Commission approves €2.6 billion State aid to RWE for early closure of lignite-fired power plants in Germany

The European Commission has found a €2.6 billion German support measure in favour of RWE Power AG (‘RWE’) to be in line with EU State aid rules. The aid will compensate RWE for the early phase-out of its lignite-fired power plants in the Rhenish mining area.

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, 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 to the Commission an amendment to its agreement with RWE, including a revised method of calculation 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.

The Commission’s assessment

Based on its in-depth assessment, the Commission has concluded that the measure in favour of RWE constitutes State aid, as it grants an advantage to the power plant operator. However, the Commission concluded that the aid is:

• necessary for RWE to phase out its lignite-fired power plants, which are currently profitable. The Commission found 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.
• 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, given that the current net value of RWE’s forgone profits is measurably higher than the current net value of the compensation.

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.

Today’s decision does not cover the Commission’s formal investigation into the compensation measure in favour of LEAG. The Commission is in continuous constructive contact with the German authorities on that case, also in light of the ongoing exchanges between the German authorities and LEAG.  The Commission is fully conscious of the need to address the challenges that lignite exit poses for the affected regions and workers in eastern Germany. The Commission is closely cooperating with the German authorities to find workable solutions to address the challenges posed by lignite exit and today’s decision shows that such solutions can be found.

Background

The European Green Deal has recognised that further decarbonising of the energy system is critical to reach climate objectives in 2030 and 2050. The production and use of energy across economic sectors account for more than 75% of the EU’s greenhouse gas emissions. Therefore, a power sector largely based on renewable sources must be developed, complemented by the rapid phase-out of coal and decarbonisation of gas.

The Guidelines on State aid for climate, environmental protection and energy 2022 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) Treaty on the Functioning of the European Union.

These guidelines, applicable as from January 2022, create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the 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.