should be phased out of power generation.

'Despite scaling up of renewables, German CO2 emissions are virtually unchanged since 2009'—Mario Mehren

The message from German industry is stark: without much more ambitious policies than those proposed, and additional investment of trillions of euros, Germany will not just miss its 2020 targets, but also its 2050 target of an 80-95% cut in carbon emissions compared with 1990 levels.

Carsten Rolle, head of energy and climate policy at the Federation of German Industries (BDI) and secretary-general of the German member committee of the World Energy Council, told Petroleum Economist that the BDI has been looking closely at how Germany might meet its 2050 target.

"The good news is that you can come up with a pathway that would not affect the competitiveness of industry," he said. "But that is not possible without additional policy instruments. With the instruments in place, we would get to around a 61% reduction by 2050.

"That's ambition that we don't see at the moment—at least not in the coalition treaty. On the cost side, it means huge additional investment: roughly €1.5 trillion ($1.84 trillion) to get to 80% and €2.3 trillion for the 95% path."

A coal phase-out is highly controversial because-while most hard coal is imported-much of Germany's electricity is generated using lignite and there are concerns over the social and economic impacts.

There are also questions relating to security of supply, given that Germany is set on phasing out nuclear power by 2020. "The phase-out of nuclear is decided," says Rolle. "That's a broad consensus in society and an issue no-one wants to re-visit."

Will gas emerge a winner?

There seems to be little doubt that Europe's escalating war on coal means the fuel faces a bleak future over the long term—especially in the absence of viable carbon capture and storage, the prospects for which get ever bleaker. For gas the picture remains much less clear. The answer depends on who you ask.

Some governments are wary about promoting natural gas because, while less polluting than coal, it is still a fossil fuel. Others, like the UK, have said explicitly that they want to see greater use of gas in power generation.

The argument is complicated because the assertion that flexible conventional power stations will be needed to back up intermittent renewables is being challenged by developments in distributed generation, battery storage and demand response schemes. However, these will require costly investments in grid infrastructure and the pace of these investments remains uncertain.

The view of the International Energy Agency is that gas's future in the EU will be mainly driven by climate policy. In its New Policies Scenario, a projection to 2040, gas use rises from 463bn cubic metres in 2016 to peak in the 2030s and then falls back to 454bn cm in 2040. Its Sustainable Development Scenario, which assumes more ambitious climate policies, projects gas demand falling to 342bn cm in 2040.

So, what about Germany?

"We do see now a scenario where once coal is phased out—because of the ETS or other instruments—gas will jump in during the 2020s and 2030s," said BDI's Carsten Rolle. "We will need some energies that balance out the volatile [intermittent] energies."

Wintershall's Mario Mehren agreed: "If we want to achieve our climate targets in 2025-30, we can only do that with natural gas—for electricity, in the mobility sector and in the heating sector. There are many low-hanging fruits. You just have to pick them."

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