EU to investigate German payout for RWE, LEAG coal phase-out

BRUSSELS: German plans to provide 4.35 billion euros ($5.2 billion) in compensation to utilities RWE and LEAG to encourage them to speed up the phasing out of lignite power plants may involve state aid, EU competition enforcers said on Tuesday as they opened an investigation.

Berlin in December struck the deal with RWE and LEAG, which is 50-50% owned by Czech energy group EPH and private equity group PPF Investments. The two utilities are Germany's two largest operators of lignite, or brown coal, power plants and mines.

The European Commission said it was concerned about the proportionality of the compensation for foregone profits and whether this was the minimum payout in line with EU rules, as well as the parameters used by the Germany to calculate the profits.

It also expressed doubts about the compensation for additional mine rehabilitation costs.

"Our role is to safeguard competition by making sure that the compensation granted to the operators of the plants for phasing out earlier than foreseen is kept to the minimum necessary," European Competition Commissioner Margrethe Vestager said in a statement.

"The information currently at our disposal does not allow us to confirm this with certainty, and we will now investigate this further," she said.

Environmental campaign group ClientEarth welcomed the EU investigation, saying that the coal phase-out does not comply with the bloc's ambitious climate goals.

"The rest of Europe is looking to Germany as it makes its way out of coal. We are heartened that the Commission is taking this step to make sure that coal phase-outs are in line with EU law and see that public money is used to best effect," ClientEarth's lawyer Juliette Delarue said.

The German proposal is part of the country's effort to completely wean the country off coal by no later than 2038.