The Bundestag and Bundesrat adopted the phase-out of coal power in law on 3 July 2020 and also passed an Act on Structural Change in Coal Mining Areas (Strukturstärkungsgesetz). This act is intended to help affected regions manage the structural transformation. While the phase-out is ongoing, the German government is boosting the expansion of renewable energy sources. In combination, the coal phase-out, structural change and the expansion of wind and solar power form the basis for achieving a reliable, socially just and legally certain exit from coal.
FAQ on the Act on the Phase-out of Coal
When will Germany complete its phase-out of coal power?
Germany will phase-out coal-fired power generation by 2038 at the latest, and, if possible, by 2035. The first lignite-fired power plants were shut down 2020, and the first tender process for closing down hard coal power plants were held.
Could the coal exit process be completed before 2038?
Yes. In 2026, 2029 and 2032, it will be reviewed whether the final date for the closures of lignite and hard coal-fired power plants scheduled after 2030 can be brought forward by three years, making 2035 the final coal exit year. If this decision is taken in good time, the accelerated phase-out will not trigger additional compensation payments; this has been agreed with the operators of lignite-fired power plants.
When will coal-fired power plants be shut down?
The first power plants went offline in 2020. By the end of 2022, only 30 gigawatts total (15 gigawatts each for lignite and hard coal) of today’s overall capacity of 40 gigawatts will be in operation. In 2030, only 17 gigawatts (eight gigawatts hard coal, nine gigawatts lignite) will remain online. This timeline, together with the agreed expansion of renewable energy to 65 percent, enables achievement of the 2030 climate target in the energy sector. It is therefore even more important to quickly and resolutely implement the required changes to the Renewable Energy Sources Act (EEG-Gesetz).
The phase-out date for the final power plants will be 2038 at the latest, with an option to bring the date forward to 2035. In addition, all other closures planned for the period after 2030 can be brought forward by up to three years. Acceleration will be reviewed in 2026, 2029 and 2032. It has been contractually agreed with the operators of lignite-fired power plants that, if notified in good time, the accelerated timeline will not incur additional compensation.
What does the phase-out path look like for lignite-fired power plants?
The first lignite power plant block went offline at the end of 2020. By the end of 2022, a total of seven of the oldest and dirtiest power plant blocks will be shut down. In climate action terms, this will cut CO2 emissions by around 20 to 25 million tonnes annually. As recommended by the Commission on Growth, Structural Change and Employment, the shutdown of additional smaller power plants can reduce the remaining lignite coal capacities to 15 gigawatts by the end of 2022.
An additional ten power plant blocks will be taken offline by 2030. One block will be transferred to security standby status until the early 2030s. As envisaged in the Commission proposal, there will then be around nine gigawatts of lignite coal capacity still in operation, or about half of the current capacity.
The remaining 11 lignite-fired power plant blocks will then be shut down by 2038 at the latest. In 2026, 2029 and 2032, it will be reviewed whether the shutdowns scheduled after 2030 can be brought forward by up to three years.
On balance, this is a certain, linear path for shutting down lignite and hard coal-fired power plants, which fully implements the recommendations of the Commission on Growth, Structural Change and Unemployment. The latest possible end date for coal power in Germany will be 2038.
What is the foundation for this approach to the coal phase-out?
The coal phase-out is based on the recommendations of the Commission on Growth, Structural Change and Employment. The Commission successfully brokered a compromise supported by a broad majority of society. All affected groups were involved in drawing up the recommendations, including representatives of the energy industry, industry associations, unions, environmental associations and the scientific community. The plan that was adopted provides the greatest possible legal and planning certainty for all affected. It also allows future government coalitions sufficient leeway to further develop energy and climate policies.
Why are compensation payments associated with the closures?
The operators of lignite-fired power plants are to receive compensation for shutdowns totalling 4.35 billion euros. This made it possible to reach an agreement with the plant operators, as recommended by the Commission on Growth, Structural Change and Employment, and created legal certainty.
Legal risks that are difficult to quantify are limited to a minimum by a contract under public law concluded between the German government and the power plant operators. In return for the compensation payments, the companies will refrain from taking legal action against the shutdown of their installations and from dismissing workers for operational reasons.
The amount of compensation was negotiated with the operators. Compensation payments are intended, in particular, to offset the loss of potential profits.
Will there be compensation payments for every shutdown?
No. There will be no compensation for shutdowns after 2030. The nominal overall compensation is to be 2.6 billion euros for RWE and 1.75 billion for LEAG. Compensation will be paid in 15 annual instalments, to be paid to RWE starting in 2020 and to LEAG from 2025.
The nominal overall compensation does not include remuneration for security standby. Under security standby, lignite-fired power plant blocks comprising a capacity of 2.7 gigawatts will be gradually and provisionally shut down and then transferred to security standby for four years. During this time, they will be used as a last resort safety net for power supply. After four years, they will be permanently shut down. The operators will receive remuneration for this service. Security standby is a part of the Electricity Market Act (Strommarktgesetz). In talks with the lignite power plant operators about the gradual shutdown of their plants, it was agreed that three additional power plant blocks will be transferred to security standby between 2025 and 2029, thus taking them off the market. This applies to the blocks Jänschwalde A and B and a 600-megawatt block at the Niederaußem site.
What is the purpose of the public law contract with the operators of lignite-fired power plants?
The Commission on Growth, Structural Change and Employment proposed a mutual agreement on a contractual basis with the operators. This was intended to include “an agreement on compensation payments to the operators and provisions for socially acceptable arrangements for the phase-out of lignite” (cf. Commission's Final Report).
Thanks to the contract under public law and the Act on the Phase-out of Coal (Kohleausstiegsgesetz), lignite-based power generation will be tapered off and ended predictably and gradually. With the compensation, the German government is creating legal certainty and ensuring that the phase-out does not give rise to legal risks with undefined costs. In return for the agreed compensation, the companies will refrain from dismissals for operational reasons and legal action against the Federation.
When will closure of hard coal power plants begin?
The first four gigawatts of hard coal power capacity went offline in 2020. In 2022, power plants with a total capacity of only 15 gigawatts will be in operation. After that, hard coal capacities will be reduced gradually down to eight gigawatts in 2030. Additional emissions expected due to the commissioning of the Datteln IV power plant will be offset by special shutdowns.
Will there be compensation payments for hard coal shutdowns?
No. Unlike lignite, no compensation amount was agreed with the operators of hard coal-fired power plants. Instead, the power plant operators are to receive close-down premiums. The level of these premiums will be determined in a market tender process.
The Act on the Phase-out of Coal (Kohleausstiegsgesetz) envisaged the first call for tenders in 2020. This tender process model guarantees compensation until the end of 2027. From 2024, the calls for tender will be supported by regulatory law, which will allow the government to issue orders to remove power plant blocks from the market and ensure shutdowns take place as required. After 2027, only regulatory law provisions will apply. From then on, the age of the power plant, with due consideration for any upgrades, will be the deciding factor.
How big will the carbon savings be?
With the continuous coal phase-out, CO2 emissions will likely drop by around ten million tonnes per year from 2020 to 2030. It has to be kept in mind that the CO2 emissions of a coal-fired power plant primarily depend on its use (annual full-load operational hours) and power generation efficiency, in addition to its fuel type. The CO2 emissions saved can therefore vary from year to year. If the shutdowns after 2030 are brought forward by three years, it would have a strong positive effect on the total emissions balance of the phase-out process.
Overall, the coal phase-out will cut Germany’s CO2 emissions by a quarter by 2030. This is about 200 million tonnes of CO2 per year, based on the emissions of the power plant fleet in 2018.
Why is Datteln IV allowed to go online?
The operator of the Datteln IV power plant, UNIPER, holds a valid licence to set up and operate the power plant. This means that the initial decision of whether to put Datteln IV into operation after its completion lies with the company.
The Commission on Growth, Structural Change and Employment recommended negotiating solutions for already built but not yet operational power plants to prevent their becoming operational. The German government did make an effort to negotiate with UNIPER, however, no mutually acceptable agreement could be reached on the compensation amount.
For hard coal, a phase-out path has been set that envisages a maximum annual capacity of eight gigawatts in 2030. In order for Datteln IV to go into operation, older hard coal-fired power plants of a corresponding capacity must be simultaneously taken off the grid. As a new, more efficient power plant, Datteln IV will have more full-load operational hours than the old power plants. Without taking further steps, this would likely mean more emissions. That is why the Act on the Phase-out of Coal (Kohleausstiegsgesetz) stipulates that these extra emissions be offset with special calls for tender for additional shutdowns. 1.5 gigawatts of the four gigawatts of shutdowns planned for 2022 will be moved forward a year to 2021. From 2023 to 2025, special calls for tender will be issued for shutdowns of one gigawatt each.
Will the emission allowances freed up lead to more emissions in other countries via the EU Emissions Trading System?
No. The Act on the Phase-out of Coal (Kohleausstiegsgesetz) ensures that the phase-out will fully and completely support climate action. The climate benefits of the German coal phase-out will not be cancelled out by higher emissions elsewhere. The German government is ensuring this by cancelling EU Emissions Trading System (EU ETS) emissions allowances equal to the emissions reductions from the coal phase-out (where allowances are not already withdrawn from circulation by the EU ETS market stability reserve). National cancellation of allowances is done by notification, which the member state submits to the European Commission, identifying the closed plants and the amount of cancellations planned for the following year. The European Commission then cancels the allowances, removing them from the auction allocation of the member state in question.
Can the Paris Agreement targets be met?
With the coal exit, we are ensuring that Germany complies with the targets of the Paris Agreement. The Federal Republic of Germany is a contracting party to the international agreement and is advancing target implementation. We want Germany to have net zero emissions by 2050, which requires reducing greenhouse gas emissions in all sectors, including energy, industry, transport, buildings and agriculture. Enhancement of the EU’s contribution is currently being discussed to ensure achievement of the goals of the Paris Agreement. German Environment Minister Svenja Schulze has already spoken out in favour of this.
Will electricity still be affordable when cheaper electricity from lignite and hard coal is phased out?
The German government had already decided that a large share of the revenues generated from the carbon pricing in the heat and transport sectors would be given back to the public by lowering the renewable energy surcharge (EEG surcharge). In addition, to mitigate the effects of the coronavirus pandemic, the coalition partners decided on 3 June 2020 to cap the EEG surcharge, which will also reduce the price of electricity for all consumers.
Moreover, as the share of renewable energy sources increases, it can be assumed that the price of electricity on the stock exchange will continue to fall. The bottom line is that a moderate increase in wholesale electricity prices as a result of the coal phase-out and the reduction in wholesale prices due to the increase in the use of renewables are more or less likely to cancel each other out.
The Act on the Phase-out of Coal (Kohleausstiegsgesetz) also allows energy-intensive businesses to receive a subsidy, if necessary, to help them remain internationally competitive. The Act on the Phase-out of Coal stipulates a similar regulation – also recommended by the Commission on Growth, Structural Change and Employment – for transmission system charges.
How will the phase-out of coal power affect the security of supply?
The lights won’t go out in Germany because coal and nuclear power are being phased out. The top priority of the German government is to ensure that security of supply in Germany remains at its usual high level during and after the phase-out of coal. This phase-out is taking place gradually, while at the same time renewable energy sources are to be further expanded. A very close eye is also being kept on the development of the security of supply and grid stability in Germany through consistent monitoring.
And otherwise, Germany exchanges electricity with its neighbours, as do all countries in Europe. This helps all countries in the interconnected system to guarantee an efficient and affordable supply of electricity. The combination of renewable energy sources, reserve and gas-fired power plants, short- and long-term storage facilities, flexible loads and exchanges with other countries will provide sufficient capacity to meet the challenges of the energy transition, not just in Germany.
FAQs on the expansion of renewables
Wouldn't it make more sense to invest in renewable energy than to compensate power plant operators?
Both measures are necessary and being pursued by the German government. To ensure a legally compliant approach and effective climate policy impacts, the Commission on Growth, Structural Change and Employment has proposed taking capacity off the grid by reaching a mutual agreement with the individual power plant operators. This agreement is also extremely important because it provides legal certainty.
Regardless of this, extensive support will continue to be provided for the expansion of renewables. The use of renewables must be stepped up if nuclear and coal-based power are to be successfully phased out.
The goal of the German government is to increase the share of renewable energy sources in gross electricity consumption to 65 percent by 2030. To ensure this goal can be achieved, further steps are necessary as part of the reform of the Renewable Energy Sources Act (EEG-Gesetz), which must now be implemented as quickly as possible. This includes in particular ambitious and legally binding expansion strategies for wind and photovoltaics, greater financial participation of the general public in the revenues generated by wind energy, a reform of electricity in rental housing and better promotion of large solar roof systems.
The coordination mechanism for the further development of renewable energy already agreed between the German government and the federal states will lead to greater commitment. The expansion targets will also be monitored at regular intervals. If there is a risk that the 65 percent target will not be met, specific corrective action can be taken.
How will the Act on the Phase-out of Coal affect wind and solar power?
The Act on the Phase-out of Coal (Kohleausstiegsgesetz) is the first law to stipulate that 65 percent of gross electricity consumption in 2030 must come from renewable energy sources. This makes it easier for everyone involved to plan with a degree of certainty, at least with a view to the expansion of renewables over the next ten years. What remains to be done now is to define the technology-specific trajectories for expanding individual renewable energy sources, which must now also be implemented quickly with the amendment of the Renewable Energy Sources Act (EEG-Gesetz). The decision had already been taken to eliminate the solar cap.
With the resolution of the Conference of Minister-Presidents, all 16 federal states have given the German government another strong mandate for the resolute expansion of renewable energy that includes better coordination, improved regionalisation and a new model for financial participation of the general public and municipalities in the revenues generated by wind turbines.
FAQs on the Act on Structural Change in Coal Mining Areas
What are the aims of the Act on Structural Change in Coal Mining Areas?
The Act on Structural Change in Coal Mining Areas (Strukturstärkungsgesetz) transposes into law the structural policy recommendations made by the Commission on Growth, Structural Change and Employment. These recommendations have shown that the phase-out of coal and support for the affected regions must occur in parallel. The impending changes represent opportunities for individuals, businesses and employees, for the environment and climate. These changes will create opportunities for new business models, new jobs and new vitality for civil society. This process is an example of how taking well-informed steps at an early stage can trigger successful and sustainable structural development. We are not just phasing out coal-based power generation, we are moving towards a modern and sustainable energy sector.
The German government is providing financial support for the coal-mining regions with a package of up to 40 billion euros until 2038.
- The federal states will receive 14 billion euros of this package as financial aid to invest in new employment sectors and opportunities for value creation in the future. The funds can be used for digitalisation projects, expanding tourism, urban upgrades and innovation projects dedicated to climate action and environmental protection. The federal states must contribute at least 10 percent of these funds.
- Another 26 billion euros is available for various projects of the German government and the individual ministries in the coal areas, which also help to create new jobs and strengthen economic structures. The investments help the people and the workforce in the regions and are an opportunity to turn coal regions into attractive places to live and work.
In addition, the German government has pledged to create at least 5,000 new and additional jobs in the coming years by relocating federal authorities to the coal regions.
What areas does the Act on Structural Change in Coal Mining Areas support?
Financial assistance is provided to the federal states independently of the implementing agency for investments to improve the economic infrastructure, particularly in the following areas:
- Commerce-related infrastructure excluding public transport routes, in particular acquiring and developing land for companies and energy-efficient upgrades of existing buildings for subsequent use as a result of the phase-out of lignite-based power
- Transport excluding federal, state and local roads, in particular to improve traffic conditions in municipalities and railways other than federal railways in the context of local public transport
- Public welfare to improve local business conditions, in particular the expansion of facilities for children and young people, investments in healthcare and cultural facilities, home conversions for the elderly and elimination of barriers
- Urban design, urban and regional development
- Digitalisation, broadband and mobile communications infrastructure
- Tourism infrastructure
- Research and scientific infrastructure
- Climate action and environmental protection, including investments for energy-efficient upgrades of infrastructure, soil remediation and noise control
- Nature conservation and landscape management, in particular for the restoration and conversion of former open-cast mining areas and for their afforestation
How will the mining areas in Lausitz, central Germany and the Rhineland be financially supported in the process of structural change caused by the coal phase-out?
Of the federal structural assistance, the Lausitz mining area will receive 43 percent (60 percent Brandenburg, 40 percent Saxony), the Rhineland mining area 37 percent and the Central German mining area 20 percent (Saxony-Anhalt 60 percent and Saxony 40 percent). This results in the following distribution by federal state: 25.8 percent for Brandenburg, 37 percent for North Rhine-Westphalia, 25.2 percent for Saxony and 12 percent for Saxony-Anhalt. Lower Saxony and Thuringia will each receive 90 million euros in structural assistance for the Helmstedt mining area and the Altenburg mining area.
The funded regions are comprised of the following municipalities and municipal associations:
- Lausitz mining area:
- Brandenburg: Elbe-Elster district, Oberspreewald-Lausitz district, Dahme-Spreewald district, Spree-Neiße district, city of Cottbus,
- Saxony: Bautzen district, Görlitz district;
- Rhineland mining area:
- North Rhine-Westphalia: Rhine district of Neuss, Düren district, Rhine-Erft district, Aachen city region, Heinsberg district, Euskirchen district, city of Mönchengladbach;
- Central German mining area
- Saxony: Leipzig district, city of Leipzig, North Saxony district
- Saxony-Anhalt: Burgenlandkreis district, Saale district, city of Halle, Mansfeld-Südharz district, Anhalt-Bitterfeld district.
How will climate action benefit from the Act on Structural Change in Coal Mining Areas?
With the Act on Structural Change in Coal Mining Areas (Strukturstärkungsgesetz), the German government seeks to step up its investment in climate action at municipal level (National Climate Initative). Under this law, the German government also supports research in climate-friendly innovations. For example, it is pressing ahead with the establishment of the Competence Centre on climate change mitigation in energy-intensive industries (KEI) based in Cottbus. The KEI supports companies in their efforts to achieve zero net emissions under the Decarbonisation in Industry funding programme.
The German government is also setting up a competence centre for the transition of the heating sector (Kompetenzzentrum Wärmewende) in one of the coal-mining regions. As a central point of contact, the competence centre will support municipalities, municipal associations and companies in municipal heating plans and in the planning, construction and transformation of heating networks.
A special component for structural change will be included in the research initiative Real-World laboratories for energy system transformation. Additional funds will be made available with the focus on energy innovations. The aim is to further develop existing energy technology expertise and infrastructure, boost the innovative potential of the regions and generate viable added value in energy technology.
To facilitate the transformation of the coal-mining regions into the energy regions of the future, the German Aerospace Center (Deutsches Zentrum für Luft- und Raumfahrt) established additional facilities in these regions in 2020: one institute for research into alternative fuels, particularly solar fuels, one institute for research into lower-emission aircraft engines, and facilities to explore electric flight under an institutional research programme.
Finally, the BMU funding programme KoMoNa supports pilot projects in municipalities aimed at implementing environmental sustainability goals in regions affected by structural change. The programme is intended to help cities and municipalities in their efforts to achieve greater sustainability.
How does the Act on Structural Change in Coal Mining Areas support cities and districts in the transition to climate-friendly mobility?
With the Act on Structural Change in Coal Mining Areas (Strukturstärkungsgesetz), the German government is providing a catalyst for climate-friendly mobility. Roads and, above all, railways are being expanded in regions undergoing structural change. This will result in more capacity and faster connections on many routes. Moreover, many railway lines are being electrified. The German government will also provide more money so that the regions themselves can invest in public transport, bicycle infrastructure and new mobility solutions.
We are also strengthening innovation and creating jobs in new transport technologies. This will create research facilities and test sites for more climate-friendly aircraft and lorries and we are establishing a competence centre for power-based fuels (Power-to-X). We need these centres in the energy and transport system where electrical solutions are limited. We are therefore strengthening the locations overall by improving the transport infrastructure and at the same time creating innovation hubs for the transport of tomorrow.