Will RWE get rid of lignite?

Dusseldorf The formulation in the coalition agreement is short and sweet – but it could trigger a transaction worth billions. In addition to dedicated goals for renewable energies, electricity prices and hydrogen, the future federal government has formulated a surprising plan: the establishment of a coal foundation.

“The establishment of a foundation or company that organizes the dismantling of coal-fired power generation and renaturation is examined,” says the end of the section entitled “Coal phase-out”.

According to information from the Handelsblatt from industry circles, the wording hides the plan for a complicated swap in which the operators of the lignite mine and the power plants lose control of their assets, but on the other hand could also get rid of incalculable burdens.

The plans are as vague as the formulation is tight. However, there is already a concept of what such a coal foundation could look like, as it continues to be called in the circles. It was decisively designed by Michael Vassiliadis, chairman of the energy and chemical union IGBCE. His lobbying work is also said to be largely responsible for ensuring that the plan was included in the coalition agreement.

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Such a foundation or public company could not only take care of the orderly phase-out of coal-fired power generation and funding, which has so far been planned by 2038, but should be brought forward by the traffic light coalition to 2030. Above all, it could ensure in the long term that the open-cast lignite mining areas in the Rhineland and East Germany are responsibly dismantled and recultivated.

This task could be financed by the foundation assuming the income from the remaining operation of the coal-fired power plants, but above all the billions in provisions that the companies have formed for the follow-up costs of the mining – plus a risk premium. All coal activities in Germany could be bundled under one roof.

“That would be an efficient solution,” said an insider who is familiar with the concept, “ultimately whoever pretends to phase out coal would also organize it: the state.”

Organizing the dismantling of coal-fired power generation is a generational task and must therefore be tackled systematically, says IGBCE boss Vassiliadis. Vassiliadis considers legal requirements and regulations for energy companies to be inadequate. “A foundation that responsibly orchestrates all the necessary measures can therefore be a useful instrument for successful structural policy,” he told the Handelsblatt. He did not want to comment on the details of such a concept. He cited the RAG Foundation as a positive example, which finances the perennial tasks of the German hard coal mining industry.

The RAG Foundation was established in 2007 to handle the coal mining industry. The model, which, among other things, holds shares in the chemical company Evonik for financing purposes, works. The coal mining has now ended, the dismantling is ongoing. A foundation for the planned exit from coal could look similar. If the operators play along.
At the largest coal company in Germany, however, nothing is known about such an idea. “At least no one has spoken to RWE about it,” said a spokeswoman for the Handelsblatt. You first want to hear what such a foundation could look like before you form an opinion. The Lusatian coal company Leag, which is responsible for the districts in East and Central Germany, does not want to comment on request. This is just a sensitive topic, it is only said from company circles.

The idea for the foundation was promoted years ago

As early as 2016, Vassiliadis put forward the idea of ​​a foundation or a fund that could accompany the coal phase-out – and above all mitigate the social consequences. At that time he had already proposed that the open-cast mining operations in West and East Germany and the power plants should be bundled.

And a foundation solution almost came about – albeit on a smaller scale. At that time, the Swedish Vattenfall Group put its lignite activities up for sale. At that time, Vattenfall was responsible for the extraction and generation of electricity in the Lausitz area – and wanted to part with the controversial activities.

Electricity producer Steag and the investment bank Macquarie offered themselves with a foundation model. The foundation should secure the necessary funds for demolition and recultivation. However, the solution would have been significantly more expensive for Vattenfall. The two partners demanded a deposit of around three billion euros, as it was called at the time in circles familiar with the negotiations. The contract was awarded to the Czech energy company EPH, which already operated the Central German mining area and founded Leag.

In the case of the nuclear fund, the shares have profited

But there are other examples of such models in the energy industry. In the event of the nuclear phase-out, too, the state ultimately assumed responsibility for long-term liability. In 2017, the Atomic Fund was founded, which takes care of the disposal and final storage of nuclear waste. Here, too, the nuclear companies brought in billions in provisions – and in return were able to surrender liability.

At first glance, RWE and Leag shouldn’t have much interest in the foundation solution for their lignite activities. The coal-fired power plants are currently still generating huge profits. Electricity prices are at their highest levels – and RWE has at least insured itself against the CO2 risk because the group has stocked up on cheap CO2 certificates by 2030. In addition, the coal exit is regulated after a long struggle. The lignite companies were granted compensation of a good four billion euros.

However, especially for RWE, it could also be a liberation if the group could finally break away from the coal image. RWE has already realigned itself and is investing around 50 billion euros by 2030 – primarily in renewable energies. However, the coal exposure is still weighing on the share price. Some major investors reject the RWE share completely. The founding of the Atomic Fund gave the share a huge boost,

“RWE could get rid of the penalty of the large CO2 emitter in one fell swoop,” says industry circles: “The financial conditions would only have to be determined neutrally and fairly.”

More: 50 billion investment offensive – this is how the RWE boss wants to create the restructuring

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