The dusk of the coal paradigm

Study discloses investment risks for German electric utilities

- Press release -

Frankfurt/Main, 8 September 2009. Today the study "German power utilities - caught in the CO2 trap?" has been published at the DVFA conference "Taking ESG into Account". Investment strategies of the four major energy providers in Germany have been evaluated against the backdrop of different climate policy scenarios. Against prevailing opinions the study concludes that ambitious climate policy and high CO2 prices result in advantages for them in many cases. This study was prepared within the scope of the research project "Mainstreaming of climate risks and opportunities in the financial sector" in close cooperation with the WestLB bank. "What we see in the automotive sector holds also for the energy sector. A strategy where ecology and economy go hand in hand is most probable to create for the electricity utilities a business model that will last in the future", comments Christoph Bals, coordinator of the Mainstreaming project at Germanwatch. 

Given the outdated German power plant stock, substantial investments in new power plants stand in line during the next years. The model calculations contained in the study show that investments into large fossil power plants don't pay off for numerous constellations. This holds also without taking emission trading into consideration or with assuming low CO2 prices. The four big German electricity utilities (EnBW, E.ON, RWE, Vattenfall) are stuck in an investment dilemma. 

Especially new hard coal-fired and gas-fired power plants hardly prove to be a profitable alternative. Single lignite-fired power plants are most likely to be economically viable, yet they might conflict with climate policy since lignite-fired power plants have the highest CO2 output of all energy sources. The German government's mitigation targets for 2050 correspond, proportionally transferred to the German energy sector, to emissions of about five big lignite-fired power plants of 2000 MW each. Those who still decide to set up a lignite-fired power plant might sooner or later be obliged to retrofit it with carbon capture and storage (CCS).

In addition to climate policies, price dynamics on the commodity markets bear substantial risks for investors. Considering the official support and the lower risks, renewable energies appear to be a promising option. For that reason the progressive investments of the large electricity utilities in renewable energies has been evaluated as an economically appropriate step. "The SuperSmart Grid is a big opportunity for electricity utilities to escape from their investment dilemma. It combines two approaches that complement each other: on the one hand large scaled, wide-area electricity supply from renewable sources and on the other hand intelligent grids for decentralised renewable energies, demand control and virtual power plants", says Armin Haas from the Potsdam Institute for Climate Impact Research, and co-author of the study.

Partner of the Climate-Mainstreaming project, that has been supported by the Federal Ministry of Education and Research, are the environmental organisation and consortium leader Germanwatch, the Potsdam Institute for Climate Impact Research, the University of Potsdam, the Wuppertal Institute for Climate, Environment and Energy, the German Institute for Economic Research as well as the European Climate Forum.
 

The executive summary of the study (in English) and the full study (in German) are available upon request from: Kristin Gerber, gerber@germanwatch.org, ph. +49 (0) 228 6049211. 

They will be available at 2:30 pm CET at this web page. The full study in English will be available soon. 

Contact: 

Christoph Bals, Executive Director - Policy, Germanwatch: +49 (0)228 6049217 or 
+49 (0)174 3275669, bals@germanwatch.org

Armin Haas, Senior Scientist, PIK: +49 (0)331 2882530 or +49 (0)174 3239973, armin.haas@pik-potsdam.de