Economics minister Sigmar Gabriel of the Social Democrats and energy companies RWE, Vattenfall and Mibrag have agreed that starting in October 2016, a capacity of 2.7 gigawatts of power output from lignite coal plants will be shifted into a power reserve in case of emergency.
The plants are to be turned off but maintained in running order in case of power shortages over the next four years. Eventually, the lignite-fired power plants will be taken off the grid entirely.
In return, the three power plant operators will receive around 230 million euros ($253 million) per year over a period of seven years to divide up among themselves.
For consumers, this means they will have to pay 0.05 euro cents more per kilowatt hour.
Meeting Germany's climate targets
The plan is supposed to help Germany reach its climate targets for 2020. These include reducing greenhouse gas emissions by at least 40 percent below the levels of 1990.
"These steps are important ones for us to meet our climate targets and, at the same time, to ensure that there won't be any grave structural changes in the regions concerned," said Gabriel.
Originally, the idea had been to introduce a so-called "climate levy" for lignite plants. This was to achieve a reduction of CO2 emissions by 22 million tons.
But fearing job losses at power plants and mines, the utility companies, trade unions and some politicians from Chancellor Angela Merkel's conservative CDU party opposed that idea.
The plan now agreed on will reduce Germany's CO2 emissions by 11 to 12.5 million tons in 2020, according to the environment ministry. Further emissions cuts will have to come from increased energy efficiency as well as combining heat and power.
In 2018, the emission cuts actually achieved will be subject to an evaluation.
Environmental activist group Germanwatch lauded the plan as "the first step towards ending lignite-fired power in Germany," but warned at the same time that the 2018 evaluation would be a key event to determine how serious Germany was about meeting its climate target.
Environmental organization Greenpeace said the plan was not good enough and pointed to the fact that it might violate EU regulations.
Infringement of EU guidelines?
The European Commission might share this view: According to a report in the daily 'Frankfurter Allgemeine Zeitung', the European Commission has concerns that the plans would provide special treatment for lignite power plants and thus violate EU guidelines.
But the German economics ministry said the plans had been discussed intensively with the Commission beforehand and that it was thus "confident" they would be approved by the Commission.
The power companies' respective executive boards have yet to give their assent to the measures. The German government is expected to agree to the draft law in November before it goes to parliament.