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The European Commission has decided that Germany’s financial support for RWE Power AG’s plans to phase out its lignite-fired power plants in the Rhenish mining area is in line with EU state aid rules.

The decision clears $2.8 billion (EUR 2.6 billion) in compensation for RWE for the early phase-out.

According to the German coal phase-out law, the use of coal for the production of electricity will have to be phased 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.

The Commission said in a media release that in 2021, it was notified by the German authorities of the plan to compensate these operators with $4.68 billion (EUR 4.35 billion): $2.8 billion (EUR 2.6 billion) was earmarked for the RWE lignite installations located in the Rheinland and $1.88 billion (EUR 1.75 billion) for the LEAG installations in the Lausitz.

The Commission recalled that in March 2021 it 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 calculation of RWE’s forgone profits to demonstrate that the $2.8 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.

The Commission said its assessment found that RWE needed to be incentivized and compensated to exit the market and phase out its power plants, which are profitable currently, to help Germany hit its environmental protection objectives. The Commission also said it has found the $2.8 billion to be proportionate and not leading to overcompensation.

The Commission stressed that this decision does not cover its formal investigation into the compensation measure in favor of LEAG. The Commission said it continues to pursue constructive talks with the German authorities on that case, also in light of ongoing exchanges between the German authorities and LEAG. 

The Commission also said it is fully conscious of the need to address the challenges that lignite exit poses for the affected regions and workers in eastern Germany. The press release said 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.