Germany Passes Coal-Fired Power Reserve Law

Germany Passes Coal-Fired Power Reserve LawGermany Passes Coal-Fired Power Reserve Law

The German Cabinet on Wednesday approved a plan to pay utilities to set aside some of their coal-fired power capacity, as Europe's biggest economy looks to ensure stable supply and reduce carbon emissions.

Some 2.7 gigawatts of power generation from brown coal, equivalent to the output of eight power plants, will be placed in reserve and shut down by 2022, a government official said, Reuters reported.

The plan is part of Germany's efforts to cut its carbon emissions by 12.5 million tons by 2020.

In July, Economy Minister Sigmar Gabriel abandoned plans for a levy on coal-fired power plants and instead announced that companies would be paid to shift capacity to the reserve.

Utilities RWE, Vattenfall and Mibrag will reduce coal-fired power output from the start of winter 2016 and receive an average of $251 million per year collectively.

Consumers are expected to face higher electricity bills as costs of around €1.6 billion for the scheme will not be shouldered by the government.

Opposition lawmaker Oliver Krischer from the Green Party accused Gabriel of yielding to the interests of the utilities and creating a reserve that no one needed at great cost.

"It remains to be seen whether the European Commission will approve the plan," he said.

The Cabinet also passed a new electricity market design that allows utilities to charge higher prices at times of shortages when wind or renewable energy sources cannot provide sufficient supply.

This could help operators of gas-fired power plants that are not profitable under current conditions due to low spot prices and competition from cheaper coal and renewables.