EU approves German coal phase-out tender mechanism

26/11/2020 08:42 Coal

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The European Commission today said Germany's coal phase-out tender mechanism to compensate operators for early closures promotes climate objectives and is in line with state-aid rules. But it said it will investigate the mechanism for closing lignite-fired plants.

German regulator Bnetza is due to release the results of the first tender, which closed on 1 September, on 1 December. Bnetza sought to allocate up to 4GW of coal-fired capacity closures at a maximum price of €165,000/MW.

 

"Competitive tenders are an effective tool to ensure compensation is kept to the minimum needed and ultimately to avoid an undue distortion of competition in the EU's single market," commission executive vice-president Margrethe Vestager said.

 

The tender mechanism should allow Germany to eliminate the highest amount of CO2 emissions from the market at the lowest cost, and avoid closing plants essential for network stability, the commission said.

 

Winners of the first tender must retire their plants from the wholesale market on 1 January. The units will be available only to TSOs for balancing until the end of June. These operators will cease burning coal for power generation from July.

 

Swedish utility Vattenfall said in September it bid to close its 46.5pc-efficient Moorburg plant in the Hamburg region, claiming the plant is not system-critical.

 

Steag told Argus it also bid, but did not disclose details. Coal-fired units in the south could not participate in the first tender for supply security reasons, so any Steag bids would not have been for units in the Saar area.

 

Lignite phase-out

 

The commission's decision does not cover the phase-out of lignite-fired plants with a capacity of more than 150MW.

 

Germany aims to phase out lignite-fired plants by 2038 and the commission is to investigate a state-aid investigation into this.

 

RWE's 300MW lignite-fired Niederaussem D plant is due to close on 31 December under the phase-out mechanism.

 

Coal under pressure

 

Coal-fired generation has been mostly unprofitable this year and the trend is poised to continue.

 

Working day-ahead clean dark spreads for a 40pc-efficient plant have averaged minus €3.32/MWh, against €0.98/MWh in 2019, Argus data show. Even spreads for a 46pc-efficient unit have been narrow, at €1.36/MWh.

 

Coal-fired output has averaged 3.53GW, down from 5.12GW last year. It hit its lowest for any hour in April, at 606MW. The drop reflects coal-to-gas switching, higher EU carbon allowance values, higher renewable output and lower power demand, particularly in the second quarter.

 

Coal-fired generation remains at the margin of the merit order, but could move up if wind power falls and heating demand is spurred by a colder than average winter.

 

Breakeven costs for a 46pc-efficient unit in the first quarter of 2021 have averaged €33.82/MWh this month, below the €37.95/MWh average outright power price. But the cost for a 42pc plant has averaged €38.89/MWh, leaving these likely to stay priced out on a base-load basis.

 

Breakeven costs for a 40pc unit for 2021 delivery have averaged €39.26/MWh this month, against a €38.98/MWh outright power price. But costs for these units for 2022 base-load delivery have averaged €40/MWh, €2.82/MWh below the outright price.

 

Lignite-fired plants are also under pressure. Working day-ahead clean lignite spreads for a 43pc unit — the highest efficiency for these plants — have averaged €3.32/MWh this year, down from €11.66/MWh in 2019.

 

source:argusmedia.com

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