Why is the UK government interested in German coal?
The UK is looking to the continent for inspiration as it continues to try and push its contentious electricity market reforms through parliament.
The Department of Energy and Climate Change has commissioned consultants Poyry to look at the prospects for European coal power – and the report suggests coal’s days are numbered. But what was the government hoping to learn?
Energy transformation without coal
It could be that DECC wanted to see what role coal might play in a country transitioning to a low carbon energy system – and for that there’s no better place to look than Germany.
In 2010 the German government announced plans for an overhaul of the country’s energy system known as the energiewende, phasing out nuclear power by 2022 and ramping up renewable generation to make Germany “one of the most energy-efficient and greenest economies in the world”.
In 2012, over a fifth of Germany’s electricity was generated from renewable sources, up three per cent on a year before. But coal is Germany’s key energy source. It accounted for 45 per cent of electricity generation in 2012, two per cent higher than in 2011.
Some have suggested that the generation gap left by nuclear is being filled by coal, rather than renewables. Poyry reports that 2.7 gigawatts of new coal plants came online in 2012, with another 8 gigawatts under construction.
But Poyry doesn’t think increased coal generation in Germany will continue for long. It says economics was the key driver behind building the new coal plants – not filling a capacity gap – and the long-term prospects of German coal are much bleaker.
It predicts:
“Steeply rising capital costs, fierce local and environmental opposition, the priority dispatch for renewables, the economic downturn, falling demand, low wholesale electricity prices and the expectation of high carbon prices in the future make the short- and long-term investment cases for new thermal plants in Germany unattractive.”
These unfavourable conditions mean “there will be no major new unabated coal or lignite projects in Germany for the foreseeable future beyond those currently under construction”, Poyry suggests.
Perhaps the UK government is looking for inspiration as it seeks out £110 billion of fresh investment in the energy sector? While Germany may have built more coal in recent years, the focus is on renewables in the long term.
The UK as a coal CCS leader? Really?
As Germany still lacks a clear plan to move away from coal, perhaps DECC was looking at ways to eke out the life of the UK coal fleet. The Poyry report mentions – almost in passing – that:
“Prospects for coal-fired carbon capture and storage projects appear to be most likely in the UK, where clear policies and programmes to build demonstration projects are in progress.”
That will be music to the government’s ears after a recent parliamentary report suggested failure to develop carbon capture and storage (CCS) technology could cost the UK economy between £30 and £40 billion a year.
Large scale CCS would allow the UK to continue to burn coal and gas while meeting its emissions reduction target. But rolling out CCS on a large scale is still a long way off – the UK currently has no operational CCS plants and DECC isn’t due to make a final decision on two planned plants until 2015.
A DECC spokesperson tells us the government will now reflect on the findings, with “no immediate action” planned off the back of the report. Germany’s experience and the UK’s recent recent lack of success investing in CCS projects should give it plenty to consider.