By Andreas Franke

July 5, 2019 - Germany plans to tender hard-coal plant closure compensation payments in a first wave of shutdowns, as recommended by the coal commission, the energy ministry said Thursday.

In the auctions, operators of hard-coal-fired power plants can bid a price for the closure of their plant, it said. Operators with the lowest bids per CO2 reduction will be awarded compensation payments.

"This way, we will reduce CO2 emissions at the lowest cost," it said.

The government-appointed coal commission in January recommended capping lignite and coal plant capacity at 15 GW each by 2022, which would require the closure of 3 GW of lignite and 4 GW coal plant in addition to already planned closures.

A first draft of the hard-coal plant closure law was expected by the autumn, energy minister Peter Altmaier said.

Lignite plant closures, meanwhile, will be determined in talks with lignite operators, the ministry said, with the commission's report underlining the different economic models of hard coal plants that burn imported coal and lignite plants based on domestic lignite coal.

First talks with RWE have been confirmed, with the ministry saying that "there is a common understanding that lignite closures will start with older power plants in Western Germany".

"The talks with RWE are advanced and constructive," it said.

In RWE's view, the recommended 3 GW lignite closures by 2022 cannot be carried out exclusively in its Rhenish region, it said June 24.

Lignite closures details were expected to be included in the parliamentary process for the coal closure law, with the ministry expecting the law to be passed by the end of the year.

The cabinet has already approved a support package for lignite mining regions with up to Eur40 billion ($45 billion) of federal subsidies to be spent through to 2038 to offset the impact from planned mine and coal plant closures.

Coal Decline to Accelerate in Q3

German coal and lignite generation in the first half of 2019 fell 22% year on year to 79.4 TWh, TSO data aggregated by think-tank Fraunhofer ISE showed.

Lignite generation averaged 12.2 GW, down almost 3 GW and reflecting 1 GW of plant closures as well as lignite mining restrictions at RWE's Hambach mine of around 1.5 GW.

Hard-coal output averaged 6.1 GW so far this year with coal generation margins down sharply due to higher EUA carbon prices, while gas margins improved with gas prices this summer near 10-year-lows, triggering significant coal-to-gas switching set to accelerate in Q3.

For the year-ahead, modern coal plants remained ahead of gas in the merit order, S&P Global Platts fuel switching data showed.

However, despite the sharp decline for coal so far this year, the parallel phase-out of coal and nuclear is a major challenge, the ministry said.

Coal and nuclear have accounted for almost 50% of the German power mix over recent years.

Renewables have been rising sharply though, accounting for a record 44% of domestic power demand in H1 2019.

The ministry underlined that security of supply has to be guaranteed at any time with a number of additional measures planned as well as continuous monitoring of the generation adequacy situation.

The coal commission recommended to review the coal closure time-table in 2023, 2026, 2029 and 2032 with a view to possibly fully exiting coal by 2035.