The European Commission has opened an in-depth investigation to assess whether German plans to compensate lignite-fired power plants for phasing out earlier than foreseen are in line with EU State aid rules, the EU’s antitrust chief said on March 2.

“The phase-out of lignite-fired power plants contributes to the transition to a climate-neutral economy, in line with the European Green Deal objectives, said Commission Executive Vice-President Margrethe Vestager, in charge of competition policy. “In this respect, our role is to safeguard competition by making sure that the compensation granted to the operators of the plants for phasing out earlier than foreseen is kept to the minimum necessary. The information currently at our disposal does not allow us to confirm this with certainty, and we will now investigate this further,” she added.

According to the German coal phase out law, the use of coal for the production of electricity will have to phase-out by 2038, the Commission said in a press release.

Germany has decided to enter into agreements with the main producers of lignite-fired electricity, RWE and LEAG, to encourage the early closure of lignite-fired power plants.

Germany notified the Commission of its plan to compensate these operators with €4.35 billion for foregone profits, as they cannot continue to sell electricity on the market, and additional mine rehabilitation costs resulting from the anticipated closure, the Commission said, noting that of the total €4.35 billion, €2.6 billion are earmarked for the RWE lignite installations located in the Rheinland and €1.75 billion for the LEAG installations in the Lausitz.

At this stage, the Commission’s preliminary view is that the German measure in favor of the lignite operators mentioned above is likely to constitute State aid. Furthermore, the Commission has doubts that the measure is in line with EU State aid rules the press release read.

The Commission’s doubts concern the proportionality of the compensation payments, in particular with regard to compensation for forgone profits, the press release read. Lignite operators are compensated for profits they can no longer make due to their early closure. The Commission said it doubts that compensating operators for foregone profits reaching very far into the future corresponds to the minimum required.

The Commission also expressed doubts regarding certain input parameters of the model used by Germany to calculate the foregone profits, including fuel and CO2. Moreover, the Commission said it did not receive information at plant level, the press release read.

The Commission’s doubts also concern the proportionality of the compensation payments with regard to compensation for additional mine rehabilitation costs. Whilst the Commission acknowledged that additional mine rehabilitation costs that result from the early closure of the lignite plants could also justify a compensation for RWE and LEAG, it expressed doubts with regard to the information received, in particular on the counterfactual scenario used in the case of LEAG.


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