Following the recent announcement by Germany to shut down all its coal fired plants by 2038,

Mohit Prasad, Power Analyst at GlobalData, a leading data and analytics company, offers his view on the impact of this decision on the country’s power market

“Germany has closed 12 out of 19 nuclear power plants till date meaning the country must rely on renewable energy to provide 65% to 80% of their power by 2040; however currently it accounts for 41% of the country’s electricity, overtaking coal as the leading source of energy.

“The country will require investment of around $45bn to mitigate the dependence on coal fired plants which accounts for 40% of Germany’s electricity production. The coal fired plants account for more than 25% of Germany’s CO2 emissions which is more than that of the Netherlands and Austria combined. Germany has the largest fleet of coal fired plants in Europe, making the phase out process more significant.

“The panel recommended a mutual agreement with the operators on a contractual basis with regard to the shutdown which would also include the size of compensation. The compensation would be applied to plants in operation and those that have not yet entered service and still being built. The compensation should depend on the ownership structure, linkages with mines, CO2 emissions by the plant and the respective number of affected employees. Compensation for companies and consumers paying more for electricity due to the phase out is estimated at €2bn a year, with the exact amount to be set in 2023.

“The commission also recommended the utilities to scrap plans to clear the last 250 acres of the Hambach Forest, west of Cologne, for a lignite open pit mine. Apart from that, easing of regulation on construction of new gas fired plants which could replace the coal fired plants at the same location has also been recommended by the panel.

“In providing the recommendations the panel worked towards Germany’s existing climate goals to cut the greenhouse gas emissions of 55-56% below the 1990 by 2030. This is within the EU goal to cut emissions by at least 40% below the 1990 levels by 2030. So this coal exit program would help the country to push the rate of achieving the emissions target.”