Backhoe in a quarry

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Today, the European Commission gave its approval under state-aid law for large parts of the Act on the Phase-out of Coal-fired Power Plants.

The provisions governing the compensation to be received by operators of coal-fired power plants using hard coal have been approved. This decision sends an important signal and gives all those involved a reliable basis on which to plan.

This means that the auction-based system for hard coal is compatible with the state-aid rules and the European single market. The approval came in time for the successful bids from the first round of auction are to be awarded their contracts in December and will make it possible for 5 gigawatts worth of capacity in coal-fired power plants to be retired before the end of the year. This means that that the first round of auctions for hard coal, which was organised by the Bundesnetzagentur in August 2020, can be completed on schedule. There was one adjustment made to the rules on the exit from coal, concerning 2027: The last call for bids to retire capacity in 2027 is to be scrapped to ensure a consistent and high level of competition in the auctions leading up to that year. As of 2027, the decommissioning of coal-fired power plants using hard coal will therefore be based on regulatory provisions only.

As for the phase-out of lignite-fired power plants, it is likely that the European Commission will open a formal investigation. This means greater legal certainty for everyone involved, as there have been several instances where approvals under state-aid law granted by the European Commission were declared void by the European Courts on the grounds that no formal investigation had taken place. Unlike in the case of hard coal, the number of market participants in lignite-fired power plants is too small for auctions to be used to determine compensation amounts. This is why – in line with the recommendations made by the Commission for Growth, Structural Change and Employment – this issue is to be resolved by way of negotiations, compensation payments and a contract under public law with the companies affected. A formal investigation would not call that process into question.

The phase-out of coal will not be delayed. The investigation has no impact on the decommissioning of lignite-fired power plant capacity in Germany. The exit path, which stipulates for the first power plant to be taken off the grid on 31 December 2020, continues to apply and is being followed.