Brussels gives conditional approval for €1.7bn German coal exit subsidy

5 months ago 17

The German government announced on Tuesday (4 June) that it has received approval in principle from Brussels to allocate subsidies worth €1.75 billion to coal major LEAG but with the payout of one-third of the sum contingent upon future power and CO2 prices.

As part of a €40 billion package to smoothen Germany’s coal exit by 2038, the country’s energy majors were promised billions to shut down their power plants. East German coal miner and plant operator LEAG was thus promised €1.75 billion – a sum that now got a partial nod from Brussels.

Germany required state aid approval from the European Commission before the funds could be disbursed.

“This is an important step, especially for the people in the region,” Robert Habeck, the economy minister, told a press conference. The approval is not yet final.

Given that east Germans – for whom coal is a key industry – will shortly vote in both municipal and EU elections, the deal had been “urgent”, explained Jörg Steinbach, labour minister of the east German state of Brandenburg.

He credited an urgent appeal by Habeck and other high-level politicians to Commission President Ursula von der Leyen, who also happens to be German, for the timely success.

LEAG will get two tranches of money: €1.2 billion is guaranteed for restoring the damage done to the environment by decades of open cast mining and paying pensions. The remaining €550 million is contingent upon the profitability of coal power until 2038.

Based on a yet-to-be-disclosed formula, the company will be compensated for “lost earnings” due to the forced shutdown of their plants.

However, should market forces – namely cheap renewables and high CO2 prices – push LEAG’s coal power plants to close, the currently cash-strapped German government would not have to pay.

Habeck explained that if the plants are unprofitable and would shut down anyway, then the government should not have to compensate the plant owners.

LEAG’s chief executive Thorsten Kramer was confident the compensation will find its way into the company’s coffers. Given that neither wind nor solar are dispatchable, “power plants will be shut down when the country has found another security of supply”, he explained, while speaking alongside Habeck.

West German energy major RWE will receive €2.6 billion to phase out coal, following a 2021 German government decision. The move did not receive much pushback from Brussels, as the company committed to shutting down its plants until 2030.

A plan to finance 10 GW of back-up gas power plants has yet to be approved by Brussels.