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The economic viability of hard-coal-fired power plants

Helmuth-M. Groscurth

Study commissioned by "Economists against the Mainz hard-coal-fired power plant" with financial support from the European Climate Foundation

Summary

The German utility Kraftwerke Mainz-Wiesbaden AG is planning a hard-coal-fired heat and power plant with a gross electrical output of approximately 820 MW. An investment of circa 1.3 billion euro is slated.

This study shows that the economic viability of this investment is threatened by a variety of factors:

  • The many new power plants currently in construction or in planning will lower the price of electricity, since new power plants have lower marginal costs than existing plants. This reduces the revenues of all power plants.
  • Developments in 2008 have shown that in the upcoming years – after the financial and economic crisis has been resolved – we can expect sharp increases in the price of fuel. The price of coal may, as in 2008, rise more steeply than the price of gas.  As a result, the operating costs of a hard-coal-fired power plant would increase more than its revenue.
  • Greater utilization of renewable energy sources to produce electricity will, in the mid- and long term, result in conventional power plants not being used at full capacity. This has a direct impact on revenues. It also requires that conventional plants be able to react flexibly, which is difficult for hard-coal-fired plants to achieve.
  • Many renewable energy facilities have no marginal costs at all. The increased use of renewable energy will cut electricity prices during many hours. This is a further factor that reduces hard-coal-fired power plant revenues.
  • However the greatest economic threat to hard-coal-fired power plants by far comes from climate policy objectives. Mid- and long-term climate protection goals can only be reached if specific CO2 emissions from electricity production are reduced from currently 600 g/kWh to 450 g/kWh by 2020 and to at most 150 g/kWh by 2050. This can not be achieved with the investments currently planned; to the contrary, the slotted investments put the achievement of these goals at risk. Therefore, the CO2 price will continue to rise until plants remain within the emission budget. Building new hard-coal-fired power plants today will in the near future force society to choose between either closing these plants prematurely or abandoning climate protection objectives.

New hard-coal-fired power plants lead to rising CO2 prices and thus also to higher prices for electricity. Hard-coal-fired power plants therefore do not guarantee consumers affordable electricity prices long-term, but rather add considerable economic risks.

After weighing chances and risks, taking economic considerations and climate policy into account, we advise public investors against building new hard-coal-fired power plants.