Is Germany going brown?

Published by MAC on 2013-05-07
Source: Reuters

Germany's clean energy drive fails to curb dirty brown coal

By Vera Eckert and Christoph Steitz

Reuters

26 April 2013

Germany's green energy drive is proving surprisingly good for dirty brown coal as utilities squeezed by rival renewables and low wholesale gas prices use more of it.

East Germany was a huge user of brown coal, or lignite, and Germany remains the world's biggest producer, but its use poses a problem for Berlin's environmental plans.

Limiting brown coal use is politically difficult, however, with 20,000 mining and utilities jobs involved and any move that could raise already high energy bills for consumers a risky gambit ahead of federal elections in September.

Coal also remains important to profits at utilities such as RWE and the German arm of Sweden's Vattenfall.

"Lignite load factors have remained high and gross margins held up better than for other fuels," JP Morgan analyst Vincent de Blic said.

RWE mines its own lignite and relied on it for 36 percent of its electricity production last year.

Coal helped RWE's power generation unit to a 14.1 percent rise in profits and prompted the company to add more as it started output at a 2.1 gigawatt twin-unit lignite-powered plant in Neurath near Cologne.

Despite Germany's green energy drive, which subsidizes renewable wind and solar energy and aims to drop nuclear power, the country mined 5.1 percent more brown coal in 2012, industry association Debriv data showed.

Brown coal-fired plants also produced 6 percent more power, the 159 billion kilowatt hours (kWh) accounting for 25.7 percent of Germany's power production, industry figures showed.

Germany needs nuclear, coal or gas for so-called base power to ensure steady supply alongside volatile wind and solar energy.

And it is coal that is winning out because German utilities can turn a profit using it to generate electricity, something they are failing to do with gas.

"Gas-fired capacity is being crowded out by wind and solar and, paradoxically, by coal-fired capacity," E.ON Chief Executive Johannes Teyssen said last month.

E.ON, Germany's biggest utility, is less exposed to coal than RWE, however, using lignite to fire just 6 percent of its generation last year. The German arm of Vattenfall relied on it for 31 percent of its power.

Dark or Spark?

While brown coal mining grows, Germany by 2018 plans to phase out mining hard black coal, which provides around 20 percent of the country's power using mostly imported supplies.

Power generators currently can earn more than 10 euros per MWh for benchmark 2014 power derived from hard coal while using gas means making a loss of almost 14 euros per MWh.

Using cheaper lignite is even more profitable at more than 20 euros per MWh, according to Morgan Stanley and JP Morgan analysts.

Current low prices for permits which utilities and manufacturers must purchase to offset their carbon output is also buying "dirty" utilities more time.

Yet Germany's environmental targets will eventually require it to rein in brown coal - which has a CO2 intensity of 1,153 grams per kWh versus 428 grams for natural gas, according to figures from the OekoInstitut, Germany's institute of applied ecology.

RWE's Neurath and Niederaussem lignite power stations are the second and third largest CO2-emitting installations in the European Union.

While Germany's carbon output held steady in 2012 helped by improved energy efficiency, its broader emissions (of gases monitored under the Kyoto Protocol) rose 1.6 percent partly due to pollution from brown coal.

Analysts say one possibility is that Germany might introduce a tax aimed at ensuring those cashing in on lignite help fund the country's 550 billion euro ($715 billion) shift to low carbon energy.

"The greatest risk following this year's elections in Germany could be an increase in the nuclear fuel tax and a new tax on lignite," said Kepler Capital Markets analyst Ingo Becker, adding such a move would likely hit the share prices of utilities such as RWE.

($1 = 0.7689 euros)

(Editing by Jason Neely)

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Merkel: action needed on reforming CO2 trading

Reuters

3 May 2013

HAMBURG - German Chancellor Angela Merkel said on Friday economic growth assumptions behind the European Union's carbon permit trading system no longer applied and action should be taken about backloading supply in the market after September's election.

The news of Merkel's first cautious backing for reform seeking to boost prices in the EU's flagship emissions trading system (ETS) sent carbon prices sharply higher, as traders interpreted it as likely support for the passing of the plan.

December delivery carbon emissions allowances were at 3.43 euros a ton at 1141 GMT, up 11 percent.

"All of the assumptions about trading certificates no longer apply," Merkel said at a church event in Hamburg, adding that growth estimates had been over-optimistic and a Europe-wide downturn led to shrinking demand for permits and falling prices.

Merkel did not specify what should be done about backloading but said it should be twinned with a reform of Germany's renewable energy law which generously subsidizes green energy.

This would not be possible before September's federal election but should be done very quickly afterwards, she added.

Her environment and economy ministers' failure to agree with each other on a common stance for backloading at European level contributed to its initial rejection by the European Parliament.

The highly political issue is being pursued further by the European Commission. But German inaction may mean attempts to rescue the market drag on.

Commission estimates put the necessary ETS carbon price at 20 euros to be able to drive investment in clean technologies.

Because of failings in the ETS, there are now mismatches in the market whereby heavily CO2-polluting coal-to-power stations work profitably while gas burning technology, which is cleaner, has become too expensive.

"This cannot be right, we have to restore some form of order," Merkel said, adding that another problem of low prices was that an ETS-financed German instrument to support climate protection measures was underfunded.

Germany's shift away from nuclear and fossil fuels towards emission-free technology was being watched worldwide, she said, adding: "Its success has a significance far beyond Germany."

(Reporting by Andreas Rinke; writing by Stephen Brown and Vera Eckert; editing by Keiron Henderson)

(This story was refiled to drop reference to European legislation in the eighth para)

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Industrialized nations' greenhouse gas emissions dipped in 2011

By Environment Correspondent Alister Doyle

Reuters

26 April 2013

OSLO - Industrialized nations' greenhouse gas emissions dipped 0.7 percent in 2011, helped by a U.S. shift from high-polluting coal in power plants and by Europe's economic slowdown, data compiled by Reuters showed on Friday.

For many years it has been a mantra that rich nations, historically the top polluters, should make the biggest cuts in emissions while emerging economies could burn more energy to help lift them from poverty.

But figures based on submissions by 42 industrialized nations this month used to judge compliance with U.N treaties underscore how continued worldwide growth in emissions is increasingly led by China and other emerging economies.

Combined emissions in the 42 countries slipped to 17.1 billion tons in 2011 from 17.2 billion in 2010. That was down 6.4 percent from levels in 1990, the U.N. benchmark year for judging progress in combating global warming.

"For the United States, it's mainly a shift from coal to gas in power plants," said Steffen Kallbekken, research director at the Center for International Climate and Environmental Research, Oslo, said of the 2011 numbers.

"For Europe it's primarily weak economic activity," he said. Industrialized nations are trying to cut emissions, mainly from burning fossil fuels, to curb a rise in temperatures and avert heatwaves, floods, droughts and rising sea levels.

Senior government officials from around the world will meet in Bonn, Germany, next week for a new round of negotiations on an emissions deal that is meant to be agreed in 2015 and enter into force in 2020.

The last attempt at an accord failed in Copenhagen in 2009.

In the United States, the world's No.2 emitter behind China and ahead of the European Union, greenhouse gas emissions dipped to 6.67 billion tons in 2011 from 6.79 billion in 2010.

That put U.S. emissions 7 percent below their 2005 levels. President Barack Obama wants a cut of 17 percent from 2005 levels by 2020 but has lacked support for that drive in the Senate.

European Union emissions fell by 3.3 percent in 2011, according to official accounting of gases ranging from carbon dioxide to methane.

That means EU emissions were 18.5 percent below 1990 levels in 2011, apparently on target for a promised cut of at least 20 percent by 2020 despite a plunge in the price of carbon dioxide on an EU market that has removed a main spur to action.

Elsewhere, emissions rose in 2011 in nations including Russia, Japan and Turkey. They were little changed in Canada and Australia.

China Rises

The unexpectedly rapid rise of emissions in China and other emerging economies such as India and Brazil in recent years is pushing up global emissions and complicating talks among 200 nations on a new U.N. accord aiming to slow climate change.

Emerging economies are not obliged to submit annual emissions data to the U.N Climate Change Secretariat.

But other studies show that worldwide emissions are rising. A Global Carbon Project, for instance, estimates that world emissions from fossil fuels and cement grew by 3 percent in 2011 and by 2.6 percent in 2012.

It says China's surging emissions were responsible for most of the global growth.

"Per capita emissions of China are now pretty much on the same level as those in the EU," said Jos Olivier, senior scientist at the PBL Netherlands Environmental Assessment Agency.

(Reporting By Alister Doyle; Editing by Hugh Lawson)