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Germany to Offer Utilities Less Cash to Close Coal Plants

Germany to Offer Utilities Less Cash to Close Coal Plants

(Bloomberg) -- Germany’s government has allocated less money in its budget for closing coal-fired power plants than the utilities that own them expect.

Chancellor Angela Merkel’s administration has earmarked just 1 billion euros ($1.1 billion) to pay for closing a total of 5 gigawatts of coal capacity by 2023, according to a government official who asked not to be identified because the figures aren’t yet public.

That fund is a fraction of the 1.2 billion to 1.5 billion euros per gigawatt that utilities such as RWE AG anticipated to offset investments that they will be forced to write off early. That suggests more pain for the energy industry, which is already struggling with deteriorating economics for maintaining facilities that currently supply much of Germany’s electricity.

Details covering the scale of compensation planned by the government suggest Merkel’s priority is to limit the impact of coal plant closures on the taxpayer and avoid running up a deficit. Last month, the government unveiled a sweeping 54.4 billion-euro plan that would add to levies on gasoline and diesel fuel to push drivers toward cleaner alternatives.

Germany is set to fall short of its targets to reduce greenhouse gas emissions under the 2015 Paris Agreement on climate change. That’s prodded officials to draw up new measures for reining in the biggest sources of pollution.

The coal plant operators, which also include Uniper SE and STEAG GmbH, have been focused on what payouts they can get for going along with the government’s plan on coal. A payout of more than 1 billion euros per gigawatt of capacity retired is about what the industry received in 2015, when some of the dirtiest plants using lignite were put into a capacity reserve.

Germany to Offer Utilities Less Cash to Close Coal Plants

In an uncommon show of solidarity with government policy, the opposition Green party as well as lobby groups Greenpeace and the WWF urged Merkel to cap compensation for coal plant operators. They argue that a rising cost of buying carbon pollution allowances has eroded the competitiveness of coal, leaving the industry itching to shut the plants.

“The big utilities can be really thankful about that compensation level,” Ingrid Nestle, the Greens energy spokeswoman in parliament, said in a note to Bloomberg. “Already today, the dirtiest coal plants are being driven out of the market by pollution costs and any future hikes in CO2 permit prices would surely do for the rest.”

Merkel’s blueprint for exiting coal targets a final date of 2038. For Nestle, the government’s compensation will keep the plants alive longer than leaving operations purely to market forces.

Germany’s biggest coal plant owners already got a hint of the government compensation strategy earlier this month, when draft legislation leaked showing they may be forced to compete for payouts. The bill suggested ministers may ask utilities to enter auctions to qualify for compensation, with the lowest bids qualifying for a fixed pool of cash.

RWE wasn’t immediately prepared to comment on the issue. The earmarked 1 billion euros for coal plant closures is an allocation and will not necessarily mirror actual costs for coal plant closures.

Versions of the bill that emerged last month suggested Germany will shut 5 gigawatts of hard coal capacity by 2022, leaving 15 gigawatts online.

RWE currently holds 10.3 gigawatts of hard coal capacity and 6.5 gigawatts of lignite, with all of the assets based in western Germany.

Lignite plants, which are the dirtiest power generation polluters -- will not be required to enter auctions. Their owners will negotiate on a plant-for-plant basis for government compensation. RWE and LEAG AG are Germany’s biggest lignite mine and power plant owners.

Merkel this year resolved to phase-out coal by 2038 at the latest, chipping away at the fuel’s generation capacity of 44 gigawatts today.

Economy and Energy Minister Peter Altmaier said this month he hopes to process the coal exit bill through the lower house of parliament this month.

To contact the reporters on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.net;Brian Parkin in Berlin at bparkin@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Jonathan Tirone, Raymond Colitt

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