1999/581/EC: Commission Decision of 9 December 1998 on State aid granted by Germany to a lignite-fired power station in Cottbus (notified under document number C(1998) 4275) (Text with EEA relevance) (Only the German text is authentic)
Date: 1998-12-09
Institutions: European Commission
Subjects: Germany, State aid, aid to industry, control of State aid, lignite, power plant

20. 8. 1999

EN

Official Journal of the European Communities

L 220/33

COMMISSION DECISION

of 9 December 1998

on State aid granted by Germany to a lignite-fired power station in Cottbus

(notified under document number C(1998) 4275)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/581/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
93(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above and having regard to
their comments,

Whereas:

I. PROCEDURE

In a complaint received from a Member of the European Parlia-
ment on 26 March 1996, the Commission was informed that
Germany had granted aid to a lignite-fired power station in
Cottbus. By letters dated 7 June 1996 and 5 September 1996,
the Commission requested information from the German
authorities on the matter. It received replies from Germany on
26 July 1996 and 20 February 1997.

By letter dated 12 August 1997, the Commission informed
Germany that it had decided to initiate proceedings pursuant to
Article 93(2) of the EC Treaty in respect of the aid. Germany
replied by letter dated 31 October 1997.

The Commission decision to initiate proceedings was published
the European Communities (1). The
in the Official
Journal of
Commission invited interested parties
their
comments on the aid.

to submit

By letter dated 3 March 1998, the comments were transmitted
to Germany. On 6 and 7 March 1998, an on-site visit to the
power station in Cottbus took place with the participation of
Commission representatives. On 9 July 1998, Germany sent its
reply to the comments.

II. DETAILED DESCRIPTION OF THE AID

replace its old lignite-fired power station, which dates from the
GDR period, but no longer meets current technical standards,
particularly as regards fuel consumption and environmental
protection, by a new modern combined heat and power (CHP)
plant. The main aim of the project is to provide district heating
to the city of Cottbus (approximately 70 % of households are
connected to a district heating network). As a by-product,
electricity will be produced, and this will be supplied only to
the city of Cottbus.

The overall project cost is DEM 395 million. The Land of
Brandenburg provided support for this investment in order to
offset the price differential as compared with a modern gas-
fired combined heat/power plant, which would have cost about
DEM 185 million. Since Germany had expressly excluded the
energy supply industry from subsidisation under the ‘Gemein-
schaftsaufgabe’, which is the German regional aid scheme
approved by the Commission (2) and according to which
investment aid covering up to 35 % of total investment may be
granted in Brandenburg, an area falling within Article 92(3)(a)
of the EC Treaty, aid was awarded on an ad hoc basis in the
amount of DEM 49,95 million. No other national aid, whether
ad hoc or under approved aid schemes such as for research and
development (R & D) or environmental protection, was granted
for the project. Currently, 243 people are employed in the
power plant.

In the Cottbus project, lignite is being used for the first time
anywhere in the world in a CHP-plant as a fuel for the second
generation ‘pressurised fluidised bed combustion’ technology.
The Commission therefore decided to support
this project
under the Thermie programme established by Council Regula-
tion (EEC) No 2008/90 (3) by providing a further DEM 29
million (Project Nos SF/00122/95/DE/SE and SF/00264/
97/DE/SE;
for
eastern German lignite’). The aim was to demonstrate that the
pressurised fluidised bed combustion technology may also be
applied for the use of lignite as a fuel and thus may increase
the
chances
the
Community.

‘Second generation PFCB cogeneration plant

technology outside

exporting this

for

As regards the effects of the project on competition, however,
the Commission felt that the choice for a more expensive
lignite-fired power station and the investment grant connected
with it could constitute illegal State aid for the regional lignite
producer Laubag, because, although not obtaining prices higher
than usual market prices, it would be able to count on long-
term supply contracts.

Cottbus is located in the largest Eastern German lignite field, in
which Lausitzer Braunkohle AG (Laubag)
lignite
producer. On 26 April 1995, the city of Cottbus decided to

the

is

(1) OJ C 381, 16.12.1997, p. 5.

the ‘24th outline plan for the joint Federal
(2) See point 3.1.3 of
Government/Länder
economic
scheme
structures’, approved on 30 April 1996 (OJ C 291, 4.10.1996,
p. 4).

improving

regional

for

(3) OJ L 185, 17.7.1990, p. 1.

L 220/34

EN

Official Journal of the European Communities

20. 8. 1999

The view that illegal State aid was involved was based primarily
on an undertaking given by Germany in State aid Case
N 13/92, where the Commission finally approved investment
aid of DEM 600 million for the lignite-fired power station in
Schkopau, Saxony-Anhalt (1). A precondition for that approval
was that, in order to prevent systematic subsidisation of the
Eastern German lignite industry and to avoid distortions of
competition within a liberalised electricity market, Germany
had to:

‘undertake not to grant any aid in future which is either
directly or indirectly linked to the use of lignite. However,
subsidies granted in accordance with the terms of Commis-
sion decisions approving aid for general purposes such as
regional, R & D and environmental aid schemes, which are
not in any way linked to the use of particular fuel sources
and which are not designed to offset the costs of using
particular fuel sources, may continue to be available for
electricity generating stations.’

Since, in the case of Cottbus, the aid was an ad hoc measure
not based on any horizontal aid scheme previously approved,
the Commission had serious doubts whether, in the light of
Germany's undertaking given in 1992, the investment grant
provided by the Land of Brandenburg could be considered
compatible with the Community rules on State aid. It therefore
decided on 30 July 1997 to initiate proceedings under Article
93(2) of the EC Treaty.

III. COMMENTS FROM INTERESTED PARTIES

Six sets of comments from third parties were received which
can be summarised as follows:

The ‘Amt Jänschwalde’, which is the local administrative body
of a municipality close to the exploitation area of the lignite
producer Laubag, stated that the aid for the Cottbus power
plant clearly had to be considered to be aid for the regional
lignite industry. It added that the aid could not be regarded as
being regional aid compatible with the Community rules on
State aid because there was no obvious regional objective.
Furthermore, it was clear that lignite-fired power stations were
not and would not be competitive in the future without contin-
uous State aid. As to the environmental effects of the project, it
stated that gas was clearly less harmful to the environment
than any use of lignite in whatever form.

According to Enron Europe Ltd (Enron), an electricity producer
and supplier using natural gas, greater price stability in the case
of lignite could not be adduced as an argument in its favour
because the same effects could be attained with gas prices by
hedging them. They also pointed out that a higher level of
environmental protection could be achieved by the use of gas.

The other four sets of comments did not focus so much on the
impact of the measure on the electricity market but rather on

(1) Decision of 22 July 1992 (OJ C 203, 11.8.1992, p. 15).

the use of lignite as a fuel as such, which was, according to
them, not sufficiently environmentally friendly.

IV. COMMENTS FROM GERMANY

In reply to the Commission's decision to initiate Article 93(2)
proceedings, Germany argued in particular that
the lignite
producer Laubag could hardly be considered to be a recipient
of the aid since its benefit,
if any, was only marginal. This
lignite producer did not benefit at all from artificially high
prices, but only from a long-term contract which, moreover,
accounted for only 0,9 % of its annual

lignite production.

In addition, Germany pointed out that the 1992 undertaking
was not applicable in this case, since the project related
primarily to the supply of district heating. The production of
electricity, to which the 1992 undertaking related, was only a
by-product.

Furthermore,
it had to be borne in mind that Cottbus was
located in an area falling within Article 92(3)(a) of the EC
Treaty. In such areas, the Commission allowed investment aid
of up to 35 % of overall investment costs. With investment
costs of DEM 395 million, the project could theoretically have
received assistance of approximately DEM 135 million, i.e. a
much larger amount than the amount of aid actually granted
so far (DEM 49,95 million granted by the Land of Brandenburg
and DEM 29 million granted by the Commission under the
Thermie programme).

The project was in full compliance with the Community rules
on public procurement. Once the decision was made in favour
of the lignite-fired CHP plant using the pressurised fluidised
bed combustion technology, a Community-wide tender was
launched and published in the Supplement to the Official Journal
of the European Communities of 8 August 1995. Besides this
publication, all producers of PFBC technology were directly
invited to tender. The contract was ultimately awarded to a
German producer. Neither the procurement office nor the
complaints committee had received any complaint regarding
the implementation of the tender procedure.

Moreover, the project was in the nature of a pilot project. The
fact that the Community had financed the project under the
Thermie programme confirmed this. In addition, the research
institutes of the Technical University of Cottbus would monitor
very closely the effects of the use of lignite as a fuel with the
pressurised fluidised bed combustion technology.

The project would be successful if it could be demonstrated
that lignite could be used as a competitive fuel. This would
have positive effects on employment within the regional lignite
industry, which was the main industry in that structurally weak
area and still provided 13 000 to 17 000 direct and indirect
jobs (1989: 73 000 jobs).

20. 8. 1999

EN

Official Journal of the European Communities

L 220/35

Furthermore, the project had positive effects on environmental
protection. Thus,
there would be significant reductions in
pollutant emissions and noise, going even beyond the stand-
ards set by German environmental protection legislation.

As evidence, Germany submitted the following emission
figures.

German law

Cottbus plant

(mg/m3)

Sulphur dioxide

Nitrogen oxide

Carbon dioxide

Hydrochloric acid

Hydrofluoric acid

Dust

250

200

250

100

15

50

200

200

200

30

1,5

20

impact the project would have on the output of the local
lignite industry and hence on competition between fuels. This
was evidenced by the fact that gas, the fuel which competes
with lignite, already had won a large market share in the new
German Länder of about 27 %, whereas the average share in
Germany as a whole was 21 %. At the end of 1997, 40 % of
eastern German households had gas-fired heating. The fuel
used in the Cottbus plant accounted for only 0,1 % of the total
volume of fuels used in district heating plants in Germany. As
regards the alleged environmental advantages of gas over
lignite, Germany pointed out that there were larger methane
emissions in the case of gas, a fact which was not mentioned
by the ‘Amt Jänschwalde’.

Regarding the comments of Enron, Germany doubted in
particular that gas could achieve the same price stability as
lignite through price hedging. This was borne out by the fact
that Enron itself was not able to state precisely under which
conditions and with the inclusion of which specific risks it
could supply gas at constant prices over a long period.

As regards the other four sets of comments, Germany reit-
erated the positive effects of the project on environmental
protection in that it was well within the levels imposed by
German law in respect of both emissions and noise.

As regards noise reduction, the figures provided by Germany
showed the following.

(decibels)

V. ASSESSMENT OF THE AID

Daytime

Night

German law

Cottbus plant

German law

Cottbus plant

55

60

60

55

55

50

50

52

43

43

45

46

34

45

40

45

45

40

40

35

35

40

31

28

34

35

23

33

Regarding the third parties' observations, Germany commented
as follows:

In response to the observation made by the ‘Amt Jänschwalde’,
Germany stated that it related primarily to the general energy
policy of the Land of Brandenburg and in particular to the
relocation of the municipality of Horno, which had to be
moved because of
the expansion of an opencast mine
belonging to Laubag. Germany again emphasised the low

Lignite is covered not by the ECSC Treaty, but by the EC
Treaty. The investment grant of DEM 49,95 million provided
by the Land of Brandenburg for the construction of the lignite-
fired power station in Cottbus clearly constitutes aid within the
meaning of Article 92(1) of the EC Treaty. While the primary
beneficiaries of the aid are the operators of the power plant,
the aid also indirectly benefits the eastern German lignite
industry, and more specifically Laubag. The aid was an incent-
ive for the use of lignite as a fuel, although the construction of
a power plant run with other fuels such as gas would have
been the cheaper solution.

The proposed aid may distort competition and affect trade
between Member States. The inclusion of the former GDR into
the Community in 1990/91 gave a substantial boost to lignite
production in the Community. There are only three countries
in the Community which produce significant quantities of
lignite and Germany accounts for 75 % of Community produc-
tion. It is true that lignite is in general burned in power stations
located next to the deposits, since it is generally uneconomic to
transport it over long distances. Nevertheless, this does not
mean that there is no intra-Community trade in lignite. In
addition, it has to be borne in mind that, in this case, lignite
was chosen in preference to gas, hard coal and mineral oil. On
the energy market, each of those fuels can be substituted by
any of the others. Consequently, it is necessary to take into
consideration the individual markets, the fuel market in general
and any intra-Community competition between them. On
those markets there is intra-Community trade and competition
among companies from the different Member States. The aid
therefore is likely to affect competition between companies on
the energy market.

L 220/36

EN

Official Journal of the European Communities

20. 8. 1999

The aid was not based on an aid scheme previously approved
by the Commission.
It was therefore notifiable individually
pursuant to Article 93(3) of the EC Treaty. By not notifying the
aid, Germany has failed to fulfil this obligation. The aid was
therefore granted illegally.

sion) (2) that ad hoc aid must also be examined to see whether
it fulfils regional aid requirements under Article 92(3)(a).

This applies to the aid for the lignite-fired power station in
Cottbus.

As regards the eligibility of the aid for one of the exemptions
provided for in Article 92(2) and (3) of the EC Treaty, it must
first be noted that Germany's undertaking given in connection
with State aid in the Schkopau case does not stand in the way
of their application in this case.

Through the undertaking given, it was intended at that time to
ensure that the protective arrangements existing in western
Germany for hard coal would not be replicated for lignite in
the new Eastern Länder. The Cottbus project, however, is an ad
hoc measure which in no way aims at and in no way has the
effect of subsidising systematically the Eastern German lignite
industry. This is confirmed both by the fact that Laubag will
not obtain artificially high prices, but will have to sell
its
the lignite
product at market prices and by the fact
required for this project accounts for only a marginal share, i.e.
0,9 %, of Laubag's annual production. Moreover, the project
relates primarily to the supply of district heating, whereas the
production of electricity,
to which the 1992 undertaking
relates,

is only a by-product.

that

In considering the applicability of the derogations under Article
92(2) and (3) of the EC Treaty, however, it has to be concluded
that the derogations set out in Article 92(2) do not apply in
this case in view of the features of the aid and the fact that it
does not seek to satisfy the conditions for application of those
derogations.

The aid may, however, be regarded as compatible with the
common market by virtue of the derogation provided for in
Article 92(3)(a) of the EC Treaty.

The application of that provision is not excluded a priori by
the fact that the aid was not granted under the ‘Gemeinschafts-
aufgabe’ (the German regional aid scheme). It was not granted
under the ‘Gemeinschaftsaufgabe’ because investments in elec-
tricity supply may not receive assistance under that scheme.
restriction was an autonomous decision made by
That
Germany and in no way imposed by the Commission in the
context of State aid control. The Commission may not there-
fore exclude scrutiny of the aid from a regional aspect, but
must, as it did in the State aid Case N 295/97 ‘Délipapier’,
France (1), assess on an individual basis whether the require-
ments of Article 92(3)(a) are met.

Moreover, it has to be pointed out that Article 92(3)(a) is also
applicable to ad hoc measures. This was confirmed by the
Court of Justice, which held in its judgment of 14 September
1994 in Cases C-278, 279 and 280/92 (Spain v. Commis-

(1) OJ C 333, 4.11.1997, p. 6.

Although, under this project, an old power plant is to be
replaced by a new one, the aid can be regarded as being
granted for initial investment, for which regional aid may be
approved in accordance with the guidelines on national
regional aid (3). Pursuant to point 4.4 of the guidelines, initial
investment includes ‘the starting-up of an activity involving a
fundamental change in the product or production process of
an existing establishment (through rationalisation, diversifica-
tion or modernisation)’.

In addition, Cottbus is located in an area falling within Article
92(3)(a). The permitted aid ceiling there is 35 % for new invest-
ment. In this instance, the aid intensity (20 %) remains well
below that ceiling.

the Thermie programme,

Moreover, the aid may promote the economic development of
this area. The importance of the project for the employment
situation in the area is certainly wider than the 243 direct jobs
created within the power plant. The project also aims at the
long-term development of the area. Through the new power
plant, an effective and modern district heating system will be
established which will contribute to the overall improvement
of infrastructure in the area, to which not only private house-
holds, but also industrial producers and potential investors will
have access. Furthermore, the use of the new pressurised fluid-
ised bed combustion technology, which was selected for
Commission support under
is
intended to demonstrate that lignite may be used as a compet-
itive fuel. If that technology turns out to be successful, there
may be positive effects on employment within the lignite-
producing industry. In 1989, 73 000 people were employed in
the lignite-producing industry in the region. Lignite production
was 195 million tonnes in that year. In spite of drastic reduc-
tions both in employment and in output after 1989, the lignite
industry is still the most important industrial sector in this
structurally weak region. It is estimated that, with a production
rate of 35-40 million tonnes per annum in the year 2000,
about 5 000 people will be directly employed in the produc-
tion and processing of lignite. Another 2 000 will be employed
in the generation of electricity based on lignite. To these 7 000
direct jobs can be added another 10 000 indirect jobs based on
investment in the supply, maintenance and processing industry
and therefore heavily dependent on the situation of the lignite
industry. In this context, it is obvious that any activity which
improves the economic prospects of the lignite industry will
also have a positive impact on indirect employment.

Furthermore, the Commission takes note that the project will
reduce pollution. As the figures provided by Germany demon-
strate, emissions and noise disturbances caused by the new
plant are far lower than with the old power plant. In this
context, it should also be borne in mind that the Cottbus plant
is a combined heat and power plant. In its communication of
15 October 1997 regarding a Community strategy to promote
combined heat and power (CHP) and to dismantle barriers to
its development (4),
the Commission once again expressly
emphasised the environmentally friendly and energy-saving
aspects of this technology.

(2) [1994] ECR I, p. 4103.
(3) OJ C 74, 10.3.1998, p. 9.
(4) COM(97) 514 final.

20. 8. 1999

EN

Official Journal of the European Communities

L 220/37

Moreover, it has to be recalled that the plant will produce both
heat and power and therefore cause lower discharges into the
atmosphere than conventional coal-fired stations. The use of
combined heat and power technology has been recognised by
the Commission in other cases as justifying financial incent-
ives (1). In this context, it should also be recalled that, in its
decision of 18 December 1991 (2), the Commission approved
a one-year aid programme for the restructuring of the heating
network in the new German Länder, under which investment
grants up to 35 % of the investment costs were permitted to
improve the efficiency of the network and reduce environ-
mental pollution. The Cottbus project pursues precisely these
objectives.

Finally, negative effects on the overall Community fuel market
are negligible, since the benefit to the lignite producer Laubag
is itself only marginal. It has to be borne in mind that Laubag
does not benefit at all from artificially high prices, but has to
sell its products under market conditions. There is, at best, an
indirect benefit stemming from a long-term contract, which
accounts for only 0,9 % of Laubag's annual lignite production.
The impact on the Community fuel market as a whole can
therefore be considered minimal. In addition, it must be borne
in mind that the fuel used in the Cottbus plant accounts for
only 0,1 % of the total volume of fuel used in Germany to run
district heating plants. The Cottbus plant will therefore increase
Laubag's share of the overall German fuel market by only
0,001 %. Moreover, gas, the fuel which competes with lignite,
is in no way displaced. On the contrary, since 1991 gas has
won a market share in the new German Länder of about 27 %
(in 1990, practically 0 %), which is higher than its market share
in Germany as a whole. At the end of 1997, 40 % of all eastern
German households had gas-fired heating. In this context, it
should also be noted that none of the third parties emphasised
distortions of competition, but rather focused on the environ-
mental aspects of using lignite as a fuel, an aspect which

cannot be the sole subject of proceedings under Article 93(2)
of the EC Treaty.

VI. CONCLUSIONS

The Commission finds that the aid granted by Germany in
breach of Article 93(3) of the EC Treaty is unlawful. However,
taking into account the positive effects on regional develop-
ment, the reduction of pollution compared to the old plant, the
pilot character of the project as well as the fact that there is a
the Commission has
negligible
concluded that the investment grant for the construction of a
lignite-fired power station in Cottbus is compatible with the
common market,

impact on competition,

HAS ADOPTED THIS DECISION:

Article 1

The State aid of DEM 49,5 million granted by the Land of
Brandenburg for the lignite-fired power station in Cottbus is
compatible with the common market pursuant
to Article
92(3)(a) of the EC Treaty.

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 9 December 1998.

For the Commission

Karel VAN MIERT

Member of the Commission

(1) For example in Italy,

in Case No NN 52/91, Decision of 31 July

1991 (OJ C 23, 30.1.1992, p. 5).

(2) OJ C 184, 21.7.1992, p. 8.