Commission approves up to €1.75 billion German measure to support LEAG for early closure of lignite-fired power plants

This article is brought to you in association with the European Commission.

The European Commission has approved, under EU State aid rules, a German support measure of up to €1.75 billion in favour of Lausitz Energie Kraftwerke AG (‘LEAG‘). The aid will compensate LEAG for the early phase-out of its lignite-fired power plants in the Lusatian mining area by 2038. The measure compensates LEAG for fixed additional costs of the early closure of plants, including social costs to support employees when transitioning to new work, as well as for forgone profits to be determined based on an approved formula.

The German measure

According to the German coal phase-out law, the use of coal for the production of electricity will have to phase out by 2038. Germany decided to enter into agreements with the main producers of lignite-fired electricity, LEAG and RWE Power AG (‘RWE’), to encourage the early closure of lignite-fired power plants. LEAG’s plants will permanently shut down over 10 years, in 2028, 2029, 2035 and 2038. In 2021, Germany notified the Commission of its plan to compensate these operators with €4.35 billion: €1.75 billion for the LEAG installations in Saxony and Brandenburg and €2.6 billion for the RWE lignite installations located in the Rhineland.

In March 2021, the Commission opened an in-depth investigation to assess whether Germany’s plans constituted State aid. In December 2023, the Commission approved the State aid to RWE.

The Commission assessment

The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the EU (‘TFEU’), which enables Member States to support the development of certain economic activities subject to  certain conditions, and the Guidelines on State aid for climate, environmental protection and energy (‘CEEAG’), which allow Member States to support measures reducing or removing CO2 emissions.

The Commission found that the measure in favour of LEAG constitutes State aid, as it grants an advantage to the power plant operator. During the in-depth investigation, Germany revised the measure for LEAG and amended the legal basis accordingly. On this basis, the Commission concluded that the aid is:

• necessary for LEAG to phase out its lignite-fired power plants, which are currently profitable. The Commission found that LEAG needed to be incentivised and compensated to exit the market, to achieve Germany’s environmental protection objectives and to reduce greenhouse gas emissions by 2038;
• 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;
• proportionate, as it is limited to the minimum necessary and does not lead to overcompensation. The compensation covers in a first stage fixed additional costs, which LEAG incurs, and which are directly caused by the early closure of its profitable activities. This includes social costs (i.e. payments to compensate employees for the gap between their current income and their future pension or income from other work), additional post-mining costs, and compound interest losses linked to precautionary savings vehicles. In a second stage, the forgone profits of LEAG’s power plants and its refinement business will be determined at the time of their actual closure, each based on a formula. Together, the current net value of LEAG’s forgone profits and additional costs will not exceed the aid amount. In nominal terms, the compensation will not exceed €1.75 billion.

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.

Background

The 2022 CEEAG provide guidance on how the Commission will assess the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU.

The Guidelines create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the European Green Deal objectives in a targeted and cost-effective manner. The rules align with the important EU’s objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and cater for the increased importance of climate protection. They include sections on aid for renewable energy, energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, aid for the closure of power plants using coal as well as measures to ensure security of energy supply, subject to certain conditions.

For More Information

The non-confidential version of the decision will be made available under the case number SA.53625 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

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