No future without coal
Address given by Wolfgang Clement, Federal Minister of Economics and Labour, at Coal Day 2005
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| Minister Wolfgang Clement |
I. Framework conditions for the energy supply industry.
Address
Over the years the Federal Government has created the framework conditions that are necessary for Germany to remain a strong and attractive base for the energy supply industry.
This infrastructure has to be protected and developed if Germany is to retain its position as an energy supplier, for the energy industry is the driving force of our national economy and also one of its most important investors.
It provides skilled jobs and is a technology leader on a global level. It is not the worst indictment of our previous policies if we are now able to observe that companies have already set about freeing the “investment backlog”.
Between now and 2010 it is planned to invest almost € 20 bn in power-station and mains supply projects.
I am not aware of a bigger investment programme under way anywhere in Germany.
And that is just the beginning.
The recently passed Energy Industry Act will help breathe new life into the existing scheme for modernising our power stations and transmission-line infrastructure.
This sends a signal to electricity suppliers that in Germany they will find a competitive environment with fair and non-discriminatory access to the mains network.
What is important for businesses keen to invest in the energy sector is the type of energy mix that we want.
The current German Government is operating on the following basis:
- with lignite we have a competitive, and absolutely subsidy-free, indigenous primary energy source that at present meets about 26% of our electricity production needs.
- Coal-based generation must also continue to play a major role in Germany’s power supply make-up. About 10% of our electricity output is at present based on German-mined coal.
- Coal industry funding, the Renewable Energies Act, the emissions trading scheme and the Energy Industry Act are all cornerstones of the framework that we have set up for business undertakings over the years.
It is our view that high-efficiency, eco-friendly fossil fuels and renewable energies will constitute the energy mix of the future.
Nuclear power will be ruled out of the equation in the longer term. This decision was taken five years ago and I do not see any need for fundamental changes now, although in my opinion this does not exclude a review of the life-spans of individual power stations.
There is absolutely no doubt in my mind, however,
- that Germany will at some point have to reach a decision on nuclear waste disposal,,
- that our country should maintain nuclear safety research
- and that we should not bar German companies from participating in the building or dismantling of civil nuclear power capacity in those countries that wish to undertake such activities and where any military purpose can be ruled out..
Over the course of the last year we have amended the EEG (Renewable Energies Act) in order to create a more efficient production system. I am sure that there are still a number of legislative details to be put in place in this area.
As part of the ongoing coalition negotiations the SPD and CDU parties have endorsed the proposal for a revision of remuneration rates, as contained in the Renewable Energies Act for 2007, the aim here being to adapt to the economic conditions of the individual renewable energy sources. I therefore expect to see a reduction in some of the remuneration rates for renewables.
Significant improvements are to be made to the hardship regulations as they apply to electricity-intensive industries, and indeed the economic-policy negotiating group of the now-forming coalition has reached agreement on this point. I personally would welcome this very much.
The renewables make a major contribution to climate protection. However, they must also be measured against the criteria of energy-supply security and cost effectiveness.
As far as Germany is concerned wind power is the most important of the renewable energy resources and we are currently pinning our hopes on extending our wind generators offshore. Yet new wind-based power generating capacity will not simply sell itself, for the operating characteristics of such generators are far from ideal when it comes to providing a stable electricity supply. Even now we find that our grid reliability is being affected, especially on windy days. And not just ours but the European integrated supply network too.
The Dena supply-grid study now shows, for the period leading up to 2015 at least, how – as we extend our wind generation capacity – we can successfully integrate wind generated electricity into our interlinked system and at the same time keep grid reliability at its customary high level. The first phase of this programme involves the retrofitting of out-of-date installations and – what is especially important – the accelerated expansion of our supply networks. The German interlinked grid system currently needs extending by about 850 km between now and 2015. The cost of such a programme has been put at some € 1.1 bn. This extended supply grid, which is needed in order to handle wind generated electricity, will then also be available to the electricity traders operating in the EU’s deregulated single market.
To this effect we require planning legislation capable of keeping pace with the scale and momentum of such a project. As you know we have also initiated measures in this area and a bill has already been submitted to the Bundesrat. I hope that the new Bundestag will continue this legislative process.
And there is an element of shared system responsibility here too, by which I mean the temporary suspension of wind-power infeed when supply security and system stability require it.
As you see, this is a challenging task – but it can be solved. That is the stated view of the Dena Study. What we now need is for all involved to work together: equipment manufacturers, plant operators, network operators and government – all have to play their part. Government’s role will be in framing legislation, which also means adjusting the Renewable Energies Act to create shared system responsibility.
As well as measures designed to promote renewable energies we also have the CO2 emissions trading scheme – a highly sensitive instrument that affects much more than just our climate, for it will also help determine the shape of our future energy supply structure. And then there is the impact of emissions trading on energy prices.
For the moment this is an issue that has to be dealt with by the Office of Fair Trading and the Federal Network Agency. But before we enter the next emissions trading period our job is to examine how the existing system has affected our energy supply structures. In my view it is not practicable, in the long term, to have a competition driving force like the emissions trading scheme operating alongside a system of supply and demand controls made up of legislative interventions such as the EEG. The scientific advisory body acting for my predecessor Ministry also quite rightly pointed this out some time ago.
When introducing the emissions trading scheme we took great care to ensure that the competitive opportunities open to fossil fuels would be maintained.
It will be many years before we can dispense with fossil based energies, and especially coal.
With the help of the latest power station technology coal must continue to constitute the mainstay of our electricity supply for a long time to come.
And these are not empty words, as can be seen in the decision taken by the previous Government to maintain aid to the German coal industry until 2012.
II. The coal revival
Coal is and will remain an indispensable energy source worldwide.
It is the number-one fuel for the international power generation sector and some 38% of all electricity generated is now coal based.
And this is unlikely to change for some considerable time.
Coal consumption and coal production are set to increase significantly in line with growing electricity demand.
Long-term prognoses by the European Commission and the International Energy Agency, for example, indicate that global coal consumption is set to increase at a high tempo.
While the IEA expects coal consumption to grow by more than 50% between 2000 and 2030, the EU Commission predicts a doubling of the figure over the same period.
The greatest rates of growth will be seen in the developing countries of Asia.
States like China and India have enormous reserves of coal at their disposal, but almost no oil deposits of their own.
The huge upsurge in demand from these countries has again helped put coal back into the international spotlight.
We might even talk of a “coal revival”, which has in part been instigated by a number of other developments:
- for example the huge growth in oil prices of recent years that has highlighted the need for a balanced diversification of the fuel mix.
- Considerable efforts are now being taken – and Germany is no exception here – to develop Clean Coal Technologies capable of achieving sustainable reductions in CO2 emission levels from coal fired installations. One example of this is the component test facility at Gelsenkirchen-Scholven. Here the ultimate objective is to construct a coal-fired demonstration power station that by 2010 will be achieving efficiency levels of about 50%. And the CO2 –free power station is also one of our aims. The first generation of such installations could well come on line by the year 2020..
- The USA, which wants to improve its power supply by constructing a number of new coal-fired plant, is also set on achieving this target..
III. Security of energy supply
As natural resources become increasingly scarce the issue of energy security is now being taken very seriously around the world.
The European Commission too seems increasingly concerned at the price antics of the energy markets. And this is reflected in a much greater appreciation of the role played by coal.
The new Energy Commissioner Andris Piebalgs has recently stated that for reasons of supply security and diversity coal must continue to play a role – and an important one at that – in the European fuel mix.
Speaking on behalf of the current German Government, and in the interest of the international competitiveness of our economy, I can only endorse this view wholeheartedly.
The aim of our energy policy is to ensure that our nation has access to a reliable, cost effective and environmentally sustainable supply of energy.
This is fundamental requirement for the future growth and development of German industry.
It is well known that in Germany we are highly reliant on imported energy and consequently at the mercy of events in the global marketplace.
Witness the recent problems with coke supplies. German coke works are currently only supplying about 50% of the country’s coke requirements.
This is in stark contrast with other major steel producing countries, most of which have much larger coke making capacities and are able to supply up to 100% of their needs from home-produced coke.
When the steel boom in China led to shortages on the world coke market in 2004 the result was literally an explosion in coke prices on the spot market.
Chinese coke, which had previously cost between $50 and $80/t, was suddenly selling for more than $400/t. And coke from China is still selling at above $200/t.
The impact of the coke shortages and huge upsurge in prices was to be felt both by the German steel producers and the steel processing sector.
Steel producers could not use their plant to full capacity, while processors were unable to pass all of the additional costs on to their customers.
The steel industry has now drawn a number of conclusions from this tense supply situation.
ThyssenKrupp is to expand its coke making plant at Duisburg South and an application was filed in June for the construction of an additional coke battery.
Germany is currently dependent on imports for about 60% of its coal needs, while the figures for gas and oil stand at 80% and 97% respectively.
Appropriate provisioning plans have been put in place for oil and gas in the event of disruptions to supplies resulting from unforeseen political, military or terrorist-related events.
And we intend to retain these facilities.
Home-produced coal, for its part, contributes to our energy supply security and coal is the only fuel that Germany has in abundant supply.
About 90% of Germany’s energy reserves are composed of solid fuel, with two thirds of this comprising our homebase coal deposits.
As stated earlier, about 10% of German electricity production is now based on indigenously mined coal.
It is therefore logical, from an energy security point of view, to maintain Germany’s coal mining industry.
Put plainly: in the current climate of scarcity of resources, when every national economy is striving to safeguard its supplies, any talk of closing down the coal mining industry appears to me to be misguided.
Nowhere else in the world – as far as I am aware – are plans being considered for abandoning an existing national energy source; and we should not be doing this either.
IV. Government coal policy
We will of course continue with the restructuring of the German coal industry.
This year sees the expiry of the agreement generally referred to as the “coal compromise” of 1997.
We have already implemented this financial package – which is supported by all sides – without amendment.
Any financial commitments outstanding from the 1997 coal agreement will be serviced next year.
For the period 1998 to 2005 the Government will then have expended nearly € 26 bn in aid to support the restructuring process.
Between 1997 and 2005 the industry underwent a 50% downsizing of its production levels and workforce. These massive cut-backs were achieved in a socially acceptable way. The fact that we have witnessed no serious friction during this process can be attributed to the personnel policy of the company concerned, namely RAG, and to the co-operation of the workers’ representatives.
This process of adaptation needs to be continued and must be accomplished, as in the past, in a socially compatible manner.
These key pillars to the agreement – namely a gradual reduction in coal industry aid combined with a socially-acceptable downsizing of the industry’s workforce – will be achieved by the solution for follow-up financing post-2006, as drawn up the year before last by the Federal Government, the coal company and the relevant union, the IG BCE.
This will give the German coal industry the planning predictability it needs for the years ahead, with aid to coal mining to be maintained for the moment up to the year 2012. It is planned that coal production should be scaled down from the present 26 million tonnes to 16 million tonnes by 2012. I personally am firmly of the opinion that coal mining in Germany should not be discontinued in the period thereafter but rather should be maintained at the then minimum production level based on four or five working collieries.
The Government has already approved a sum of some € 5.7 bn for the period 2006 to 2008, while North Rhine-Westphalia has committed itself to paying € 1.62 bn.
The decision on allocations for this period has already been taken in December 2004 – in agreement with the Land North Rhine-Westphalia.
This means that the Government and North Rhine-Westphalia are bound to it.
As regards the period after 2009 I would continue to support the solution adopted in 2003.
I can see no other socially-compatible route. And I am saying this with an eye on last Friday’s agreement between the coalition partners.
Anyone who believes that the mining industry still has the financial leeway to achieve socially-acceptable restructuring with less money than has been made available up to now better produce some proof of this.
If the information supplied to us by the coal industry in 2003 for the follow-up regulation is correct then I see no leeway available. The so-called Berlin coalition partners have produced an audit assessment on this subject and of course this has to be taken into account.
However, I find it difficult to accept that definite savings of € 750 million – on which the Dusseldorf coalition agreement has set its sights – can be made for the years 2009 and 2010. Put simply, I stand firmly by the declared will of all those involved to reach a socially-acceptable solution and would add, by way of preventing any misunderstanding, that this also means no compulsory redundancies in the German coal industry in the foreseeable future.
Against this background I am pleased that we have now succeeded in achieving the necessary extension of the restructuring funds to 2008.
V. European Union
The Federal Government has taken steps to lay down clear prospects for the coal industry not just nationally but at European level too.
Brussels has now given the green light to coal mining for the period to 2010 at least, with aid to the industry having been sanctioned up to that date.
Here it is interesting to note that the approval process for the coal-industry restructuring plan submitted by the German Government dragged on for nearly a year.
This shows the critical approach taken by the European Commission.
To be absolutely honest, I doubt whether this approach is appropriate. In Brussels too European coal policy in general, and the relevant aid policy in particular, is in my opinion in need of self-critical examination.
In a world in which we cannot rule out real threats to energy supplies I am of the view that the Brussels coal policy of today is no longer in touch with current developments.
Nevertheless, the plan accepted by the EU Commission constitutes an important basis for the amounts of aid that have to be applied for and approved each year up until 2010.
VI. The RAG flotation
RAG has gone through a process of fundamental restructuring with a view to positioning itself to meet the challenges ahead.
The company sees this as a first step in the preparations for flotation on the stock exchange.
This is the only way in which the “white” part of RAG can exploit its opportunities and prospects for growth.
I make no secret of the fact that I support the idea of stock-market flotation.
I do so because I can also see in it a number of industrial and commercial opportunities for North Rhine-Westphalia.
Degussa and STEAG, for example, would be able to provide future-proof jobs for the region if they were allowed to exploit their potential to the full.
I therefore want to state quite clearly that all parties involved have to work together to make such a flotation a reality. Everything revolves around our capacity to deal with the technological and social risks associated with the mining industry and an equitable understanding has to be found here. This of course depends on the mining regions and I would expect them to meet their responsibilities without being burdened by intolerable levels of risk.
I am confident that a satisfactory solution can be found between all the parties, though would also draw attention to the fact that we must not lose any more time. By this I mean that it should be possible, by early 2006, to find a consensual solution.
I certainly hope so for RAG’s sake and for the sake of the workforce of this special and important company whose future activities are of such huge significance for our country.
I wish you all luck.
Press release from the Federal Ministry of Economics and Labour (German version):
http://www.bmwa.bund.de/Navigation/Presse/pressemitteilungen.html
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