Markets Drive Germany’s Exit From Coal Much Harder Than Merkel

(Bloomberg) -- The energy markets are driving Germany’s decreasing dependence on coal faster than Chancellor Angela Merkel’s retreat from the dirtiest power-plant fuel.

Cheap natural gas, the rising cost of permits to emit carbon dioxide and high renewable energy output have put utilities off burning the fossil fuel so far this year, according to a report by BloombergNEF. As Germany debates a plan to exit coal-fired power by 2038, generators from RWE AG to Uniper SE are already burning much less of the fuel in favor of cleaner natural gas.

“Generation costs for gas are cheaper than those for coal or lignite for the first time since at least 2009,” BNEF analysts including Verena Viskovic wrote in the report, adding that the profitability of gas plants is beating most lignite plants “for the first time ever.”

Merkel’s administration in January brokered a plan to wean Europe’s biggest economy off coal from next year with a complete exit by 2038. The proposals haven’t been enshrined in law yet as politicians nervously eye elections in disadvantaged coal states where the populist Alternative for Germany are riding high in polls.

Echoing the U.S. trend where renewables are beating coal-fired power production despite President Donald Trump’s support for the dirtiest fossil fuel, markets are moving faster than lawmakers when it comes to closing Germany’s coal plants. And around the world, institutional investors are halting lending for new coal-power stations and mines too.

Even though German utilities own their lignite supply with mines in close proximity the plants, other fuels have proved cheaper this year, BNEF said. That’s because the carbon costs for plants burning lignite - a fuel with relatively high carbon content - have risen 4.4% this year, adding to last year’s gain of more than 200%. On the other hand, gas prices have dropped to 10-year lows as tankers with the fuel from the U.S. to Qatar have flooded European markets.

“For the first time, gas and carbon prices are combining to cause operators to idle their lignite generation,” BNEF said.

Renewables are also hastening coal’s decline, according to a separate report. The share of clean energy in Germany’s electricity “mix” may jump a second year as wind and solar generation rises, according to the Fraunhofer ISE institute, which monitors power trends.

Clean energy sources made up 47% of all generation between January and June, a 7 percentage-point increase from a year earlier, said Bruno Burger, head of Fraunhofer ISE’s advanced technology and devices department. The mid-year gauge has become a fair guide to the full-year figure, he said.

Read more here about Fraunhofer’s projections for German renewable energy

Protests at coal mines - such as the one in Hambach just outside Cologne - and low Rhine river levels made transporting the fuel more expensive and that has also dented coal’s profitability, according to the report.

Michael Bloomberg, owner of Bloomberg LP and this news organization, has through his philanthropy funded efforts to close coal plants and encourage cleaner alternatives.

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

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson, Andrew Reierson

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