Oil report

German government agrees compensation for utilities over hard coal phase-out

BERLIN, June 29 (Reuters) - Chancellor Angela Merkel’s coalition government has agreed on a compensation package for utilities operating hard coal power stations as part of Germany’s plans to phase out coal by 2038 at the latest to meet climate goals.

The agreement between Merkel’s conservatives and their Social Democrat (SPD) coalition partners opens the door for parliament to vote in early July on a bundle of laws governing the coal phase-out.

Conservative and SPD parliamentary representatives said that under the agreement utilities that switch hard coal-powered plants to gas will get a conversion bonus of 390 euros per kilowatt instead of a previously agreed 180 euros. The bonus applies to power plants no older than 25 years and is available until the end of 2022.

If utilities decided to switch their plants to gas after 2022 the bonus will fall by 25 euros per kilowatt each year.

Power stations that are 25 to 35 years old are entitled for a lower conversion bonus of 225 euros per kilowatt if they switch to gas.

The government also wants to entice utilities that do not switch to gas to shut down their hard coal plants with tenders that run until 2026. Under the plan, utilities can apply for compensation if they plan to shutter a power station and those with the lowest bids will be compensated.

After 2026, hard coal power stations will be forced to shut without compensation. The goal is to make German power generation free of hard coal by 2033.

Last week the government approved a 4.3 billion euro compensation package for utilities operating lignite power stations. The size of the package was agreed between Merkel’s government and the utilities affected by the phase-out, which include RWE, Uniper, EnBW, Vattenfall, Steag and LEAG.

Winding down power generation from lignite, or brown coal, is expected to cost many more billions of euros, including 40 billion euros in investments in mining regions. (Writing by Joseph Nasr; Editing by Leslie Adler)