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24 October 2019

Bold plan to buy Europe’s coal plants, retire them and go renewable

News this week that four out of five coal plants in Europe are no longer profitable, with combined losses up to €6.6 billion, could see governments buying coal units with green bonds, to retire them early.

This is the idea floated as a remedy by Carbon Tracker, who wrote the report. Instead of coal owners hanging on forever to eke out an existence on their stranded assets, all the while spewing CO2, this move by governments could be decisive – conditional upon the same companies using the money purely on renewables. It is a way of getting coal owners off fossil fuel addiction.

The report from Carbon Tracker, under the name ‘Apocoalypse Now’ was released on Thursday, indicating that lower costs for renewable technology and the low costs of natural gas, are forcing utilities to sell coal-generated electricity at prices they simply cannot afford to.

This competition comes alongside increased costs for coal-generation, with expensive technology required for existing plants to meet stricter EU air quality standards, which will be in place from 2021, as well as rising carbon permit prices. That regulation could be the final straw for many EU coal plants.

Both lignite and hard coal facilities have been identified as loss-makers in 79% of cases, with Germany exposed as the member state footing the largest bill of €2 billion, followed closely by Spain and the Czech Republic. Exposed utilities also include RWE, EPH and PPC, who all could lose in excess of €500 million.

Without heavy subsidy, the study predicts that coal-fired generation will not exist in the EU beyond 2030. Any subsidy would also be severely misaligned with the Paris agreement, as well as net-zero emissions targets across the continent. However, if losses continue, massive volumes of assets will be stranded, leaving either shareholders or taxpayers to foot the bill.

Carbon Tracker has taken a positive attitude, indicating that hope is not lost and a ‘win-win’ scenario could be on the cards – if policy is reformed with urgency. This would require an immediate coal-phase out, as we are seeing in several countries across Europe already planning, with practices in place to prevent significant losses.

Using securitization regulation, the early retirement of coal plants may be incentivized by making use of the difference in cost of capital available to government and companies. Carbon Tracker suggested that this should be used alongside geospatial AI methods and open source planning, to help expose the net-liability of coal production and intelligently replace existing facilities with renewables.

Through facilitating the purchase of coal units through a special purpose vehicle and bond financing, exploiting the gap between capital costs, governments will be able to purchase and rapidly retire coal facilities, mandating that utilities reinvest the proceeds in renewables. This may theoretically allow a transition where the risk of value disruption or excessive carbon emission is minimized.

Hard coal generation in the EU declined by 39% between March and August this year compared with the same period in 2018, with a 20% reduction also seen in Lignite generation. While 14 EU countries have announced plans for a complete coal phase-out, countries such as Poland have insisted that renewable energy cannot meet energy demand due to intermittency issues, despite rapid developments within energy storage.

Poland in particular, still receives reasonable subsidies for coal-generation, and remains one of the few countries still turning a profit, after those subsidies. But recent talks regarding renewables, including a 2.5 GW offshore windfarm with Orsted, suggests that the tide may start to fully turn away from coal, as other loss-making coal facilities are hard to ignore.