EU “in principle” approves €1.75 bln phase-out compensation for eastern German coal company

Eastern German lignite mining and power plant company Leag has received the green light for up to 1.75 billion euros in state support to compensate for the implementation of the “early” phase-out of coal-fired power production in eastern Germany. Following a deal between the European Commission and the German government saying that the compensation payment “in principle” is in line with EU subsidy regulation, Leag is now entitled to receive the money to finance the transition of its business away from the fossil fuel, and help to create new jobs in the Lusatia region after the coal exit’s definitive end date in 2038.

The Commission granted the payment following a review of the case which began in 2021, after local policymakers and the German government urged it to give its green light before the EU elections this weekend. “This is an important step for the people in this region,” Germany’s economy minister Robert Habeck said. The compensation payments could now be used to ensure funding for social support programmes for coal workers as well as for the restoration of former mining areas.

Habeck said the payments to Leag would fall in line with a range of measures the government has taken to support the region’s transformation towards climate-neutral energy generation and industrial production. With targeted support for innovative transformation technologies, the government is aiming to create the conditions for a thriving economy in Lusatia. Leag CEO Thorsten Kramer welcomed the agreement with the EU Commission, calling it “an essential element for our further successful transformation to being a green powerhouse.”

The deal reached with the Commission — as well as the initial plan agreed upon by Germany’s previous government — includes a gradual release of the funds. The costs of phasing out coal amount to an estimated value of around 1.2 billion euros, the minimum amount that Leag will be entitled to, according to the economy ministry. Release of the residual funds of up to 550 million euros is tied to the potential future profitability of closed coal plants and the foregone profits Leag incurs as a result of the politically agreed phase-out. The economy ministry argued that this procedure would ensure that the company does not end up being “overcompensated” for its role in the coal phase-out.

Assessing the compensation for Leag had been much more complicated than for its western counterpart RWE, which already received the green light as it agreed to close its remaining plants well before the final exit date in 2038. The Commission would continue to examine the scheme’s exact outline and release a formal decision in the next months, the ministry added.

Christian Ehler, from the conservative Christian Democrats (CDU) and who represents the region in the European Parliament, said the agreement would would finally bring clarity for people in Lusatia after an “excruciating three years of negotiations.” “Leag can continue on its path consisting of renewable power, hydrogen-ready power plants, and energy storage,” Ehler said. He said the decision would show that “the EU isn’t abandoning East Germany,” and marks a milestone on Lusatia’s ambition to become Europe’s first so-called Net Zero Valley, where a whole region’s industry is converted to becoming greenhouse gas neutral.

The agreement did not mention an envisaged end date for coal before 2038. However, Bernhard Herrmann, member of the government committee for climate and energy from the Green Party, said that continued renewables expansion will automatically push coal plants out of the market, “as it can already be observed now.” The deal reached with the Commission would lower the taxpayers’ costs for the phase-out, he argued. “The coal companies soon will take their plants offline themselves, since coal-fired power production is less and less profitable.”