Government Scraps Climate Levy – Agreement Also on Grid Expansion, Nuclear Power and Energy Efficiency

Yesterday the government announced what it called a milestone decision for the German energy transition towards renewables and its CO2 savings goal. The government agreed to scrap its controversial (in our view unlawful) plans to impose a climate levy for conventional power plants to save CO2. Instead some of the oldest coal-fired plants with a capacity of 2.7 GW shall become back-up plants. Besides the government wants to promote energy efficiency, speed up grid expansion and ensure that the decommissioning provisions made by the nuclear power operators cover Germany’s nuclear exit costs. Costs for consumers still remain largely unclear. Information regarding state aid implications was also not provided.

One had cut the proverbial Gordion knot, taking major decisions that would transform the vision of a largely renewable energy supply by 2050, the so-called Energiewende (energy transition), that so far consisted of “loose gear wheels” into a functioning “clockwork”, German Energy Minister Sigmar Gabriel said. The government would stick by its climate goal (a 40% greenhouse gas reduction by 2020) while ensuring that it was reached with economically efficient and socially acceptable solutions.

And here it what the government decided:

1. Coal-fired Back-up Power Fleet Instead of Climate Levy

To reach its climate goal the government initially identified the need to save another 22 million tonnes of CO2 in the conventional power sector.

Instead of introducing the controversial and legally at least doubtful CO2 climate levy for conventional power plants to save the amount, the government plans a three-step approach one of which concerns hard-coal fired power plants.

According to government information

  • Lignite-fired power plants with a capacity of 2.7 GW (about 13% of the total hard-coal fired capacity in Germany) will be gradually transferred to a so-called capacity reserve and be decommissioned after 4 years;
  • Power-plant operators agreed to save an additional amount of 1.5 million tonnes of CO2 as of 2018 if necessary, the government said, adding that it has not decided yet about the legal implementation of such a measure;
  • There will be a review of the two above-mentioned measures in 2018.

The government did not provide information with regard to the costs of the capacity reserve for consumers. It only said that the capacity reserve would back-up the Energy Market 2.0. (in which for the most part intermittent renewable energy sources shall provide power). Lately the newspaper Frankfurter Allgemeine Zeitung (FAZ) said payments would be in the mid to upper triple-digit million range. Information on compliance of the agreement with European state aid law was also not provided.

2. Higher Support for CHP Plants

The CHP law shall be amended to promote CHP plants so that in particular existing hard-coal fired CHP plants are replaced by gas-fired CHP plants and in favour of  a “moderate” promotion of new build. This shall contribute another 4 million to the goal of saving 22 million tonnes of CO2.

Nothing was said with regard to the costs that were said to drive up the CHP surcharge from 0.25 ct/kWh to 0.75 ct/kWh for consumers by media sources like FAZ prior to the decision. On the other hand the government mentions that the plans intend to help municipal utilities. This raises questions with regard to state aid implications.

3. More Support for Energy Efficiency Measures

The remaining CO2 reduction needed towards the 22 million tonne goal, i.e. savings in the amount of  5.5 million tonnes shall be effected by CO2 savings in the building sector, by municipalities, the industry and railroad operators as of 2016. It will be promoted by EUR 1.16 billion annually until 2020.

While this measure has at least a price tag it remains largely unspecific yet.

4. Grid Expansion

Regarding the urgently needed grid expansion to accommodate the growing amount of renewable energy, the government said that underground cables will have priority over overhead cables on the new HVDC power lines needed (for more information on the projects, please see here). To what extent this applies is still unclear. In an interview with the TV station ARD, Energy Minister Gabriel said with regard to concerns especially in Bavaria against the new power lines that for some of the planned power lines (overhead) cables could be laid on existing power poles.

At any rate underground cables will increase costs. Besides the technology has not been much tested yet, first projects have only just started.

5. Provions for Nuclear Power Exit

In April the utility E.ON announced to split into a “new E.ON” that will focus mainly on renewables and a new company called Uniper that will take over the conventional power business including the nuclear power plants that are phased out in Germany in a staggered manner by 2022. This sparked concern whether the provisions made by nuclear power plant operators for nuclear decommissioning and waste disposal are sufficient to cover costs and whether utilities might avoid payments by splitting up (for more information, please see here and here).

Yesterday the government announced that it wanted to ensure “that the utilities cannot avoid their responsibility for dismantling nuclear power plants and the storage of nuclear waste”.

To this end the government wants

  • to carry out a stress test to evaluate the provisions;
  • to adopt (this year) legal provisions that counteract a decrease of the provisions;
  • to set up a commission that shall make recommendations by end of November 2015 how to safeguard the provisions in the long-run.

Sources: Federal Ministry of Economics and Energy; ARD; Merkur

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