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The dusk of the coal paradigm - study discloses investment risks for German electricity utilities

09/08/2009 - Ambitious climate policy and high CO2 prices result in advantages for the four major energy providers in Germany in many cases. This is the finding of the study "German power utilities - caught in the CO2 trap?" presented at a conference of the Society of Investment Professionals in Germany (DVFA) in Frankfurt today. The study is a collaborative project of the WestLB bank and the research project “Climate Mainstreaming” that investigates climate-related opportunities and risks in insurance, asset management and lending.
The dusk of the coal paradigm - study discloses investment risks for German electricity utilities

Copyright: PIK, WestLB

"What we see in the automotive sector holds also for the energy sector. A strategy where ecology and economy go hand in hand is most probable to create, for the electricity utilities, a business model that will last in the future," comments Christoph Bals, coordinator of the Mainstreaming project at Germanwatch.

Investment strategies of the energy providers have been evaluated against the backdrop of different climate policy scenarios. Given the outdated German power plant stock, substantial investments in new power plants are necessary in the next few years. The model calculations contained in the study show that investments into large fossil power plants don't pay off for numerous constellations. This holds also without taking emission trading into consideration or with assuming low CO2 prices. The four big German electricity utilities (EnBW, E.ON, RWE, Vattenfall) are stuck in an investment dilemma.

Especially new hard coal-fired and gas-fired power plants hardly prove to be a profitable alternative. Single lignite-fired power plants are most likely to be economically viable, yet they might conflict with climate policy since lignite-fired power plants have the highest CO2 output of all energy sources. The German government's mitigation targets for 2050 correspond, proportionally transferred to the German energy sector, to emissions of about five big lignite-fired power plants of 2000 MW each. Those who still decide to set up a lignite-fired power plant might sooner or later be obliged to retrofit it with carbon capture and storage (CCS).

In addition to climate policies, price dynamics on the commodity markets bear substantial risks for investors. Considering the official support and the lower risks, renewable energies appear to be a promising option. For that reason the progressive investments of the large electricity utilities in renewable energies has been evaluated as an economically appropriate step. "The SuperSmart Grid is a big opportunity for electricity utilities to escape from their investment dilemma. It combines two approaches that complement each other: on the one hand large scaled, wide-area electricity supply from renewable sources and on the other hand intelligent grids for decentralised renewable energies, demand control and virtual power plants," says Armin Haas from the Potsdam Institute for Climate Impact Research, and co-author of the study.

Partners of the Climate Mainstreaming project, that has been supported by the German Federal Ministry of Education and Research, are the environmental organisation and consortium leader Germanwatch, the Potsdam Institute for Climate Impact Research (PIK), the University of Potsdam, the Wuppertal Institute for Climate, Environment and Energy, the German Institute for Economic Research, and the European Climate Forum.

Download of the study "German power utilities - caught in the CO2 trap?":
Executive summary (pdf; 1,5 MB), full study (only in German (pdf; 1,4 MB)
(Full study in English language will be available soon.)

More on the project:


Christoph Bals, Executive Director - Policy, Germanwatch: +49 (0)228 6049217 or
+49 (0)174 3275669,

Armin Haas, Senior Scientist, Potsdam Institute for Climate Impact Research (PIK): +49 (0)331 2882530 or +49 (0)174 3239973,

PIK press office: tel: +49 331 288 25 07,


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