Having approved in February a law that effectively bans the sale of new petrol and diesel cars in the European Union from 2035, aiming to speed up the switch to electric vehicles, the EU is taking on the closure of coal fired power plants.
On 12 December the Commission approved a €2.6 billion German support measure in favour of RWE's early closure of lignite-fired power plants in Germany. Compensation of €2.6 billion will be paid out in instalments by 2030. RWE had already shut down five power plant units and briquette production from 2020.
According to the German coal phase-out law, the use of coal for the production of electricity must phase-out by 2038. Germany decided to enter into agreements with the main producers of lignite-fired electricity, RWE and Lausitz Energie Kraftwerke AG (LEAG), to encourage the early closure of lignite-fired power plants. In 2021, it notified the Commission of its plan to compensate these operators with €4.35 billion: €2.6 billion were earmarked for the RWE lignite installations located in the Rheinland and €1.75 billion for the LEAG installations in the Lausitz.
In March 2021, the Commission opened an in-depth investigation to assess whether Germany's plans amounted to State aid. In December 2022, Germany notified the Commission of an amendment to its agreement with RWE, including a revised method of calculating of RWE's forgone profits to demonstrate that the €2.6 billion compensation was justified and proportionate. In March 2023, the Commission extended the scope of its ongoing in-depth inquiry to cover the new elements notified by Germany.
Based on its assessment, the Commission has now concluded that the measure in favour of RWE did constitute State aid, as it grants an advantage to the power plant operator. However, the Commission also decided that the aid is necessary for RWE to phase out its lignite-fired power plants, which are currently profitable, and that RWE needed to be incentivised and compensated to exit the market, in order to achieve Germany's environmental protection objectives and to reduce its greenhouse gas emissions by 2030.
The Commission therefore decided that state aid was appropriate, as alternative policy measures would not allow for such a well-targeted and predictable phase-out as well as a consensus between Germany and the power plants operators, and proportionate, as it is limited to the minimum necessary and does not lead to overcompensation, given that the current net value of RWE's forgone profits is measurably higher than the current net value of the compensation.
Finally the Commission concluded that the contribution to EU environmental and climate goals of the measure outweighs any potential distortion of competition brought about by the support. On this basis, the Commission approved the German measure under EU State Aid rules.
This decision does not cover the Commission's formal investigation into the compensation measure in favour of LEAG, which is ongoing. The Commission is in continuous constructive contact with the German authorities on that case, also in light of the continuing exchanges between the German authorities and LEAG.
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