Germany Starts Bidding Process to Phase Out 4 GW of Coal-Based Projects

The coal projects will be eligible for compensation against phase-out

September 4, 2020


Germany’s power regulator, Bundesnetzagentur, has received bids from coal-based electricity generators keen on phasing out their capacities against a compensation.

In a statement, Bundesnetzagentur said that a maximum of 4,000 MW would be eligible for compensation. Bidding will be on the amount it needs to pay for every MW of retired capacity in terms of the volume of carbon dioxide these projects generate.

In July this year, the German government passed a law to end coal-fired power generation by 2038. The law includes ways of retiring coal and lignite-based power projects by compensating generators against losses. The country plans to invite similar bids until 2027, and projects with capacities starting from 150 MW would be eligible for phasing out polluting projects.

Recently, Bundesnetzagentur announced that Germany installed  447 MW of solar capacity in July 2020, an increase of 11 MW (2.2% increase) from June 2020. As per the data released by the federal agency, the total cumulative capacity at the end of July reached 51.98 GW. Nearly 2.4 GW of solar installations was added in the first half of the calendar year 2020, as compared to 2.1 GW during the same period last year.

The coal phase-off tender is Germany’s first effort in retiring solid fossil fuel-based generation capacities, and awards are to be made by December 1, this year. The next round will start on January 4, 2021.

Coal Phase Out in Germany

Bundesnetzagentur has set a ceiling for the compensation at $196,000/MW. If the tender is oversubscribed, the selection will be based on the volume of carbon generation avoided.

The German regulator, in its statement, clarified that the final payment will be subject to state aid approval from the European Commission, which is yet to be granted.

It further said: “The Bundesnetzagentur will not provide details of the bids received during the process of examining them and awarding the tenders, as they concern business and trade secrets of the plant operators.”

Aggregated figures will not be published either, since conclusions on individual bids might be inferred from them and competition in subsequent bidding rounds could be harmed.

Projects located in the southern region of the country, the area of Germany roughly south of the river Maine, were not eligible for bidding in this round.

Electricity Generation in Transformation Scenario

While Germany is transitioning from coal-based generation to renewables, India has been trying to bundle coal-fuelled power with green energy since the latter is still considered intermittent.

In a report on grid stability, the Central Electricity Authority has predicted capacity utilization of thermal power projects to decline to 40%, while renewables are capable of supplementing the rest by the year 2030.

Germany may be ready to compensate power producers for phasing off coal-fired projects, but India has increased its allocation for renewable energy only marginally during the 2019-20 budget.

A clean environment green energy cess of ₹400 ($5.5) per ton levied on coal produced in India is now being used to finance the Goods and Services Tax (GST) Compensation Fund. It was initially meant to be used for investment in the renewable sector. Created in 2010, it was to fund the cost of research and innovative projects using clean energy technologies by public and private sector entities.

While Germany is focused on phasing out coal, India is still trapped in the notion of renewables being “intermittent” and considers it as the biggest roadblock to accelerated deployment of renewables. The 5 GW tender for round-the-clock supply of renewables bundled with thermal power is seen as a solution to the challenge of intermittency.

Debjoy Sengupta is a Senior Assistant Editor at Mercom. Debjoy brings more than two decades of experience in frontline journalism, spending most of his career working for dailies like Business Standard and The Economic Times. He has reported on a vast array of sectors, including power and renewables. A graduate in business economics, Debjoy is an amateur 3D digital artist and a photographer. More articles from Debjoy Sengupta.