Is Germany's energy transformation coal powered?

The EU, and Germany, like to portray themselves as leader when it comes to progressive climate policies. Germany in particular has adopted several policies dear to the environmentalist movement, the phasing out of nuclear energy while at the same time increasing renewable energies. Such is the enthusiasm that it seems to escape attention that the necessary back up energy mainly comes from coal, which is the dirtiest form of energy and the most damaging to climate. The Economist has two articles on the subject (here and here) which are worth a read.



Here is a quote from the second article, entitled Europe’s dirty secret: The unwelcome renaissance.

Europe’s energy policy delivers the worst of all possible worlds

Germany has an ambitious plan to shift from fossil fuels and nuclear power to renewables like solar and wind (this is called the Energiewende, or energy transformation). Electricity from renewables gets priority on the grid. That has allowed wind and solar to grab market share from fossil energy during the most profitable times of day, when utilities used to make most of their money and burning gas made sense (German electricity prices are at their highest in the middle of the day when solar generation is also strongest). By displacing conventional forms of energy this way renewables have undermined utilities’ finances. Moody’s, a ratings agency, recently said the whole sector’s creditworthiness is under threat.


In response, companies are switching from gas to coal as fast as they can, so renewables are in fact displacing gas but not coal. In Germany, RWE, the biggest user of coal in Europe, generated 72% of its electricity from coal and lignite (a dirtier, low-grade form of coal) in the first nine months of 2012, compared with 66% over the same period in 2011. Germany needs new capacity because it is closing down its nuclear plants: RWE is building a new coal-fired plant in Hamm, in North Rhine-Westphalia and another in Emshaven in the Netherlands. E.ON, Germany’s biggest power producer, is also building a new coal-fired plant in North Rhine-Westphalia. It and its partners are considering shutting down a gas-fired plant in Bavaria. Vattenfall, a Swedish state-owned company, has just completed a lignite-fired plant in eastern Germany and is building a coal plant near Hamburg. EnBW, based in southern Germany, is building a coal-fired plant in Karlsruhe, and another jointly with RWE in Mannheim.
 

What are the reasons for this? You will be hardly surprised that they are economic. "At the beginning of November 2012, according to Bloomberg New Energy Finance, a research firm, power utilities in Germany were set, on average, to lose €11.70 when they burned gas to make a megawatt of electricity, but to earn €14.22 per MW when they burned coal."

But what about the carbon markets which should have taken care of this? Argues the Economist,

In theory, Europe’s carbon price, provided by a cap-and-trade system, the emissions trading scheme (ETS), should have stopped all this from happening. The ETS carbon price should in principle go up when emissions do, as more emissions mean more demand for the carbon credits that the scheme works with. So you might expect the carbon price to have soared in 2012. In fact the price was flat for most of the year, trading between €6 and €8 per tonne ...
Carbon beyond price
The problem is that when the system was set up, regulators allowed companies overly generous permits to pollute, in part because of lobbying and in part because the effects of the recession were not foreseen. This oversupply has swamped the impact of emissions from coal-fired power plants. On November 12th the European Commission, the EU’s executive arm, proposed that some of the excess carbon credits be withdrawn. But the proposal, which has been held up by opposition from Poland, might not do all that much.
Policy uncertainties are growing. The EU has a lot of other things on its plate, so no one has much appetite for tough decisions about energy at the moment, such as how to save the ETS. In 2014 there will be a new European Commission and a new European Parliament, which means Europe-wide decisions about energy risk being put off for a couple more years at least. As Europe’s energy targets (on renewables use and efficiency) are supposed to be met by 2020, this timetable suggests there will be years of policy delay followed by a last-minute scramble.
Faced with such uncertainties, businesses are doing what you would expect: going elsewhere. Jesse Scott, the head of environment policy at EURELECTRIC, an association of electricity producers, asked European energy utilities which also have an international portfolio where they were expecting to invest over the next few years; 85% replied “outside Europe”.
If policies work as intended, electricity from renewables will gradually take a larger share of overall generation, and Europe will end up with a much greener form of energy. But at the moment, EU energy policy is boosting usage of the most polluting fuel, increasing carbon emissions, damaging the creditworthiness of utilities and diverting investment into energy projects elsewhere. The EU’s climate commissioner, Connie Hedegaard, likes to claim that in energy and emissions Europe is “leading by example”. Uh-oh.

I wonder what the reactions of Green lobby groups and the Green Party are. And how does the ever so progressive government justify this?

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