Two Czech firms, miner Vrsanska Uhelna and energy group EPH, submitted bids by Wednesday’s deadline to buy Vattenfall’s German coal mines and associated power plants. But one has to question the strategic logic behind these bids, given that the lignite coal mines are loss-making, especially since electricity prices have fallen by around 40% in Germany since the sale began in late 2014.
Even if prices rebound, which the firms are hoping in a few years’ time, the coal mines are doomed anyways. Germany is transitioning to producing 80% of its electricity from renewable sources by 2050, giving green energy priority on grids. Coal is the most polluting fossil fuel used to generate electricity, so it should be the first to be replaced in the country’s energy transition. (For more on coal vs. renewable energy, see the video of last year’s Blouin Creative Leadership Summit panel Sustainable Solutions to the Global Energy Crisis.)
Sources in the firms say that Vattenhall will have to fork over some $2.2 billion as part of any deal in order to cover much of the inevitable decommissioning costs for the coal mines. From the Swedish government- owned company’s perspective, wanting to sell the doomed mines is perfectly reasonable. (It would face a nationalistic uproar if it tried to simply close the mines now, since they generate 10% of Germany’s electricity and employ 8,000 people.)
There must be some incentive (perhaps behind-the-scenes) therefore, enticing the Czech firms to bid for these loss-making mines that will need to be closed at some point within the next few decades. Even so, no one likes managing a decline, and the necessary downsizing will only bring the new owners political and social headaches down the road.