Overview
After five years of investigation, the European Commission approved, on November 18, 2025, German financial support of up to €1.75 billion in favor of Lausitz Energie Kraftwerke AG (LEAG) under the EU State aid rules. The aid shall compensate LEAG for the early phase-out of its lignite-fired power plants in the Lusatian mining area in Eastern Germany, close to the Polish and Czech borders. The compensation covers both additional costs of the early closure and forgone profits, which remain to be determined based on an approved formula.
Teresa Ribera, Executive Vice-President for Clean, Just and Competitive Transition of the European Commission commented: "By committing to phase out lignite, Germany is taking an essential step toward decarbonizing 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 of the decision clearly surpass any potential competition concerns."
During its preliminary assessment, leading to the opening decision, the Commission had still taken a more formalistic approach, focusing primarily on the amount of compensation. Interestingly, in its in-depth investigation, the Commission conducted a comprehensive evaluation of both the nature and the objectives of the German compensation in light of the environmental policy goals.
According to a German law of 2020, pursuing the decarbonization goals, the use of coal (lignite) to produce electricity will have to phase out by 2038. This is considerably earlier than the expected life span of several existing power plants. The German government therefore entered into public law agreements with the two main producers of lignite-fired electricity, LEAG and RWE Power AG (RWE), to define the relevant conditions for the early closure and significant financial compensation. While the obligations to close the plants started to apply right after execution of these agreements, the actual payment of the agreed compensation amounts was made subject to approval by the Commission under the State aid rules.
To start this approval process, Germany notified the Commission in 2020 of its plans to compensate these two operators with €1.75 billion for LEAG and €2.6 billion for RWE. In 2021, the Commission opened an in-depth investigation and invited all stakeholders to submit their views. Following a thorough assessment of all submissions, the Commission approved the aid granted to RWE in 2023, after the company had agreed to further advance the coal phase out in the Rhineland by ten years to 2028. This approval decision for RWE has been challenged by eins energie in Sachsen and others, and the case is currently pending before the General Court (case T-630/24). RWE has been admitted as third party intervenor in support of the Commission in October 2025.
The investigation into the aid granted to LEAG has now been concluded as well. Like in the RWE case, the Commission assessed also the LEAG support measure under Article 107(3)(c) TFEU, under which Member States may support the development of certain economic activities subject to certain conditions, and more particularly under the 2022 Commission Guidelines on State aid for climate, environmental protection and energy (CEEAG), which allow Member States to support measures reducing or removing CO2 emissions.
The Commission found that the compensation payments to LEAG constitute State aid, granting a selective economic advantage to the company. During the in-depth investigation, the German government revised the support measure and amended the legal basis to address specific concerns identified by the Commission. On this basis, the Commission now concluded in a highly significant decision that the aid is necessary for LEAG to phase out its lignite-fired power plants, which are currently profitable. The Commission also found that LEAG needed to be incentivized and compensated for its exit of this market, which contributors to achieving Germany's environmental protection objectives to reduce greenhouse gas emissions by 2038.
The Commission found the support measure to be appropriate, as alternative policy measures would not allow for such targeted and predictable lignite phase-out as under the agreement between Germany and the operators. The measure is also proportionate, as it is limited to the minimum necessary and does not lead to overcompensation. The compensation covers fixed additional costs incurred by LEAG directly caused by the early closure of its profitable activities. This includes payments to compensate employees for the gap between their current income and their future pension or income from other work, additional post-mining costs, and compound interest losses linked to precautionary savings vehicles. The forgone profits of LEAG's power plants and its refinement business will be determined at the time of their actual closure, each based on a formula. This will ensure that the current net value of LEAG's additional costs and foregone profits do not exceed the approved compensation amount of €1.75 billion.
This Commission decision, and the one regarding RWE, are likely to influence future State aid assessments of other coal phase-outs across the EU. The Commission's emphasis on the compatibility of early closure compensation with climate objectives can be seen as a sign of a more flexible approach for similar schemes. Looking ahead, it will also be relevant to see how the Commission applies the Clean Industrial Deal State Aid Framework (CISAF) when evaluating decarbonization measures, as its focus on clear environmental benefits is likely to shape compensation mechanisms. Energy companies affected by accelerated decarbonization pathways should therefore closely monitor these evolving legal and regulatory developments.
Placed in the broader context of Ribera's policy goals, the LEAG decision illustrates the Commission's shift toward using State aid as an enabler of accelerated, fair, and strategically predictable decarbonization. Her emphasis that the transition must be "both fair and competitive" is reflected directly in the Commission's reasoning: the aid is justified not only by the climate benefits of an earlier lignite phase-out, but by the need to support workers in the areas where lignite fired power plants are shutting down, and the need to give energy companies the certainty required to implement the closure timelines. In this sense, the approval goes beyond a narrow competition law assessment and embodies Ribera's wider political agenda, where climate ambition, social justice, industrial competitiveness, and streamlined State aid rules function as mutually reinforcing pillars of the EU's clean transition policy.
If you wish to discuss any of the above-mentioned aspects and the potential effects of this decision on your business, please turn to the author of this newsletter or another member of Steptoe’s antitrust and competition team.
