Coal exit reverse auctions are not a universal solution applicable in all markets.
This analysis identifies the primary drivers that make reverse auctions suitable to facilitate coal phase-out in Germany and reviews what other jurisdictions should consider when preparing a coal phase-out implementation policy.
Successful implementation of a coal-exit reverse auction depends on three key factors.
1. State readiness Security of electricity supply is well-planned, and the state has sufficient financial resources to fund compensation for early decommissioning. 2. Local context The existence of laws for the protection of businesses against expropriation and the fact of political support for coal together make a reverse auction a pragmatic legal solution supported by government, civil society, and industry. 3. Auction design Creating complementarity between pull and push measures – auction (“carrots”) and forced closure (“sticks”) – incentivises most power plant operators to seek decommissioning.
The right policy mix can increase the likelihood of successful auctions.
Germany has implemented several additional policies, adjacent to the reverse auctions, including renewable buildout and carbon pricing, that have helped to accelerate the phase-out of coal.
The coal phase-out announcements by multiple countries in 2019–2021 have created a crucial momentum. The question now is how best to implement these phase-outs. There are several instruments available for their facilitation. Reverse auctions are one option, although not a universal solution applicable in all circumstances.
The German governing parties of the 20th legislative period (2021–2025) agreed to phase out coal “ideally by 2030”. A gradual phase-out of German lignite and hard coal is therefore planned and enshrined in law.
This analysis aims to answer the many questions we receive about the German coal exit auction process. It summarises the phase-out process for hard coal and small lignite power plants in Germany, beginning with a short historical overview. It then identifies the primary factors that make reverse auctions suitable in the German context. It also describes how the auction design interacts with adjacent regulations. Finally, the paper presents the auction results and lessons learned with the goal of being useful for an international audience.
Senior Associate (until February 2022)
Director International Programme (until September 2022)