The beginning of the end for coal-fired power generation - first steps towards a coal exit law

(Cologne, 05 November 2019)

In January 2019, the Coal Commission appointed by the Federal Government presented its proposals for shaping the structural change in Germany arising from its energy and climate policy. As an essential measure, it recommends ending coal-fired power generation by 2038 at the latest. This proposal follows a first - as yet not officially published - working draft of the Federal Ministry of Economics and Technology [Bundeswirtschaftsministerium, BMWi] for a Hard Coal Exit Act [Steinkohle-ausstiegsgesetz]. A gradual reduction of coal-fired power generation by 2038 is planned, which is to take place in particular in the form of tenders and decommissioning premiums. An official draft bill is already expected this autumn.

The focus of the working draft is the gradual phase-out of hard coal. In contrast, the phase-out of lignite is not regulated in the draft of the Hard Coal Exit Act, as this is to be reserved for a separate, cooperative procedure. Specifically, the phase-out of hard coal is primarily to be achieved on a voluntary basis through tendering and, subordinately, through a statutory reduction. In addition, the phase-out of hard coal is secured through bans on the use of freed generation capacities for coal-fired power generation as well as bans on the construction of new hard coal-fired power plants. According to the draft, the exit is to take place in three phases, pursuant to which the market performance of the hard coal-fired power plants shall be reduced to

• 15 gigawatts by the end of 2022,
• 8 gigawatts by the end of 2029 and
• to zero gigawatts by 2038 at the latest.

First critical voices have been raised, complaining that the legislative process is too long and that the timetable recommended by the Coal Commission is at risk.

The tendering procedure
The annual tendering procedure provided for in the working draft is intended to encourage hard coal-fired power plant operators to voluntarily surrender generation capacities by granting them hard coal compensation in return. To this end, the operators offer a bid value - composed of the generation capacity to be surrendered (bid quantity) and the chosen price - which they will generally receive if awarded the contract, provided that it does not exceed the maximum price limit. The maximum price will decrease continuously over time, providing a financial incentive for operators to surrender generation capacity as early as possible.

The tender process initially begins with the German Federal Network Agency ["Bundesnetzagentur, BNetzA"] determining the tender volume for each tender date. Based on the total output of the hard coal plants, this is the output quantity to be reduced in the year in question on grounds of Hard Coal Exit Act. It is possible for the tender volume to be zero or negative if the desired power reduction has already been achieved without a tender. In this case, no tendering procedure will be conducted in that year. Approximately three months before the respective bid date, the BNetzA will announce the invitation to tender on its website and, in particular, disclose the bid date, the bid volume and the maximum price. It will award the contract up to the first plant which exceeds the tender volume. If the volume is actually exceeded, the power plants with the lowest price per emission saved shall be awarded the contract. In the event of a shortfall, all operators are awarded the contract. Once the contract has been awarded, the operators are prohibited from using the generation capacity surrendered.

The circle of participants eligible to submit a bid is basically composed of all operators of hard coal plants. This fundamentally presupposes that the respective owners of the plants verifiably agree to the bidding and that a collective agreement or similar provision can be proven for the operating companies. In addition, the operator must make a binding declaration to the Federal Office of Economics and Export Control [Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA] that it will waive the coal substitution bonus of the German Combined Heat and Power Act [Kraft-Wärme-Kopplungsgesetz, KWKG] in the event it is awarded the contract for the plant in question (conditional waiver). Furthermore, the working draft explicitly provides that the following plants are not eligible to participate:

• Plants for which a binding notice of decommissioning or a notice prohibiting the use of coal for electricity generation has been submitted in accordance with § 9 (1) of the Hard Coal Exit Act,
• Plants which have been awarded a contract pursuant to § 18 of the German Capacity Reserves Ordinance [Kapazitätsreserveverordnung, KapResV],
• Plants for which final decommissioning has been notified pursuant to § 13b (1) sentence 1 German Energy Management Act [Energiewirtschaftsgesetz, EnWG] or for which final decommissioning has been prohibited pursuant to § 13d or § 13e EnWG, and
• Plants which have already been awarded a contract within the framework of a tender or for which the statutory reduction was ordered.

Plant operators already need to give some thought now to the right time for a decommissioning notification. In the phase following the submission of a bid, the BNetzA may exclude a bid from the procedure if a bidder has deliberately or grossly negligently submitted a bid with false information or evidence. In addition, it excludes bids if these do not comply with the requirements and format specifications of the tendering procedure and the specifications of the BNetzA or contain conditions or time limits. Furthermore, it is not permissible for a bid to cover more than one coal-fired plant or only part of the net nominal capacity of a plant.

The statutory reduction
The draft law provides that, at an as yet unspecified point in time, the further process of statutory reduction will be conducted in addition to the voluntary tendering. Here, the BNetzA itself will be authorised to order an annual reduction in generation capacity for coal-fired power plants, which will result in a ban on coal-fired power generation in a corresponding amount. The basis for the arrangement is a previously determined reduction quantity and a list of coal plants sorted according to their age. On the basis of this list, it orders operators - starting with the oldest plant - to reduce their power generation until the striven target reduction quantity has been achieved. In terms of time, the statutory reduction will initially only be applied in cases where the volume falls short of the volume specified in the invitation to tender. From a later date, however, the statutory reduction will completely displace the tendering procedure until hard coal generation has been phased out completely. Affected operators can oppose these orders by means of administrative and judicial proceedings. The provisions of the EnWG concerning procedures and legal protection shall apply accordingly. Legal remedies are not to have suspensory effect, which means that, if need be, judicial interim protection could be necessary.

What further steps will be taken by the legislator and an official draft law on the coal exit remain to be seen.

We will be happy to advise you.

Back to list