New EU climate target largely drives coal out of German power market by 2030 – analysis

The planned tightening of the EU climate target for 2030 would significantly increase CO2 prices in European emissions trading and thereby largely drive coal-fired power out of the market by 2030, according to an analysis conducted by the Institute of Energy Economics (EWI) at the University of Cologne. Electricity prices would also increase, but only by around five euros per megawatt hour, EWI writes. The calculations are based on the tightening of the EU climate target for 2030 to a 55 percent reduction instead of 40 percent. In addition to the higher CO2 price, the increase in electricity generation from renewable energy sources will impact the market, EWI writes. The institute calculates with the German government’s target of a 65 percent share of renewable energy by 2030. Hard coal-fired power plants in particular would be hit hard by the effects of the new climate target and would be almost completely phased out by 2030, according to the report. "The impact of the tightened climate target on coal is significant - especially on hard coal. Their utilisation could decline significantly, falling to a very low level as early as 2028,” said EWI author Max Gierkink in an interview with Tagesspiegel Background. Coal-fired power generation in general could be pushed "almost completely out of the market even before the planned phase-out in 2038," Gierkink said.

At the same time, the construction of gas-fired power plants would rise significantly in case of a 55 percent reduction target, EWI writes. "Rising prices for emission certificates increase the competitiveness of gas-fired power plants compared to the remaining coal-fired power plants. As a result, more efficient combined cycle gas power plants will be added, up to 35 gigawatts in 2038," the author told Tagesspiegel. This is four gigawatts more than without the tighter target, EWI writes.

Despite a rally in carbon emission permit prices to record levels, electricity generated from lignite has increased in Germany in 2021, according to data compiled by research institute Fraunhofer ISE, Bloomberg reports. Electricity from lignite-fired plants has increased by 35 percent so far this year, compared with same period in 2020, according to the study. Because lignite is cheap to produce, the fossil fuel is profitable as long as the price of electricity is higher than that of carbon emission permits, Fraunhofer writes.

Leaders of the European Union member states in December agreed to increase the EU 2030 greenhouse gas reduction target to at least 55 percent, but this has yet to be negotiated with the European Parliament, which demands even more ambition. Raising the target requires a set of actions across all sectors of the economy, and the European Commission plans to present proposals to reform basically all major energy and climate legislation by June 2021 – the “Fit for 55” package.