German coalition deal targets early coal phase-out

Author: Arlind Neziri

2021/11/24

LONDON (ICIS)--The three German parties planning to form a new government said on Wednesday they favour to “ideally” phase out coal and lignite power plants by 2030, eight years earlier than currently planned.

The agreement was announced following almost five weeks of formal negotiations among the Social Democrats (SPD), the Greens and the Free Democrats (FDP).

The coalition also aims for an 80% share of renewables in the power grid by the end of the decade, with 200GW of installed solar capacity, at least 30GW of offshore wind capacity and 10GW of hydrogen electrolyser capacity.

ICIS Analytics’ modelling of a potential 2030 exit from coal showed power prices could rise by 5%, as well as being accompanied by a significant emissions reduction and continent-wide 20TWh yearly increase in gas output in the late 2020s.

The coalition announced it will continue to exclude nuclear power from its plans.

The SPD leader Olaf Schulz is the preferred candidate to take over as chancellor from Angela Merkel. The SPD and FDP will now vote on the deal at their respective party conferences, while the greens will put the deal to party members for approval.

Should it be confirmed, it will be the first three-way federal coalition government since 1949-1957.

COAL PHASE-OUT

The agreement commits the coalition partners to a coal phase-out by 2030 in what is seen as a key victory for the Greens, who called for the phase-out to happen by the end of this decade during their election campaign.

This would bring forward by eight years the exit from the carbon-intensive fuel compared to the 2038 target date set by Angela Merkel’s outgoing government.

The earlier date marks a significant compromise for the SPD, given they had continued to publicly support the 2038 target date during the election campaign.

A review to exit coal, which was envisaged for 2026 in the coal phase-out act and was expected to be brought forward by one year to 2025, had its timeline accelerated, with the review expected to be conducted by the end of 2022 at the latest.

The FDP had not set any target date for the phase out of coal, opting instead for the use of market-based instruments such as carbon pricing to drive coal from the electricity system.

NATURAL GAS

Unlike coal, there was no specification of a date for the phase-out of natural gas from the German power mix, as had been speculated in the run up to the announcement.

Instead, the coalition plans to construct new gas-fired power stations, alongside the expansion of renewables to meet growing electricity demand, as well as to ensure security of supply.

Construction of new gas capacity comes with the condition that they are ready to use cleaner gases such as hydrogen.

RENEWABLES RAMP UP

The coalition agreement commits to 80% of power generation from renewable sources by 2030, using a higher forecast of gross electricity demand at 680-750TWh.

This entails a significant ramping up of wind and solar capacity, with a target to have 200GW of solar capacity by 2030, while aiming to increase offshore wind capacity to at least 30GW in 2030, 40GW in 2035 and 70GW in 2045.

Germany currently has just under 8GW of offshore wind capacity installed, alongside 56GW of onshore wind capacity and 58GW of solar capacity.

The coalition also commits two percent of the nation’s land to the development of onshore wind power.