4 Out of 5 EU Coal Plants Are Losing Money

Four out of five of coal power plants in the European Union are losing money, according to a report by think tank Carbon Tracker.

The report, Apocalypse Now, warns governments and investors to concentrate on enabling shutdowns that are as low in cost as possible and to find ways to compensate communities hit hardest by the closures.

Carbon Tracker puts losses from European coal plants this year at €6.6 billion ($7.2 billion). It said that without an accelerated timetable of closures, governments will find themselves on the hook for subsidies, allowing costs to be passed to the ratepayers or standing by while utilities erode their value. All three are bleak options.

Potential liabilities from loss-making coal plants, old and new, could end up in legal disputes.

In August, for example, a court in Poland ruled that the 1-gigawatt Ostrołęka C coal plant could not be built. Minority investors in Polish utility Enea had brought the case to halt the plant.

The Polish government, a major shareholder in Enea, wants the Ostrołęka C plant built in part to appease pro-coal constituencies. But the court ruled that the plant's construction should have been approved by the utility's management, not by a shareholder resolution that potentially would have shielded the management from liability for the project. 

In the wake of the court’s decision, shares in Enea jumped 4 percent.

“EU coal generators are hemorrhaging cash because they cannot compete with ever-cheaper renewables and gas, and this will only get worse,” said Matt Gray, head of power and utilities at Carbon Tracker and co-author of the report. “Policymakers and investors should prepare to phase out coal by 2030 at the latest.”

Germany established a coal commission to plot its route to decommissioning. The group of cross-party politicians, local leaders, environmentalists, academics and business representatives voted for a target date of 2038. By comparison, the U.K. is on track to hit its 2025 target.

One coal power plant that closed in the U.K. in 2018 cited government policy as the sole cause of closure in its annual accounts.

“Government policy has been deliberately targeted to encourage the development of lower-carbon forms of generation such as nuclear and renewables,” it remarked.

Spain and the Czech Republic have no such target dates on closures, but Carbon Tracker expects coal plant losses in each country to nudge €1 billion.

The right way to close a coal plant

If four out of five plants aren’t profitable, that of course means one in five is.

The most-efficient German plants are still in the black, and high wholesale prices in places like the Netherlands are keeping plants on the right side of breakeven. Subsidies in Poland are keeping plants operable.

Carbon Tracker suggests a model for closures that sees government take the initial hit in return for economic and infrastructure paybacks from the utilities.

The process would involve governments using their low cost of capital to lend money to the utilities for the closure of coal power plants. A condition of the deal would be that the benefiting utilities invested the funds in renewables, employing the local workforce along the way. Power revenue from those projects would then be used to pay down the original loan.

The model is touted as being particularly effective in Eastern European countries with a high reliance on coal power and strong labor union support for coal.

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