State aid: the Commission approves tender mechanism to compensate for the early closure of hard coal fired generation in Germany

Daily News 26 / 11 / 2020

Economy - published on 30 November 2020

Source: European Commission Spokesperson’s Service

The European Commission found that a competitive tender mechanism introduced by Germany to compensate hard coal-fired power plants for phasing out earlier than foreseen promotes European Union
climate objectives and is in line with State aid rules. According to the German coal phase out law, the use of coal for the production of electricity will have to phase-out by 2038. Germany has
decided to encourage the early closure of hard coal-fired power plants via a shutdown premium awarded through a competitive tender mechanism. This mechanism will also ensure an orderly closure of
coal fired-plants, in order to guarantee the energy security of supply in Germany. The German energy regulator will publish seven tenders between 2020 and 2023, for closures of hard coal-fired and
small lignite-fired (below 150 MW) power plants that will take place annually until 2026. The winners of the tenders will be determined by the energy regulator on the basis of transparent selection
criteria. The design of the tender mechanism should allow Germany to eliminate the highest amount of CO2 emissions from the market at the lowest cost, whilst avoiding the closure of those power
plants that are essential for network stability. In its decision, the Commission does not take a final position on whether the measure provides the operator with an advantage over its competitors,
and whether it thus constitutes State aid. At the same time, the Commission assessed the compatibility of the measure under Article 107(3)(c) TFEU and concluded that the measure would in any event
be compatible with the EU’s Single Market. The Commission concluded that the contribution to EU environmental and climate goals of the measure outweighs any potential distortion of competition and
trade brought about by the support. On this basis, the Commission approved the measure under EU State aid rules. Executive Vice-President Margrethe Vestager, in charge of
competition policy, said: “Phasing out hard coal-fired power plants contributes in a crucial way to the transformation to a climate-neutral economy, in line with the European Green Deal
objectives. Germany’s plans to provide incentives for the early closure of such plants and to compensate the businesses that leave the market early via competitive tenders are in line with EU
State aid rules. That’s because competitive tenders are an effective tool to ensure that the compensation is kept to the minimum needed and ultimately to avoid an undue distortion of competition
in the EU’s Single Market”. The full press release is available online.

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