The possible return of the Greens into Germany's government has brought coal plant closures and carbon pricing back on the political agenda with Chancellor Merkel set to negotiate a new coalition. Talks will be complex and likely to last for months with parties polarized not just on climate policy. S&P Global Platts senior writer for European electricity, Andreas Franke, looks at the implications and how changing global energy market trends may help the Greens to convince their potential coalition partners.
Related factbox:
German election implications on energy sectors
Video Transcript
Welcome to The Snapshot – our series which examines the forces shaping and driving global commodities markets today.
Germany has voted and is heading towards a new coalition of Chancellor Angela Merkel’s conservatives with both the Greens and the FDP liberals.
The Greens have made setting deadlines for closing Germany’s most polluting coal plants a pre-condition for a coalition, seeking a complete coal phase-out by 2030.
Europe's biggest economy still gets 40% of its electricity from coal - both domestic lignite and imported hard-coal. That dependency is making it impossible for Germany to achieve its climate targets in 2020 despite the ever growing wind and solar portfolio.
Oversupply from both coal and renewables has kept wholesale power prices low until now. Changing global energy trends could now help the Greens convince their potential coalition partners to close coal.
While European coal prices have rallied to their highest in over three years amid tight supply and demand fundamentals in Asia, gas prices are lagging behind due to the global oversupply from LNG.
In Germany, this has already brought modern gas plants back to the brink of profitability for the first time in over five years and increased the pressure on old coal plants to close. Further gains for carbon prices would increase that pressure.
However, German utilities have also invested into new coal plants - planned over a decade ago to replace nuclear reactors. Uniper's Datteln IV plant - delayed in a court battle but finally set to come online next year will be Western Europe's last coal plant with an efficiency of 45%.
Those modern assets will not be on Merkel's coal closure list, while even the Greens agree that the lignite issue needs special consideration for miner’s jobs in weaker regions.
It is no surprise that the far-right AfD scored its best results in the East and is the only party opposing the Paris climate deal.
An attempt by the outgoing coalition to phase-out fossil-fueled plants older than 20 years ended in a phase-out timetable for less than 3 GW of the oldest lignite units.
The elections have underlined that Germany is a divided country, not just politically, but with power fundamentals set to increase regional imbalances, increasing the pressure on the grid to balance wind surges in the North with industrial demand in the South.
Chancellor Merkel also needs to balance demands for coal closures with rising concern about high energy costs which have already slowed down investment in energy-intensive sectors like petchems and steel.
Keeping Germany together, politically as well as the power market will be a challenge. Wider changes including battery storage and electric cars are already on the horizon. The decisions by the next German government will determine the speed and direction of the some of those changes.
Until next time on the Snapshot—we’ll be keeping an eye on the markets.