Germany: Coal phase-out is proceeding without a ban and faster than planned

Germany has been gradually phasing out coal-fired power generation in recent years. To achieve this goal, the government has taken various steps, including paying compensation to operators of coal-fired power plants for shutting them down early. Since this year, Germany’s network regulator can even order some coal plants to cease operations. According to the regulator, however, such a measure is not currently necessary, as the country is several years ahead of schedule in shutting down coal-fired power plants.

More than five years ago, Germany set an ambitious goal of shutting down all coal-fired power plants by 2038 at the latest. About a year later, the government presented a specific timetable for lignite-fired plants, whose operators negotiated compensation directly with the government. Operators of hard-coal and small lignite-fired plants, meanwhile, compete for compensation in auctions. The closure of large lignite-fired plants has significant social implications, as the entire industry supply chain employs a considerable number of people.

While the 2038 deadline is binding for Germany, coal-fired power generation could end as early as the end of this decade if conditions are favourable. The recent energy crisis that affected European energy markets in recent years introduced some uncertainty about the possibility of an early end to coal. However, after gas and electricity prices fell last year, calls for an earlier end to coal began to be heard again.

The coal phase-out is so far proceeding without a direct ban

Germany’s network regulator, Bundesnetzagentur, announced at the beginning of the month that coal-fired plants are being shut down, even faster than planned. According to the regulator, by September this year Germany had already shut down enough coal-fired power plants for installed coal capacity to fall below the statutory target level for 2027.

The regulator defines this level as the amount of nominal capacity from small hard-coal and lignite-fired power plants that is still legally permitted to operate in the relevant target year. Having reached it means the regulator does not have to force selected plants to cease operations. In that case, plants would be selected according to their age and required to stop operating within 30 months of the order being issued.

Despite the closure of coal-fired plants, the regulator says security of electricity supply is assured. The transmission system operators must assess every planned plant closure in terms of its importance to the grid. In some cases, plants may therefore be transferred to the grid reserve instead of being permanently shut down.