EU backs Germany's support of coal giant

The European Commission has approved 2.6 billion euros ($2.8 billion) of state aid from the German government to energy company Rheinisch-Westfalische Elektrizitatswerk, or RWE, that is to compensate for the early closure of coal-fired power plants.

The closure of RWE's profitable power plants has played a significant role in Germany's push to phase out all coal-fired electricity production by 2038, which is fixed in the nation's laws.

European Union law prohibits state aid, unless for reasons of general economic development. The commission has now determined that the aid provided to RWE was "appropriate and proportionate" in order to compensate for the early closure of its coal-powered plants, and to assist Germany and the EU achieve their 2030 climate goals on reducing greenhouse gas emissions, it said in a statement.

It said that although the payment was found to fall under the category of state aid, it is deemed necessary to achieve the objective of coal phase-out, reported Deutsche Welle News.

The commission said the compensation would also contribute to the decarbonization of the economy, in line with the EU's objective of becoming carbon-neutral by 2050.

"The commission concluded that the contribution to EU environmental and climate goals of the measure outweighs any potential distortion of competition brought about by the support," it said.

Margrethe Vestager, the commission's executive vice-president in charge of competition policy, said: "Our in-depth investigation has confirmed that this 2.6-billion-euro compensation to RWE is in line with our EU state aid rules.

"The measure will support the phase-out of lignite-fired power plants, thereby contributing to the decarbonization of the economy in line with the European Green Deal objectives."

In 2021, Germany informed the commission of its intention to provide a total 4.35 billion euros in compensation to RWE and to a separate energy provider, Lausitz Energie Kraftwerke, or LEAG, in eastern Germany, allocating 2.6 billion euros for RWE's lignite installations in the Rhine region, and 1.75 billion euros for the LEAG installations in the Lausitz region, reported Energy Live News.

RWE, Germany's biggest power producer, welcomed the decision, confirming the compensation would cover its coal phase-out costs, reported Reuters.

Germany's economy ministry said the investigation regarding the agreed amount with LEAG was still ongoing.

"The German government is in talks with LEAG, the affected federal states, and the European Commission to conclude this process as soon as possible as well," it said in a statement.

The commission said it was "fully conscious of the need to address the challenges that lignite exit poses for the affected regions and workers in eastern Germany".