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Merkel’s ‘Green’ Shift Forces Germany To Burn More Coal

Germany’s largest utilities are shunning cleaner-burning natural gas because it’s more costly, while the collapsing cost of carbon permits means there’s little penalty for burning coal. European Union carbon emissions may rise 43 million metric tons this year because of increased coal burning at power stations.

Chancellor Angela Merkel’s government says RWE AG (RWE)’s new power plant that can supply 3.4 million homes aids her plan to exit nuclear energy and switch to cleaner forms of generation. It’s fired with coal.

The startup of the 2,200-megawatt station near Cologne last week shows how Europe’s largest economy is relying more on the most-polluting fuel. Coal consumption has risen 4.9 percent since Merkel announced a plan to start shutting the country’s atomic reactors after last year’s Fukushima disaster in Japan.

Germany’s largest utilities RWE and EON AG (EOAN) are shunning cleaner-burning natural gas because it’s more costly, while the collapsing cost of carbon permits means there’s little penalty for burning coal. Wind and solar projects, central to Germany’s plans to reduce nuclear energy and cut the release of heat- trapping gases, can’t produce electricity around the clock.

“Angela Merkel’s policy has created an incentive structure which has the effect of partially replacing nuclear with coal, the dirtiest fuel that’s responsible for much of the growth in the world’s greenhouse-gas emissions since 1990,” Dieter Helm, an energy policy professor at the University of Oxford, said by phone Aug. 17. Building new coal stations means “locking them in for the next 30 years” as a type of generation, Helm said.

Germany’s increasing coal consumption is part of a global return to the fossil fuel that’s cheaper than most alternatives. The amount of coal burned worldwide rose 5.4 percent to account for 30 percent of total energy use last year, the highest proportion since 1969, according to BP Plc (BP/) data.

Clean-Dark Spread

European Union carbon emissions may rise 43 million metric tons this year because of increased coal burning at power stations, according to Barclays Plc analyst Trevor Sikorski.

The German clean-dark spread, a measure of profit that utilities can earn from selling coal-generated power after accounting for the cost of carbon-emission permits, was about 9.86 euros ($12.17) a megawatt-hour today for the year ahead, according to broker data compiled by Bloomberg. At the same time, utilities are set to lose about 10 euros a megawatt-hour from burning gas according to data compiled by Bloomberg.

“Lignite is the lowest-priced type of power generation and thus increasingly stormed the market,” Martin Pack, an RWE spokesman, said by phone from Essen, referring to a type of soft coal that dominates RWE’s consumption of the fuel.

EON generated 10 percent more electricity from burning coal in the first half than in the same period a year ago. RWE’s coal-fired power output in Germany rose by 12 percent in the same period. Reliance on coal may continue to increase after Statkraft SF shuttered its gas-fired plant in Emden in March and EON and RWE warned they may mothball generators that lose money.

Reliance on Coal

EON fell 0.6 percent to 18.15 euros by the Frankfurt close and RWE rose less than 0.1 percent to 33.40 euros.

Coal is being used in part because the prices for permits that allow the emissions of carbon dioxide linked to climate change are too low to spur other forms of generation. The price of carbon-dioxide permits in the European Union has dropped 43 percent over the past year.

Switching to coal from gas is “a consequence of the low prices” in Europe’s carbon market, Helm said. “Germany needs to exit coal and switch to gas as a transitionary fuel, not the other way around, as quickly as possible if it really cares about the climate.”

Merkel’s government wants utilities to build 10,000 megawatts of coal- and gas-fired generators this decade to replace older, dirtier generators and underpin a growing share for wind turbines and solar panels.

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