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ClientEarth Communications

30th October 2019

State Aid

Should German coal companies get cash to close?

Germany, the home of roughly a third of the EU’s entire coal fleet – that’s nearly 70 coal plants – announced this year that it will phase out coal by 2038.

Coal operators are trying to fleece the government by asking for such staggering sums to take their assets offline – and companies banking on those payoffs may be in for a nasty surprise when the law rules them out.

The news was bittersweet for the environmental community. A commitment was long-awaited but 2038 is far too late. Meanwhile, German coal operators are, predictably, not overjoyed by the news. They want the government to grant them billions of euros in State aid as ‘compensation’ for the closure of their coal power plants. We’re challenging the rationale for it.

We’ve published a report that demonstrates how German and EU law will make it extremely difficult for Germany’s lignite power plants to get paid to shut down.

The Paris Agreement: the beginning of the end for coal

When the Paris Agreement on climate change was signed in 2015, there was a general consensus that it marked the beginning of the end of coal in Europe; to have any chance of meeting the climate goals laid out in the global agreement, Europe must move beyond coal by 2030.

Half of the EU’s Member States are currently set to be coal-free by 2030 or earlier.

But this was not just a political decision. The cost of clean energy has been tumbling faster than anyone predicted, and today, coal’s economics are failing.

Increasingly, the financial industry has begun to recognise the risks associated with continuing to invest in this dirty fuel: Europe’s coal plants will not be profitable in the future.

Germany’s coal phase-out

Germany has struggled to meet its climate targets. The country has a major CO2 problem. In fact, approximately a third of its electricity still comes from burning coal – including a vast amount of lignite, the most polluting form of coal.

In an effort to reach the Paris Agreement targets, in February 2019 it announced plans to phase out coal with a target date of 2038, with an option of bringing it forward to 2035 if conditions allow.

With plans to phase out coal on the table, the German government has begun talks with power plant operators to discuss a closure plan and compensation payments. RWE, Germany’s biggest utility company has asked for ‘at least’ €1.2bn for every GW of energy it will lose, racking up a bill for tens of billions of Euros that will be footed by the taxpayer.

Payoffs to coal companies are not justified

RWE’s asks are disproportionate and completely unjustified. Research by Sandbag shows the company’s gross profits from coal collapsed in the first half of 2019 – its lignite fleet has lost over €650 million so far this year. Not a single lignite unit covered its full fixed costs. The claim made by RWE completely ignores the weak market outlook for coal mining and burning.

Our energy lawyer Sam Bright said: “The decline of coal – for economic and climate reasons – has been foreseen for some time now. Coal operators are trying to fleece the government by asking for such staggering sums to take their assets offline – and companies banking on those payoffs may be in for a nasty surprise when the law rules them out.

“Any funding for the energy transition needs to go to communities needing help to move past coal – not to the operators themselves, who have simply refused to face facts for too long.”

State aid compensation like this must be approved by the European Commission. It assesses the proposed compensation to see if it is really necessary, in light of, amongst other things, future expected profits by coal operators.

Sam added: “To qualify for payoffs under German law, companies would have to be able to prove they would suffer significant financial hardship due to the closures. And to meet EU State aid criteria, operators receiving the money would have to prove they were not being given an unfair, market-distorting advantage.
“Given the dismal and rapidly deteriorating financial state of Germany’s lignite fleet, justifying major payoffs will be extremely hard from a legal perspective.”

Read the report: No money for old lignite - is German coal compensation legal?