A proposal to stop Germany
from using coal for power generation within two decades may leave an unexpected
beneficiary: The company that burns the most of the fuel.
While RWE AG was quick to say
it’s “too soon” to shed all fossil fuel plants by 2038, the recommendations
outlined this weekend by a panel advising Chancellor Angela Merkel called for
compensation for the utilities and 40 billion euros ($45.6 billion) for regions
coping with the transition.
Together, the measures would
significantly soften the blow on industry from Merkel’s vow to scale back
greenhouse gases. They show how far the government has moved away from a quick
clampdown on the most polluting fossil fuel and give more certainty for the
future of some of RWE’s most valuable assets. And while the proposals could yet
be watered down by politicians, they signal a longer life for many of the
utility’s plants than environmentalists had hoped for.
“We believe that clarity,
compensation payments, and a relatively long phase-out period should trigger a re-rating
for the company’s conventional power generation,” said Guido Hoymann, an
analyst at the private bank B. Metzler Seel. Sohn & Co. KGaA who added RWE
to a list of top 10 German stocks.
Germany’s 120 or so remaining
coal and lignite plants have a combined capacity of about 45 gigawatts. That’s
enough to feed 40 percent of the nation’s power demand or about 32 million
homes. Germany is already falling short on its targets to slash greenhouse gas
emissions and sees closing coal plants as one of the most important ways to
make the reductions needed. The coal commission includes members from the main
political parties, environmental groups and industry charged with developing a
consensus that Germany can live with for years to come.
The commission began outlining
its proposals on Saturday ahead of its final publication on Feb. 1. It
recommended closing the last of the coal plants in 20 years – by 2038 – a much
slower phaseout for coal than the abrupt closure ordered for nuclear reactors
in 2011. Then, a meltdown at the Fukushima plant in Japan set in motion plans
in Berlin to close all of Germany’s atomic plants within 11 years. While the
nuclear industry had to sue for compensation, coal operators will be paid for
closing their plants.
RWE said the commission’s
proposals are at the edge of what the power industry can deliver and would do
significant damage to the company. It said the panel calls for closing some
coal and lignite plants by 2022 and would have a “serious impact’’ on its
operations. It’s still analysing the initial conclusions in the report, which
didn’t set out exactly what plants will have to close and when. Some of those
details may come with the final publication, while others are likely to be a
matter for negotiation with the government.
“The commission's proposals
have serious consequences for RWE's lignite business,’’ Rolf Martin Schmitz,
chief executive officer of RWE, said in a statement on Saturday. “The yardstick
for the assessment must be that politicians find solutions that neither
disadvantage the affected employees nor the company. We are committed to
safeguarding the interests of our employees and shareholders. Of course, we are
open to discussions."
The coal phase-out is part of
a 500 billion-euro switch away from fossil fuels and toward renewables ordered
by Merkel and her colleagues – part of the fight against global warming.
The shift for Germany is much
more painful than the decision the U.K. and other European countries took to
scrap coal in the middle of the next decade. That’s partly because Germany and
RWE still employ thousands at lignite mines, which produce a soft form of coal
that’s both cheap and highly polluting.
Germany needs low-cost and
reliable energy to stay competitive against rival manufacturing powerhouses
like the U.S. and China. That leaves a further hurdle before the government can
order a total exit from coal – and it’s only one of the political complexities
Merkel is struggling to balance.
A few events boosted voter
concern about climate change this summer.
Hotter than usual weather
caused this summer. [CAUSED WHAT THIS SUMMER?
-- v.m.] Rivers dried up in the heat and because flows from glaciers
have declined. Protests at RWE’s lignite mine at Hambach made the site an
emblem for the environmental movement, which wants to protect an ancient forest
there. The unions that want to preserve jobs also demonstrated at the site.
Those issues bled away support
from Merkel’s party, boosting both the anti-coal Green Party to second place in
national opinion polls and the right-wing AfD. The commission has recommended
preserving the forest at Hambach, something RWE says will require major changes
at the pit.
RWE has warned that scrapping
coal plants and halting mining would cost thousands of jobs and lead to hundreds
of millions of euros of writedowns. Hoymann, the analyst at Metzler, estimates
that RWE’s market value of about 13 billion euros includes a valuation of
negative 4 billion euros for its conventional power generation assets.
Guaranteeing the life of some of those facilities could be a boost for RWE in
the eyes of investors, who were concerned the company may face a stricter
schedule of closures. The company also could benefit from higher electricity
prices as more of its big power plants close, reducing baseload generation.
Economy Minister Peter
Altmaier has indicated concerns about jobs and energy security are at the top
of his mind. The shift away from coal “has to be affordable, has to ensure
power security and it has to be sustainable,” Altmaier said in a speech in
Berlin on Jan. 19. “The issue of affordability isn’t just any old issue. The
exit from coal will lead to big upheavals in the coal regions including jobs
and we’re preparing the necessary finance for that.”
Jobs appear to be on Merkel’s
mind, too. The populist AfD — which stands against Merkel’s energy transition —
has made gains in disadvantaged coal regions where elections are due later this
year. Analysts say poor showings there could push the center-left Social
Democratic Party to pull the plug on Merkel’s coalition, bringing a swift end
to her record-breaking reign as chancellor.
The coal commission itself has
indicated its sensitivity to those issues.
“These regions and the people
that live in them expect, justifiably, solidarity from society and
politicians,” the coal commission draft report says.
“Structural reform policies
must take account of the experiences of those living in east German states.”
A lengthy period of
negotiation with the government over which coal plants must retire and when
could result in costly court battles and a bitter end to German miners once
dubbed “black gold.” For RWE, a slower phaseout would lend it a lifeline that
would allow profit to keep flowing a little longer from those assets on its
books. “But RWE is about more than just coal,” Schmitz said in Berlin last
week. “The commission’s results should give us planning certainty.”
(Reporting by William Wilkes
and Brian Parkin).
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