EC approves financial compensation for early closure of German lignite-fired power plants  

The EC has given the green light for up to €1.75bn to be paid in compensation to Lausitz Energie Kraftwerke (LEAG) for the early retirement of four lignite-fired power plants in Saxony and Brandenburg, Germany. It is proposed to close the Jänschwalde plant in 2028, followed by Boxberg in 2029, and Schwarze Pumpe and Lippendorf in 2038.

The decision follows a lengthy state aid investigation launched in 2021 after the German government notified Brussels of a proposed €4.35bn compensation package for the two main producers of lignite-fired electricity in the country: LEAG and RWE Power.

Under Germany’s coal exit law, all coal-fired generation must be phased out by 2038. Although the country’s current lignite-fired power stations are profitable, the government negotiated early closure agreements to ensure a ‘predictable, legally secure and socially managed exit’ as it works towards its goal of net zero by 2045.  

The EC concluded that the proposed compensation meets the EU’s state aid criteria of necessity, appropriateness and proportionality. It said financial incentives are required to persuade operators to mothball economically-viable plants in support of Germany’s environmental and climate objectives. It added that alternative policy tools would not have provided the same degree of certainty for a phase-out aligned with national law and industry consensus.

State aid will be released to LEAG in two instalments and is designed to cover fixed additional costs arising from early closures. These include social measures to support affected workers and forgone profits, which will be calculated ‘according to an approved formula’. Brussels stressed that the nominal value of the compensation will not exceed €1.75bn and that the estimated net value of LEAG’s forgone profits and additional costs stays within this limit.

Teresa Ribera, the EC’s Executive Vice-President for Clean, Just and Competitive Transition, says the ruling reflects both climate ambition and economic fairness. ‘By committing to phase out lignite, Germany is taking an essential step toward decarbonising its economy and supporting the EU’s clean transition. This transformation must be both fair and competitive, and our in-depth assessment shows that the environmental benefits clearly surpass any potential competition concerns.’

The decision follows the EC’s approval in December 2023 of €2.6bn in state aid the closure of RWE’s lignite-fired power plants in Germany, including its Weisweiler plant, which is due to close in 2029.  

EU coal production and consumption reach historical low

While Germany moves to retire some of Europe’s most carbon-intensive power plants, data released earlier this year from the EU’s statistical office Eurostat highlights a continent-wide decline in coal’s role in the energy system. In 2024, EU coal production fell 12% to 242mn tonnes, while consumption dropped 13% to 306mn tonnes – both the lowest figures the EU has recorded. These reductions follow already sharp declines between 2022 and 2023, when consumption fell 23% and production 21%.  

Coal’s contribution to electricity generation also continued to shrink. Its share dropped from 16% in 2022 to 12% in 2023, reflecting higher renewable output, lower electricity demand, improved hydropower conditions and the easing of gas market pressures following the 2022 energy crisis.

Trade flows have also shifted significantly since sanctions were imposed on Russian coal in response to the invasion of Ukraine. Russia’s net exports to the EU fell by 98% between 2021 and 2023. In 2023, the EU sourced 90% of its hard coal imports from Australia, the US, Colombia, South Africa and Kazakhstan. Despite domestic production declines, the EU’s hard coal import dependency rate stood at 67% – well below the dependency levels for both oil (95%) and natural gas (90%), according to Eurostat.

Ireland becomes Europe’s 15^th coal-free country  

Against this backdrop, Ireland has eliminated coal from its power mix. In June, the country closed its last operational coal plant, Moneypoint, in County Clare. Ireland is the sixth European nation to complete a coal phase-out.

However, environmental groups emphasised that the milestone did not signal the end of work on the energy transition. ‘This isn’t “job done”,’ said Alexandru Mustață, Beyond Fossil Fuels campaigner, at the time. ‘The government’s priority now must be building a power system fit for a renewable future; one with the storage, flexibility and grid infrastructure needed to run fully on clean, domestic renewable electricity.’

Moneypoint will retain a limited back-up function until 2029, operating under emergency instruction from grid operator EirGrid and burning heavy fuel oil rather than coal.

Elsewhere in Europe, coal exits continue but with delays in some regions. Italy had planned to complete its mainland phase-out in mid-2025 with the closure of Enel’s Brindisi Sud and Torrevaldaliga Nord plants. However, both units will remain on standby as strategic reserves due to concerns about energy security linked to geopolitical instability. On the Italian island of Sardinia – which is still isolated from the mainland grid – Enel’s Sulcis and EPH’s Fiume Santo plants are expected to run until a new subsea interconnector is completed.

Spain, meanwhile, has pushed ahead with coal-to-gas conversion at EDP’s Aboño plant, while two smaller company-owned plants, Soto de Ribera and Los Barrios, are understood to have been closed and are undergoing repurposing for future projects.