RWE Lignite Plants May Form Half of German Power Reserve

Updated on

Lignite-fired power plants owned by RWE AG, Europe’s largest carbon emitter, may make up half of a reserve to back up wind and solar generation in Germany.

The distribution of the power-capacity reserve may take place according to the share of lignite generation in the nation, Matthias Hartung, chief executive officer of RWE Generation, said Tuesday in Bergheim, Germany. The company’s lignite plant availability rose 5 percent from a year earlier in the first quarter to 93 percent.

Germany’s government parties reached a compromise July 2 to cut carbon emissions by giving some of the dirtiest lignite plants until 2021 to shut permanently. The country is making an unprecedented shift to renewable energy to meet climate targets, driving down wholesale electricity prices and eroding the profitability of traditional utilities that run coal, gas and nuclear plants.

“I really don’t know which of our blocks will qualify,” Hartung said at a conference. “This is something we have to negotiate in the next half year.”

RWE assumes the reserve’s 2.7 gigawatts will be distributed approximately according to the current share of lignite power generation in Germany, Hartung said in prepared comments.

Emission Permits

From 2017, lignite plants can apply for inclusion in the reserve, where they are paid to supply electricity in times of power shortages. While the reserve plants will be barred from selling electricity on the market, they won’t have to buy extra European Union emission permits from that year, as originally planned for coal-power plants that are more than 20 years old. Parliament still must ratify the decision this year.

Shares of RWE rose as much as 6.4 percent, the most since January, on July 2 after the government plan was made public. They fell 2.9 percent to 19.63 euros ($21.64) in Frankfurt trading by 2:08 p.m. local time Tuesday, more than the 0.6 percent drop by the Stoxx 600 Utilities Index.

RWE said being required to buy the additional carbon permits would have resulted in the closing of 17 of its 20 lignite plants and two of its three open-cast mines. The company produced 208.3 billion kilowatt-hours of electricity in 2014, with lignite forming the largest share at 37 percent and renewable energy contributing 5 percent.

A lignite plant in the reserve might operate for only 5 percent of the time it was used beforehand, meaning RWE will also purchase fewer carbon permits for those stations, according to Hartung.

“We will buy CO2 certificates depending on how much we produce,” he says, adding that need for lignite mined in the area will also decrease. RWE also estimates that the phasing out of lignite may lead to 1,000 job losses in this decade.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE