LONDON, Sept. 22, 2016 (IEEFA.org) — The Institute for Energy Economics and Financial Analysis (IEEFA) published a report today showing how Germany can close a Lausitz-area lignite complex in a fashion that assures the owners will pay for clean-up costs and that allows affected mining and power-plant communities to weather the transition.
European Union regulators today approved transfer of the cluster of lignite mines and their associated power plants in eastern Germany to two privately owned Czech companies, Energetický a Průmyslový Holding (EPH) and PPF Investments Limited. The deal allows Vattenfall to rid itself of the troublesome assets and allows the buyers to continue to operate them.
The IEEFA report (“A Foundation-Based Framework for Phasing Out German Lignite in Lausitz”) offers a detailed outline for how the Czech owners can fund a mechanism for phase-out and cleanup. (German translation of report executive summary).
“Our model sees the mine and power plant owners retaining full responsibility of liabilities,” Gerard Wynn, the London-based lead author of the report, wrote in a companion commentary published on IEEFA’s website.
“In short, we would have the new Lausitz power-plant owners themselves pay the bill,” Wynn wrote.
Wynn said the Vattenfall/EPH-PPF deal “raises timely and fundamental questions about lignite’s role in the economy of Germany and Europe, how and when such assets will be phased out of the region’s energy mix, and who will pay for the expensive clean-up of the open-pit mines left behind.”
“We see ample precedent for our proposal, which details how the private sector can bear the burden of mine-rehabilitation cost in line with the “polluter pays principle” and how the foundation model can be sustained by upfront and regular contributions from the new owners of the Lausitz lignite mine and power plants.”
“We believe the owners are up to the task,” Wynn added.
Additional excerpts from Wynn’s summary:
- “Under the asset transfer from Vattenfall, Energetický a Průmyslový Holding (EPH) and PPF Investments Limited will receive not just the €1 billion ($1 billion) in cash but an additional approximately €0.6 billion ($670 million) in capacity payments in guaranteed government subsidies. We propose that EPH and PPF Investments use part of this windfall to pay €0.75 billion ($840 million) upfront into the Lausitz foundation, and we propose further that they pay a power-plant levy of €3 ($3.35)/ MWh) through the phase-out period, raising an additional €1.5 billion ($1.45 billion) (barely a quarter of estimated average undiscounted cash flow of €11.79 ($13)/ MWh through 2030).”
- “Provided these funds are invested cautiously, we see them comfortably meeting the upper end of the estimated €1.4-€2.6 billion ($1.56-$2.9 billion) in mine-rehabilitation liabilities (more than Vattenfall has acknowledged).”
- “Our proposal avoids any prospect of a taxpayer-funded lignite bailout. It lays a sustainable path forward for Germany to meet its climate goals, and it allows the asset owners to operate their power plants profitably through the phase-out period.”
- “Equally important, our proposal offers a clear, long-term, phase-out process and timeline that allows for much-needed transparency and helps local communities prepare for a post-lignite future.”
Full Report: A Foundation-Based Framework for Phasing Out German Lignite in Lausitz
Media contacts:
Karl Cates, [email protected], 917.439.8225
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About IEEFA
The Cleveland-based Institute for Energy Economics and Financial Analysis (IEEFA) conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources.
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