The European Commission has expressed doubts about a planned €4.35 billion compensation scheme for German energy companies, agreed as part of the country’s plan to phase out coal by 2038, saying the sums involved are “likely to constitute state aid” under EU law.
The German Bundestag sealed an agreement in June last year to compensate RWE and LEAG with €4.35 billion for closing the country’s last remaining coal plants and mining operations by 2038.
Germany notified the plan to the European Commission shortly after, saying the €4.35 billion would cover foregone profits for energy companies that will no longer be able to sell electricity on the market, as well as the rehabilitation of coal mines.
But that deal, struck after long months of strenuous talks, is now thrown into doubt by the European Commission, which decided to open an in-depth investigation into the matter on Tuesday (2 March).
“At this stage, the Commission’s preliminary view is that the German measure in favour of the lignite operators mentioned above is likely to constitute state aid,” the Commission said in a statement.
“Furthermore, the Commission has doubts that the measure is in line with EU state aid rules,” the EU executive said.
Margrethe Vestager, the EU’s Competition Commissioner, said public aid to companies should be “kept to the minimum necessary” in order to prevent unfair competition on the EU’s single market.
“The information currently at our disposal does not allow us to confirm this with certainty, and we will now investigate this further,” she said.
The €4.35bn compensation offered to power plant operators is highly controversial in Germany, partly because Berlin had initially refused to disclose the details of the deal negotiated behind closed doors with RWE and LEAG.
The Öko-Institut, a think tank, has evaluated that the sum could be overestimated by up to €2 billion. In January last year, Der Spiegel reported that the LEAG group had planned to shut down its coal-fired power plants anyway because they were rapidly becoming unprofitable compared to cheaper renewable electricity.
Environmental lawyers ClientEarth have repeatedly called for an examination of the €4.35bn aid package, citing legal issues with the arrangement.
“The Commission is basing its investigation in part on whether the phase-out aligns with EU climate goals – and in our view, it concretely does not,” said Juliette Delarue, a state aid lawyer at ClientEarth.
“The timeline for phase-out is far beyond the timeframe that would ensure adequate climate protection across the EU,” she argued, saying many coal plants in Germany will become unprofitable and even loss-making before 2038.
The Commission seemed to agree on this point, saying it had “doubts that compensating operators for foregone profits reaching very far into the future corresponds to the minimum required”. The EU executive also questioned the “input parameters of the model used by Germany to calculate the foregone profits, including fuel and CO2”
Regarding compensation for mine closures, the Commission said it “has doubts with regard to the information received, in particular on the counterfactual scenario used in the case of LEAG.”
The Commission will now carry out an in-depth investigation to determine whether its initial concerns are confirmed. Any interested party will be able to submit comments during that process.
[Edited by Zoran Radosavljevic]