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Germany agrees to €40B regional support package to ease coal phaseout

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Germany agrees to €40B regional support package to ease coal phaseout

Several states most affected by Germany's planned coal phaseout will get €40 billion to soften the economic blow from closing mines and power plants over the next two decades under a plan approved by the Cabinet on May 22.

Germany is on a path to shut down all of its coal-fired power stations and related lignite mines by 2038 as part of a compromise reached by a government-appointed commission earlier this year. The phaseout is expected to have a major impact on the three remaining coal mining regions in the country, and the compensation package is meant to calm fears that the phaseout will wreck regional economies.

"With this plan, the federal government ensures clarity in the affected regions and creates long-term prospects with sustainable jobs for local people," Peter Altmaier, the minister responsible for the economy and energy, said in a statement announcing the agreement.

SNL ImageOne of RWE's lignite, or brown coal, mines in western Germany.
Source: Associated Press

Although renewable energy capacity has been rising sharply, Germany still generates about two-fifths of its electricity from lignite and hard coal. That is putting emissions reduction targets at risk in a country that otherwise prides itself on its environmental leadership.

The compensation plan, which will now be turned into a draft law, foresees funding for projects ranging from expanding motorway and railway links and building out internet coverage to building research and development centers and shifting thousands of government jobs into the coal-mining regions.

It stipulates that the government will invest the full amount of up to €40 billion by 2038 at the latest. The four affected states — North-Rhine Westphalia, Saxony, Brandenburg and Saxony-Anhalt — will directly spend €14 billion. The federal government will use €26 billion mainly for infrastructure projects.

Meanwhile, the government is still working on legislation to govern the specific timetable for closing power plants and mines, including compensation for operators such as RWE AG, Uniper SE and Energetický a prumyslový holding a.s. based on the commission's proposals.

Uniper CEO Klaus Schäfer said on a May 7 earnings call that the company had held the first round of talks around structuring the exit with Altmaier's ministry a few weeks ago.

"The next step would be to enter into specific discussions with the government representatives to move a step closer regarding the legal specification and the desire to implement the coal commission's recommendations," Schäfer said, adding that the goal is to reach a consensus with the affected companies by this fall.

RWE, which operates more than 12 GW of coal power capacity and several large lignite mines, has said it will push for up to €1.5 billion in compensation per gigawatt of near-term closures.