Faltering prospects for the sale of the lignite, or brown coal, division of energy producer Vattenfall have set off alarm bells in Saxony and Brandenburg, the coal-producing eastern German states that could be hurt most by the downturn.
Politicians worry about the inability of Germany’s third-largest electricity provider to find a buyer willing to pay billions for an increasingly worthless business. That in turn endangers an orderly end to brown coal in regions that depend heavily on jobs in mines and fossil-fuel burning plants.
“The issue is of great importance to us,” said Albrecht Gerber, the state of Brandenburg's economics minister, in an interview with Handelsblatt
The brown coal-fired power plants and open pit mines in the Lusatia region near the Polish border supply thousands of people in Brandenburg with jobs, he added. “These jobs must be protected in the long term.”
Sources close to negotiations say Vattenfall might actually have to pay for any party to take over the lignite division.
Similar worries exist in Saxony. A source in the state's economics ministry stressed that its government “naturally has a great interest in the sales process progressing sensibly.”
“We have to protect our interests,” including retaining jobs and returning old mines to a natural state, the ministry source said.
Vattenfall, a Swedish company, is hastily looking to dump its coal operations after the Swedish government ordered it to get out of the carbon-polluting brown coal business in 2014. But the offload has been a tough sell in Germany because of the country's national, government-backed switch from fossil fuels and nuclear power to renewables.
The power company’s brown coal operation includes four plants and four mines, once valued at €2 billion ($2.2 billion).
This week, the planned sale of the lignite division is entering a critical phase. Binding offers must be presented by Wednesday. Among interested parties are two Czech energy groups, CEZ and EPH.
But early hopes of a deal have since been dampened. One of the major reasons is a plunge in wholesale electricity prices — from €35 per megawatt hour in late 2014 to €20 today.
The low prices are putting pressure on the profitability of power plants. Although Vattenfall added 10 hydroelectric power plants to sweeten any potential deal, there is no longer any talk of getting €2 billion.
Now sources close to negotiations say Vattenfall might actually have to pay for any party to take over the lignite division.
In view of the problems, alternatives to a sale are being considered. For example, the German industrial trade union IG BCE has developed a foundation model. This would see Vattenfall freeze all coal-mining operations while cleaning up coal mines and repurposing them as renewable energy power stations.
State ministry officials, however, say a Plan B is playing no official role at the moment.
“This isn’t a matter we are currently addressing,” said Mr. Gerber.
Elsewhere the foundation model is being welcomed, including by the Greenpeace environmental group. “A foundation solution to phasing out brown coal is the best solution,” said Karsten Smid, a Greenpeace activist.
By selling the open pit mines, Vattenfall would simply saddle another company with the lignite problems, said Mr. Smid. A foundation would be the easiest way to ensure that the utility assumes its part of the responsibility, he added.
Jürgen Flauger covers the energy market for Handelsblatt, including electricity and gas providers, international market developments and energy policy. Klaus Stratmann is the deputy bureau chief of Handelsblatt in Berlin and covers the energy market. To contact the authors: [email protected], [email protected]