RWE, Vattenfall Lignite Plants to Enter $1.8 Billion Reserve

  • Eight blocs to enter capacity reserve in steps from 2016
  • Move to cut CO2 by 12.5 million tons by 2020 but protect jobs

Germany forged an accord with three utilities to relegate some of their dirtiest power plants to the nation’s reserve generating capacity to help cut carbon pollution and avert blackouts.

Over seven years from the winter of 2016, eight lignite power plants owned by RWE AG, Vattenfall AB and Mitteldeutsche Braunkohlegesellschaft mbH will be placed in stages in the reserve to create a 2.7-gigawatt backstop, the Economy and Energy Ministry said Saturday. The utilities will be paid about 1.6 billion euros ($1.76 billion) in all to keep the plants offline except in an emergency when power demand exceeds supply, it said. The ministry didn’t name the plants.

Chancellor Angela Merkel’s government has said it has a threefold aim in keeping some of German energy generation’s biggest polluters offline without shutting them down: cutting carbon emissions to meet its climate pledges, setting up a backstop against outages as clean energy expands and finally to assuage utilities that might otherwise shut down plants and fire workers.

The measures are key to “achieving our climate goal and at the same time ensure that negative structural changes are prevented in the regions affected,” Economy Minister Sigmar Gabriel, a Social Democrat, said. The accord “is a good and feasible solution for the employees and the companies.”

Union Support

The government wants to phase out lignite power, which accounts for about 25 percent of electricity generation. That has faced stiff opposition from unions and several German states where lignite is mined and burned in power plants including North Rhine-Westphalia, home to several RWE plants, and Brandenburg and Saxony, where Vattenfall and Mibrag plants are sited. Mibrag’s 350-megawatt plant in Buschhaus will join the reserve on Oct. 1 2016, affecting 480 employees, the company said by e-mail.

Germany’s IG BCE labor union welcomed the plan, even as it urged the companies not to impose forced redundancies on employees.

“The principle of social acceptability should not come into question,” IG BCE Chief Michael Vassiliadis said in an e-mailed statement. “This concrete agreement means that the time of uncertainty for both the employees and the companies is now over.”

One Vattenfall unit in the town of Jaenschwalde will be part of the capacity reserve from 2018, with another one being added from 2019, someone familiar with the terms of the accord told Bloomberg News on Friday, before the formal announcement. RWE meanwhile agreed to include five 300-megawatt plants spanning sites in Frimmersdorf, Niederaussem and Neurath, it said today in a statement.

“It hits the company hard and means a huge burden for our employees,” RWE Chief Executive Officer Peter Terium said in the statement. “This transformation has to happen without any structural disruptions. It must not demand too much of the companies, their employees and the affected regions.”

By keeping the plants offline, Germany will cut carbon dioxide emissions by 12.5 million tons by 2020, Gabriel stated. Germany has pledged to emit 40 percent less CO2 in 2020 than it did in 1990. It’s achieved a 27 percent reduction so far.

The utilities had free rein in selecting the plants, the first of which will enter the reserve on Oct. 1 this year and the last of which will join on Oct. 1, 2019. Each bloc or plant will stay in the reserve for a maximum 4 years before being decommissioned, it said.

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