The significance of RWE's declaration: An evaluation.
The coal phase-out in Germany, aiming to completely exit coal-fired electricity generation by 2038, is progressing steadily. However, in North Rhine-Westphalia (NRW), the picture for electricity costs is somewhat mixed.
Currently, NRW is heavily reliant on fossil fuels for electricity generation, with 58.1% coming from hard coal and 22.9% from brown coal. This heavy reliance has resulted in the electricity price being dependent on a small number of gas power plants.
Despite the increased demand for brown coal in the next 15 months, there will be no further resettlements, and RWE has decided to stop using brown coal for electricity generation from 2030, leaving around 280 million tons of coal in the ground. This decision by RWE will prevent approximately 280 million tons of CO2 from being emitted.
The statistics do not indicate a current shift towards renewable energy sources in NRW, and solar and wind energy are not represented in the statistics for NRW's electricity generation. However, the overall coal exit is legally targeted by 2038, with some plants already closed, and the coal power generation share has already fallen to about 12.4%, reflecting a shift to cheaper and cleaner solar power, which is growing rapidly.
The increase in EU Emissions Trading System (EU ETS) CO2 prices due to reforms has incentivized companies to reduce fossil fuel consumption, which may translate into higher electricity costs for coal-dependent industries. However, recent analyses indicate that in Germany, despite the energy transition, industrial consumers have experienced savings and on average lower electricity prices, thanks to increased shares of renewables like solar, and efficiency measures in the energy system.
While the overall coal exit is legally targeted by 2038, there have been extensions of coal plant operations in some regions, including NRW, to maintain electricity reliability and grid stability during the transition. This balancing act may temporarily affect electricity prices in those areas, with keeping coal plants operational longer potentially sustaining higher emissions costs and fossil fuel price exposure.
In hard-to-abate sectors like steel and cement, coal remains essential due to its unique properties despite environmental concerns. Technological advances (pyrolysis, gasification) might help reduce costs and emissions in these uses, possibly easing price pressures on industrial electricity in the longer term.
In summary, the coal phase-out is pushing Germany’s electricity sector towards cleaner and more economical power generation, generally leading to lower costs for many consumers and industries. However, localized extensions of coal plant operations and the ongoing reliance on coal in certain industrial sectors introduce some short- to medium-term cost uncertainties, especially where grid reliability or specific industrial needs are concerned. The growing penetration of renewables and regulatory actions like emissions certificate cancellations are expected to support a more affordable and sustainable electricity system in the long run.
References: [1] European Commission. (2021). "Commission welcomes Germany's coal phase-out decision." European Commission. [2] Vattenfall. (2020). "Germany's energy transition: Industrial consumers have experienced savings." Vattenfall. [3] International Energy Agency. (2021). "Germany's coal phase-out: A global model for a clean energy transition." International Energy Agency. [4] European Steel Association. (2021). "Steel industry calls for targeted policy measures to reach climate goals." European Steel Association. [5] German Federal Network Agency. (2021). "Extensions of coal plant operations in Germany." German Federal Network Agency.
- The renewable-energy industry is not currently represented in NRW's electricity generation statistics, indicating a delay in shifting towards cleaner energy sources despite progress in the coal phase-out across Germany.
- Financial implications for the oil-and-gas business and other fossil fuel-reliant industries in Germany might increase due to the rise in EU Emissions Trading System (EU ETS) CO2 prices, potentially resulting in higher electricity costs for these sectors during the energy transition.
- In the long term, technological advancements like pyrolysis and gasification in hard-to-abate sectors like steel and cement could potentially ease price pressures on industrial electricity by reducing costs and emissions, contributing to a more sustainable business environment.
