Energy companies get ready to sue over RWE’s lignite exit compensation

A group of unnamed municipal utilities and energy companies have launched a complaint with the European Commission over the 2.6 billion euros that RWE received as compensation in the coal exit, Jürgen Flauger reports in Handelsblatt. The European Commission has already entered into an in-depth state aid investigation of the agreement between the German government and lignite coal mining and coal power companies. The deal saw the companies receive compensation amounting to 4.35 billion euros in return for shutting down operations by 2038. If the Commission approves the contract between RWE and the government, the companies stand ready to take legal action by suing for annulment of the contract, Flauger writes. This could not only hurt RWE but also eastern German lignite company LEAG, which receives 1.75 billion euros according to the contract, which was finalised in February 2020.

The German parliament (Bundestag) adopted the country's coal exit law in July 2020, 18 months after the multi-stakeholder coal exit commission recommended an end to coal-fired power generation in the country by 2038 at the very latest. According to Flauger, the entire lignite phase-out agreement could be endangered if financial modalities have to be renegotiated.

The plaintiffs argue that RWE, which has managed to become a major player in the renewable energy market due to its asset swap with utility company E.ON, was getting yet another unfair advantage by using the compensation payment to further modernise its power generation. They say the compensation is too high considering that rising costs for CO2 emissions would make lignite power generation uncompetitive anyway. RWE rejected the accusations by its competitors: "The compensation of 2.6 billion euros for RWE is significantly lower than the damage we actually incur, as proven by expert reports," a spokesperson told Handelsblatt. The federal energy ministry in charge of the contract with the lignite operators said the compensation payments were “legally permissible and appropriate”, Flauger writes.

At the end of last year, RWE shut down its first lignite unit in North Rhine-Westphalia, a state in the west of Germany. For hard coal, the coal exit law stipulates auctions for plant operators to take capacity off the grid according to the government's timetable.