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.