A number of European sovereigns and sub-sovereigns ultimately control the lion’s share of the eligible hard coal capacity for this auction. By issuing or aspiring to issue green bonds, several of the ultimate owners recently have indicated more purposeful commitment to climate change mitigation in general.
As such, we believe that a particular amount of political pressure could enter into the auction dynamics. For operators looking to rid themselves of hard coal CO2 burdens on balance sheet, it may make sense to allow some headroom for other players’ potentially politically driven levels of bids in the auction. Indeed, we are of the view that operators looking to exit German hard coal should bid €0 per MW.
However this would be on the condition that there would be no further liabilities once the decommissioning has been effected. We expect further liabilities to accrue in the coal sector and view the probability of ever making an over-the-cycle monetisable profit there to be slim, especially for operators with implicit or explicit guarantee streams from high investment-grade ultimate owners.
