Dr Hans-Wilhelm Schiffer, RWE Rheinbraun AG Germany explains the challenges faced by Germanys coal market due to the liberalisation of the electricity market and increased climate protection requirements.

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Dr Hans-Wilhelm Schiffer, RWE Rheinbraun AG Germany explains the challenges faced by Germanys coal market due to the liberalisation of the electricity market and increased climate protection requirements.

Over 90% of the total lignite and three quarters of the total hard coal available in Germany is used for power generation. In 2000, coal contributed all of 51% to total gross power generation of 564 TWh. 26 percentage points of this were accounted for by-lignite and 25 percentage points by hard coal. Not only is the power sector coal's most important market, coal is also Germany's foremost energy source in power supply.

Features of the German power market

The German power market has a pluralistic structure. Some 900 companies are involved in the supply of electricity. These include six transmission grid operators, 60 to 70 regional companies and about 800 local suppliers.

When the Act on the Reorganisation of the Energy Industry Law came into force on 29 April 1998, a new regulatory framework was established. Unlike the situation in many other member states of the EU, the German market was liberalised 100% in one step. Since then, direct competition has existed for all customers.

Arrangements governing the non-discriminatory use of power grids were made in the form of association agreements that are subject to ongoing development. Even without the establishment of a regulatory body, fierce competition has developed between suppliers. Power prices have dropped dramatically, in some cases by 50% for industrial customers and by up to 20% for households. A functioning power trade has evolved.

On the wholesale market, the price of electricity has settled at marginal cost level. With such pricing, which is typical of markets with excess capacities, it is the marginal cost of the last power plant just required to satisfy demand that is crucial. If we arrange the capacities according to their variable costs, we find that it is the hard coal-fired power plants that currently have the crucial impact on wholesale power prices.

The marginal cost of hard coal-fired power plants is based on the prices for hard coal imports free German border, plus transportation costs. It also depends on power plant efficiency and other variable costs. A comparison between developments in wholesale power prices and the marginal costs of hard coal-fired power plants shows a parallel upward trend over the last few months. There is no sign as yet of a transition to total costs being a pricedetermining factor.

Further features of the liberalised German power market are company cooperation schemes, mergers and increasing internationalisation. The French EdF group, for example, has a major interest in EnBW in south-west Germany. In the north-east, an amalgamation of the power companies HEW, Hamburg, VEAG and Bewag, both based in Berlin, and the lignite producer LAUBAG, Senftenberg, is emerging under the umbrella of the Swedish Vattenfall group. This newly formed utility will establish itself as a fourth power alongside RWE, EON and EnBW. Power generation in Germany is characterised by a broad energy mix. The following trends are foreseeable for the various energy sources.

Nuclear energy

On 11 June 2001, EnBW, E.ON, HEW an RWE concluded an agreement with the Federal government on the orderly termination of nuclear energy use. The agreement define the amount of electricity that each power plant is allowed to generate retroactively from January 2000. For all plants combined, the total quantity is 2623.3 TWh, which translates into an average power plant service life of 3 years. In return, the Federal government has guaranteed undisturbed operation within the specified quantity of residual electricity and assures the disposal of nuclear waste. Under this agreement, nuclear energy's share in Germany's power generation is expected 1 gradually decline from 30% in 2000 (29% in 2005, 23% in 2010,18% in 2015,8% in 2020 to 2% in the year 2025.

Lignite

In 2000, 167.7 million t of lignite was extracted in Germany, almost entirely in opencast mines. This was 4% more than in 1999. Germany thus continues to be the biggest lignite producer worldwide.

Lignite is the only domestic energy source that is extracted without subsidies and is available in sufficient quantities in German; Its heating value averages some 9100 kJ /kj Hence, the 2000 output corresponds to a tot: heating value of 52.1 million t cot equivalent.

Lignite mining operations are centre around four key areas, the Rhenish mining area, the Lusatian mining area, the central German mining area near Leipzig, and the Helmstedt mining area. In these four' areas, all of the lignite is extracted using open cast mining techniques. Lignite is also extracted in Hessen, where some is even mined in underground operations, and in Bavaria.

In each of the four major mining areas, one company extracts lignite. The companies are: RWE Rheinbraun AG in the Rhineland; Lausitzer Braunkohle AG (LAUBAG) in Lusatia, with HEW as its major shareholder; Mitteldeutsche Braunkohlengesellschaft mbH (MIBRAG), in which Washington Group International, NRG Energy Inc. and PowerGen have a third interest each; and Braunschweigische Kohlen-Bergwerke AG (BKB), a wholly-owned subsidiary of EON.

Lignite is produced in a total of 10 efficient opencast mines. These are Hambach, Garzweiler and Inden in the Rhineland, Janschwalde/Cottbus-Nord, Welzow-Siid and Nochten/Reichwalde in Lusatia, Profen and Schleenhain in central Germany as well as Helmstedt and Schoningen in Helmstedt. At the end of May 2001, the German lignite mining industry had a total workforce of 20,372.

The faster pace of market liberalisation in Germany relative to competitors' markets in other European countries has been placing heavy pressures on the industry to adjust. However, this development did not find the lignite industry unprepared even though the severity of the competitive pressures were greater than expected.

In fact for decades the Rhenish lignite mining industry has viewed the efforts to increase productivity and match operations to market requirements as an ongoing task. This is reflected, for instance, in the transition to ever more efficient mining systems, in concentration on a small number of large-scale opencast mines, in the streamlining of activities within companies, and in focussing lignite sales to baseload power plants located near the mine.

A comprehensive rationalisation programme was launched in 1992. It yielded a 25% productivity increase in the Rhenish lignite mining area from 6900 t in 1991/92 to 8600 t of coal in 1999/2000. The other lignite mining areas also reported comparable success in cutting costs by enhancing productivity. Lignite extraction costs in these mining areas were reduced by about a quarter on average in the period.from 1995 to the first half of 2000.

In 2000, 155 million t or approximately 92.5% of the lignite produced in Germany was used for electricity and heat generation in power plants. Total lignite-based power plant capacity amounts to some 22,000 MW (gross).

In the Rhineland, all opencast mines and lignite-fired power plants were combined to form one company on 1 April 2000. This integration was an important factor in the optimisation of operations and administration. Combining enterprises enabled the company to exploit the cost-cutting potentials existing along the entire process chain, from extraction to electricity generation.

The new company, which has been operating under the name RWE Rheinbraun AG since 1 October 2000, will reduce the costs of power generation from Rhenish lignite by an additional 30% to below Euro 0.02 kWh by mid-2004. Half of this reduction had already been achieved by mid-2001. These measures, which are also being undertaken in the other mining areas, will ensure that lignite, whose low marginal costs give it high priority in existing power plants, will stay competitive in the new power plants that are to be built.

All lignite-fired power plants are equipped with highly efficient flue gas desulphurisation systems. Thanks to the power plant renewal programme implemented in the second half of the 1990s (over 5000 MW of new power plant capacity with supercritical steam pressure and efficiencies exceeding 40%), the Lusatian and central German mining areas boast the most advanced power plant pool worldwide.

hi the Rhineland, all existing lignite fired units expected to be operational in the longer term underwent a retrofit pro-

Доктор Ганс-Вильгельм Шиффер из RWE Rheinbraun AG (Германия), рассказывает о вызовах, с которыми столкнулся германский рынок угля из-за либерализации рынка электроэнергии и ужесточения требований по охране климата.

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