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Germany’s Coal Exit Talks Founder on Compensation Dispute

Brian Parkin and William Wilkes
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Germany’s Coal Exit Talks Founder on Compensation Dispute

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Discussions are faltering about how to shut down Germany’s lignite coal industry as company executives and government ministers struggle to agree over the politically charged issue of how to compensate industry for plant shutdowns.

Ten months after Germany set out a road map to exit coal by 2038, officials and the main utilities remain at loggerheads over setting a price for closing down operations, according to at least five people with direct knowledge of the deliberations. The government already missed a self-imposed target to have legislation ready in October and is unlikely to settle the matter before the end of this year, the people said.

A timely agreement on winding down coal plants is a crucial link in the government’s moves to speed up reducing greenhouse gas emissions. It’s also a key variable in the outlook for utilities led by RWE AG, Uniper SE and LEAG Holding A.S.

“It’s no surprise that the talks are stuck in the trenches,” said Guido Hoymann, Bankhaus Metzler & Co’s head of equity research, on the phone from Frankfurt. The utilities and the government are fighting their corners with an audience of shareholders, workers and the taxpayer all expecting a satisfying outcome to the talks, he said.

RWE fell as much as 2.1% on the news in Frankfurt. Uniper pared gains, but its shares have since recovered.

None of the companies or officials involved in the talks were willing to speak publicly because of the sensitivity of the discussions. RWE and LEAG declined on Tuesday to comment on talks that are private and still inconclusive.

Germany is shutting down both its nuclear and coal power plants, which together generate about half the nation’s electricity.

The government wants to cut lignite and hard coal capacity by some 5 gigawatts each by 2023. Hard coal plants are required to enter auctions to win compensation, while lignite plants and the mines that feed them are, according to draft legislation, due to be closed in separate agreements with operators.

RWE CFO

The discussions are snagging on the price that the government will pay to compensate for shutting down coal operations. Discussing the progress of lignite talks on a press call last week, RWE Chief Financial Officer Markus Krebber said the firm’s workers had been disconcerted by the slow progress, adding that moral in the coal region around the Rhine River was “anything but good.”

Most of Germany’s lignite capacity is concentrated in just two hands: RWE has 6.5 gigawatts in western Germany, and Lausitz Energie Kraftwerke AG’s owns operations in the eastern part of the country with some 8 gigawatts.

That capacity is bundled into seven coal plants that are Germany’s dirtiest. They push out about 47% of all of the country’s emissions from energy facilities in 2018, according to the Federal Environment Ministry. The figures underscore the pressure on the government to reach an agreement quickly and the utilities to get an acceptable return for their assets.

Highlighting Germany’s increasingly strained government budget, Chancellor Angela Merkel’s administration has earmarked just 1 billion euros ($1.1 billion) to pay for closing capacity to 2023, according to a government official who asked not to be identified because the figures aren’t yet public.

Read More: Germany Likely to Offer Utilities Less Cash to Close Coal Plants

To soften the blow on workers affected by closures, the government is putting up 40 billion euros in labor training programs, infrastructure and research and development investments. Much of that money will feed into four regions where the industry is concentrated. In the government’s thinking, that will aid figures in its compensation plans. The utilities are looking for a direct payment for the assets they will have to retire early.

For anti-trust reasons, the talks are being conducted between the Economy and Energy Ministry and the utilities on a one-on-one basis. A faltering German economy has prompted downward revisions to the government budget forecasts, meaning the officials negotiating are driving a harder bargain, the people said.

(Updates with analyst comment in 4th paragraph)

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson, Helen Robertson

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