Germany has pledged to reach net zero by 2045 and has committed to a 65% emissions reduction below 1990 levels by 2030. The country has confirmed the 2030 coal exit date and stated plans to set a EUR60/t floor price for CO2.
Germany is significantly accelerating
climate policy implementation and aims to finalise the review of the coal exit
law by the end of 2022, which brought forward its coal phaseout from 2038.
Germany aims to raise the share of renewables
to 80% of the country’s electricity mix by 2030 and 100% by 2035, up from 45%
in the past year. This translates into the installation of 200GW of solar and
at least 30GW of offshore wind capacity, with around 2% of Germany’s territory
to be set aside for wind turbines. Germany will also aim for 10GW of
electrolysis capacity by 2030.
Total emissions from the electricity
and heat supply sector stood at 247Mt of CO2e in 2021, up by 12.4% from 2020.
This was driven by the gas-to-coal switch in the second half of the year, due
to the sharp rise of gas prices.
Lower wind power generation and increased
gross electricity consumption also contributed to the surge. According to
Germany’s climate law, the power sector is compelled to limit its GHG emissions
to 108Mt of CO2e by 2030. This is a reduction of 62% below 1990 levels.
Germany will
continue to deliver the largest renewable capacity additions in Europe as
projects awarded in previous large-scale auctions are commissioned. The country
has provided support for the development of solar PV, wind, and bioenergy with
higher auction volumes through Germany’s Renewable Energy Act 2021.
Germany has pledged US$7.7bn to expand
domestic green hydrogen pilots and invested US$2.2bn in hydrogen exports
abroad. RWE, Germany's largest power producer, plans
to invest US$57bn through 2030 to double its green energy capacity to 50GW.
RWE's nuclear and coal-fired power plants in 2020 accounted for 31% of the
group's 40.7GW total installed capacity.
Gas-to-Coal Switch
Global supply chains are reorganising
to adjust to the sanctions imposed on Russian energy supplies. AME
forecasts that Germany will import 8Mt of thermal coal in the September
quarter, up by 33% on the quarter and 57% on the year.

This will be driven by the delay of coal
plant closures and temporary activation of up to 10GW of coal reserve capacity,
as Berlin attempts to secure power for winter amid Russian supply cuts. However,
constraint supply, aged power plants and skyrocketing thermal
coal prices complicate Germany’s plan to reactivate 16 coal-fired power plants
to compensate for Russian gas supply cuts.
In April 2022, when the EU announced a draft
of the new sanctions to be imposed on Russia amid the invasion of Ukraine, Germany
disagreed with the EU initiative to impose an immediate ban on coal supplies. The
German coalition initially aimed to stop purchasing Russian thermal coal by
September 2022.
However, Berlin later announced it will
fully stop purchases of Russian coal on 1st August and end imports of Russian
oil on 31st December 2022. Germany previously imported 40% of its coal and 40%
of its oil demand from Russia. This marks a major shift in the sources of
Germany’s energy supply, as the government focuses on accelerating the
development of renewable projects.
With Russia cutting gas supplies to
Europe and all-time high gas prices, Germany proposed the revival of up to 10GW
of coal, lignite and fuel oil reserve capacity in an attempt to secure gas for
winter. A bill providing the legal basis to burn more coal for power generation
was approved by the German parliament by 8 July.
The bill relinquishes closure dates for
2.6GW hard coal units and aims to return to the market further 4.3GW hard coal
and 1.6GW fuel oil, currently in reserve schemes. An additional 1.9GW lignite
plant - currently in security reserve - will be available to return to the
market subject to gas inventory levels.
This measure will cost US$15.8bn and
could delay Germany’s 2030 coal phaseout. The replacement plants will be a
provisional measure only until 31 March 2024, while Germany accelerates plans
to build two LNG terminals to increase non-Russian LNG imports. This highlights
Germany’s plan to rely on natural gas well over the medium term.

Despite efforts to reactivate its coal
fleet, Germany’s energy regulator has announced that only one out of the 16
plants has been reconnected. Energy operators have either declined to
reactivate plants or are facing difficulties in acquiring the necessary coal,
as well as the capital to buy it.
EnBW-operated power plants on the
government list for reactivation cannot be reconnected to the grid due to their
age, accounting for eight out of the 16 plants. However, the company will
extend the life of one plant that was due to be closed in October.
Uniper is still deciding on potential
reactivations, while chemicals group Evonik could reactivate one plant
only in autumn. Hard coal generator Steag intends to reactive its plants, but
alleged supply issues could become a burden on the company’s liquidity.
RWE, Germany's largest power
producer, has over 11GW of coal-fired power
capacity currently operating, followed by Uniper with 9.6GW. Since 2000, RWE
and Uniper retired over 13.4GW and 4.4GW of coal power, respectively.
AME forecasts that Germany will
import 28Mt of thermal coal in 2022, up by 22% from 2021. AME expects that
Germany’s coal-fired electricity generation will have its last peak in 2023.
After reports that the pumping
capacity of Nord Stream 1 will fall from 40% to about 22% of the maximum
capacity of the pipeline, EU nations have agreed to reduce gas consumption by
15% between August 2022 and March 2023. This will increase coal-fired
generation in the EU, as the region switches to other energy sources.
A Look into the Future
Over the medium term, AME forecasts
that Germany’s thermal coal import demand will drastically drop at a CAGR of
-11.7% between 2022 and 2027, totalling 15Mt by 2027. This will be driven by
Germany’s quick return to gas-fired power generation and expansion of
renewables.
Germany is now focused on the rapid development of LNG import
terminals to help fill the gas supply gap resulting from the sanctions on
Russia. Qatar and the US could supply 30bcm of LNG, partially contributing
to reduce a gap of 158bcm that the ban on Russian gas will leave.
Over the long term, AME forecasts
that Germany’s thermal coal import demand will shrink at a faster CAGR of
-14.4% between 2027 and 2040, dropping to 2Mt in 2040. This will be driven by
Germany’s commitment to phase out coal by 2030 and pledge to decarbonise its
power sector by 2035.
The EU Commission unveiled their full REPowerEU plan on
18th May 2022. The package aims to decrease Russian gas consumption by 67% by
the end of 2022 and 100% by 2027. A reduction in total energy consumption
within the bloc of 13% by 2030 has also been put forward, an increase from the
previous 9% target. REPowerEU also proposes an increase of the renewable energy
target from 40% to 45% by 2030.