VGB POWERTECH 7 (2021) - International Journal for Generation and Storage of Electricity and Heat

VGB PowerTech 7 l 2021 White Paper: German coal phase-out 360°
north, coinciding with nuclear and coal
phase-outs in the south. The reserve payments
for the grid reserves are also determined
in the phase-out tenders.
A second option is to be selected as ‘capacity
reserve’(EnWG 13e), which is based on
tenders for 2-year periods. Capacity reserves
follow behind the power and balancing
markets to be activated, in case clearing
actions cannot be found in these markets.
Capacity reserve plants receive payment
for the available capacity from the tender
process and are compensated for operational
costs upon activation. The next tenders
for capacity reserve to serve between
October 2022 to 2024 will be held on December
2021.
Issues
Such a fundamental change in the power
supply will have consequences in both
wholesale and balancing markets and requires
smart allocation of the resources.
There are concerns regarding to security
of supply, grid stability and electricity
prices.
1. € 4.35 billion compensation
for RWE and LEAG
The compensation amounts attracted
many strong objections, stating that these
companies are being favoured against the
law and free market competition, specifically
due to the government not disclosing
the agreements, initially. Many argue that
with the increasing carbon prices and further
renewable penetration, coal plants
would not be able to compete in the market
sooner than the phase-out plan. In March
2021, the European Commission started an
in-depth investigation for the compensations
to these companies, in the context of
state-aid and competition regulations of
European Single Market.
On the other hand, Uniper has recently announced
its intention for legal proceedings
against the Netherlands’ government for
the coal phase-out without compensation
under Energy Charter Treaty (signed by 58
parties around the globe including the
EU). France, Spain and Belgium already
made a call to leave the treaty due to its incompatibility
with the European laws and
Paris Agreement, yet as of now the treaty is
binding.
2. The Datteln 4
Datteln 4 is a 1.1GW hard coal power plant
which was commissioned in June 2020,
since the authorization for commissioning
was given before the phase-out plans. There
was an effort to stop it going online, but the
government could not come to an agreement
with the operator. Since it is more efficient
and has lower emissions than older
plants, the decision was to keep the facility
and launch special tenders in 2023, 2024
and 2025 for the additional phase-out capacity.
The plant is owned by Uniper which
Installed capacity targets EEG 2021,
WindSeeG in GW
100
90
80
70
60
50
40
30
20
10
0
Onshore wind Offshore wind PV Other renewables Hydropower
Fig. 4. Current and future development of installed renewables capacities in Germany.
has publicly expressed its intentions to keep
the asset in operation until 2038.
3. Energy-only-market principle
is at stake
Stand-by/security of supply reserve was to
end by 2023 with the final decommission
of the last lignite reserve block. However,
with the coal phase-out law (KVBG), it was
decided to continue this reserve type and
include further lignite power plants. The
estimated additional cost of keeping the
stand-by/security of supply reserve is
around € 4 billion for the other lignite units
to be decommissioned, which is recuperated
through network charges.
Green and Left parties strongly criticised
the reserve due to the remunerations and
technical unsuitability of the plants for the
purpose. The government was accused of
creating further opportunities, to pay more
money to the lignite power plants, without
calling it compensation. It was stated that
the power plants are not technically capable,
to provide fast enough ramp-up in case
the need arises.
Capacity reserve tenders will be open to
coal power plants that are to be decommissioned.
EU Competition Commission has
already stated, that the reserve procurement
mechanism is not well suited for the
purpose of minimizing capacity reserves,
since it became an economically attractive
alternative for the power plants.
In general, there are 4 different reserve
types some of which are and will be shielding
coal power plants from facing market
conditions. The presence and further expansion
of such reserves fundamentally
conflict with the Energy-only-Market principle,
which was the cornerstone of the
market design enabling the integration
of the renewables in the first place. As the
reserve costs are reflected as grid-costs
and get transferred to the end-consumer,
they can potentially distort market behaviour
of balancing parties achieving energy-only
results and makes the market
more dependent on top-down actions,
which conflicts with the principles of unbundling.
4. Feasibility of planned
renewable development
Germany’s plan is to reach 65 % renewable
share in the electricity fuel mix, for recovering
the generation capacities left by the
coal and nuclear phase out (F i g u r e 4 ).
There will be a massive effort for the necessary
development from both economic and
technical aspects. Public and communal
ownership of the wind facilities will be
strongly promoted, in addition to rooftop
PV.
The Federal Audit Centre (Bundesrechnungshof)
has accused the government of
not being competent to run an economically
feasible Energiewende. Stating that
associated phase-out plans are endangering
the competitive edge of the German
industry and security-of-supply.
As of 2020, many of the renewable facilities
come to the end of their subsidy periods
and the facilities without any subsidy
will increase rapidly each month. For most
of them, it will not be possible to continue
operation due to the market conditions. In
response to such high compensation levels
for the coal power plants, some argue that
these resources could be allocated to the
renewable assets which are still physically
fit enough to continue operation or used
for more aggressive development of the renewables
which is needed for the EEG and
climate targets.
Grid congestion management with feed-in
measures and redispatch is a common
practice by now, yet necessary grid expansion
should take place as fast as the renewable
development as the current congestion
management cannot be a long-term
and efficient solution.
Renewable absorption capacity of the grid
is another major concern. There are grid
stability reserves ~1.2 GW, which were introduced
in 2019 and designed in 12 batch-
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