EU clears auctions to retire German hard-coal plants; electricity price concerns fail to materialise

The European Commission on Wednesday approved a system of auctions under which owners of German coal-fired power plants will be compensated for their early closure. In the European Commission’s view, the proposal will not undermine competition in the internal energy market, while the auctions will ensure that state aid is kept to the minimum possible.

Germany has managed, almost at the last minute, to remove a key obstacle in its plan to gradually phase out hard-coal power plants and smaller lignite power plants (with installed capacity of up to 150 MW). Although the auction, in which plant operators competed for financial compensation for their closure, was held as early as August, its implementation had been uncertain due to the lack of European Commission approval. The plants are due to be shut down from 1 January 2021.

As late as Wednesday morning, it was unclear whether European Commission approval would be issued in time at all. Some analysts were already speculating about how a potential delay in the closure of coal-fired power plants could be reflected in electricity prices at the start of next year.

“There is a chance that January electricity prices could fall further if the closure of coal-fired power plants were delayed. If the plants remained available, the likelihood of price spikes would decrease,” a German trader told Montelnews.com before the European Commission’s approval was announced.

For now, the European Commission’s approval applies only to hard-coal power plants and lignite power plants with a maximum installed capacity of 150 MW. The Commission will still assess compensation for lignite power plants above 150 MW, which is being negotiated bilaterally between the government and operators, and it will be approved separately.

Power plants to be shut down from 1 January 2021

Based on the August auction a total of 4 GW of installed capacity is to be shut down, at a maximum price of 165 000 EUR/MW. Germany’s energy regulator is expected to publish the auction results in early December.

The plants are to be shut down from 1 January 2021, while for six months they will remain available to transmission system operators to provide ancillary services. They will be fully decommissioned from 1 July 2021.

Under the auction rules, power plants in southern Germany were not allowed to participate due to concerns over security of supply. The auction therefore included Vattenfall, for example, which offered its modern 1.6 GW Moorburg power plant for closure. The plant only entered operation in 2015.

Featured photo: Moorburg hard-coal power plant. Source: Vattenfall