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German coal exit will have limited price impact - traders and analysts

German coal exit will have limited price impact - traders and analysts
FILE PHOTO: Water vapour rises from the cooling towers of the Jaenschwalde lignite-fired power plant of Lausitz Energie Bergbau AG (LEAG) beside a wind turbine in Jaenschwalde, Germany, January 24, 2019. REUTERS/Hannibal Hanschke   -   Copyright  Hannibal Hanschke(Reuters)
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FRANKFURT (Reuters) – The price effect of Germany’s roadmap for an exit from coal mining and burning by 2038 is likely to be limited because the extent of coal plant closures was largely expected, traders and analysts said on Monday.

A government-appointed commission on Saturday proposed to more than halve coal-burning capacity by 2030 and to retire carbon emissions permits in tandem with plant capacity.

While tighter coal power supply would be bullish, price effects will be offset by increased expansion of renewables such as solar and wind power, where production costs are falling, said the German arm of UK researchers Aurora.

“Our analysis shows that the implementation of the decisions could result in a 3.5 to 4 euro (3.03 -3.47 pounds) higher power price per megawatt hour (MWh),” said Hanns Koenig, analyst at the Aurora’s Berlin office.

“Barring uncertainties about prices of gas, hard coal and carbon, cost effects will be manageable.”

The proposals require the hard coal and brown coal fired capacity of a total 43 gigawatts (GW) in 2018 to be cut to 17 GW by 2030, with 12.5 GW already closing between 2017 and 2022.

At 1200 GMT, annual wholesale power prices quoted by Thomson Reuters, which set European benchmarks, were 49.80 euros for 2020 delivery of round-the-clock supply, 48 euros for 2021 and 49.60 euros for 2022.

Analysts at Berlin energy consultancy Enervis also used the 2038 end-date in a calculation comparing likely wholesale prices should plants retire because of age or inefficiency with those expected if there is no intervention.

The enforced closures will add 2.50 euros to prices by 2022, 3 euros in 2030, and 3.50 euros by 2040, Enervis said.

“However, there will be significant carbon (offsetting cost) savings arising from significantly lower coal-to-power generation,” said Enervis analyst Mirko Schlossarczyk.

The level of CO2 emitted will be 34 million tonnes less by 2022 and 67 million tonnes less in 2030 under the proposals, Enervis estimated.

German utilities are among the biggest buyers of CO2 allowances in the European Emission Trading System.

Under the plans, however, the coal commission recommended that the government cancel carbon credits linked to the phasing out of coal to offset lower demand for permits.

“The announcement should have a limited effect on carbon,” said Refinitiv carbon analyst Hege Fjellheim.

The benchmark European carbon contract was down about 4.4 percent at 22.88 euros a tonne, which traders attributed to high auction volumes.

(Reporting by Vera Eckert, Susanna Twidale in London and Bate Felix in Paris; Editing by David Goodman)

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