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Home/Closing the Emissions Gap: Germany’s Climate Policy Options in the Power Sector

Closing the Emissions Gap: Germany’s Climate Policy Options in the Power Sector

Germany is likely to miss its carbon reduction target for the power sector of 207 mtCO2e per year in 2030 by approximately 60 mtCO2e if it continues on its current trajectory. Given the overriding importance played by national policy in decarbonisation to 2030 and the fact that coal is at the centre of the debate, Germany now has three options to narrow this gap until 2030:

  1. Coal phase-out
    1. Fast coal phase-out by 2040
    2. Slower coal phase-out by 2045
  2. Carbon price floor rising to 39 EUR/tCO2 in 2030
  3. Further CHP support to raise the CHP share of thermal production to 70% in 2030

This report discusses the effects that these three options will have on the German power sector. In particular, it provides an in-depth analysis of the fast coal phase-out scenario starting in 2017:

  • Size and timing of plant closures
  • Shifts in import and export balances
  • Spillover effects
  • Required size and costs of capacity reserve to secure supply security at European standards
  • Wholesale electricity prices
  • Household electricity prices
  • Robustness of coal phase-out to different commodity market scenarios (sensitivity analysis)

Finally, this report also discusses the financial impact of the fast coal phase-out on the generation portfolios. Medium-term profits will tend to rise for those plants remaining in the market, as they will be able to profit from higher prices. The main winners are likely to be highly-efficient coal and CCGT plants. The financial impact at the aggregate level is limited for lignite and coal, while the gas fleet benefits considerably from this change in climate policy.

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