Commission Consults on Draft Guidelines on Environmental and Energy Aid for 2014-2020

As part of  a broader initiative to modernise EU State aid rules, the European Commission has put up a proposal for revised State aid guidelines for assessing public support projects in the field of energy and the environment for consultation. The Commission proposes to extend the scope of the existing guidelines, which cover the period until end 2014, beyond the environmental field into the energy area and to clarify and simplify the assessment of state aid measures. The guidelines shall be applicable until 2020.

The Commission recently already published a Communication “Delivering the internal electricity market and making the most of public intervention” and an accompanying set of Staff Working Documents on important aspects of the Communication, giving guidance to Member States on state interventions aimed at preventing market distortions and providing secure and affordable energy. The proposed guidelines are a further effort in this direction. Their release conincided with the Commission’s decision to open an in-depth inquiry into the German EEG-support system for energy-intensive companies from a reduced renewables surcharge and the opening of an in-depth investigation into UK measures supporting nuclear energy.

1. Support Shift Towards Market Premiums and Certificate Schemes

With the proposed guidelines the Commission wants to facilitate the decarbonisation of the energy supply and the integration of the EU internal energy market. In  line with the above-mentioned Communication, the Commission says that “with an increasing penetration and decreasing costs of renewable energy, state aid should gradually move to a more market friendly support of renewable energy in the form of market premiums or certificate schemes.” Market premiums provide producers with a supplement on top of the wholesale price, while certificate schemes establish a market for tradable certificates between producers and suppliers of renewable energy, allowing renewable energy to integrate and play its role in the electricity market and new forms of renewable energy to develop, the Commission points out.

In Germany, the Renewable Energy Sources Act (EEG) provides for fixed feed-in tariffs that differ for the various renewable energy sources. Alternatively, renewable power plant operators who decide not to claim the fixed feed-in tariffs, but sell the electricity generated themselves, are entitled to a market premium in addition to the revenue obtained by the sale of the electricity (Section 33g EEG). The market premium is calculated as the difference between the EEG feed-in tariff and the monthly ex-post average price at the energy exchange. From the monthly ex-post average price a management premium that differs with respect to the various forms of renewable energy is deducted. It covers transactional costs of the operators.

A market premium for renewable energy is therefore currently not mandatory under German law. The new Conservative/Social Democrat government that announced an overhaul of the EEG in its coalition agreement intends to make direct marketing mandatory first for new renewable plants with a capacity of 5 MW and by 2017 for all plants. Besides, the appropriate level of financial support under the EEG shall be determined in an auction process as of 2018, provided a pilot project proves that auctioning will reduce costs. A special PV auction pilot project with a total capacity of 400 MW shall take place in 2016 at the latest.

2. Rules for Assessing Infrastructure Support

Since a modern infrastructure is crucial for an integrated energy market and for achieving the EU’s climate and energy targets, the guidelines include for the first time rules for assessing infrastructure support, the Commission points out. Accordingly, aid to infrastructure should be focused on projects improving cross-border energy flows and promoting infrastructure in Europe’s less developed regions, the Commission says.

3. Rules on State Aid to Secure Generation Adequacy

The draft guidelines also include rules on state aid to secure generation adequacy.

This is an important aspect, since “some EU countries plan to introduce so-called “capacity mechanisms” to encourage producers to build new generation capacity or prevent them from shutting down existing plants”, as the Commission points out. Germany is one of countries where the creation of a capacity market that provides secure energy for the growing supply of intermittent renewable energy is being discussed. The growth of renewable energy generation, which is promoted by the EEG and enjoys feed-in priority,  leads to a declining readiness to invest in conventional power plants.

In its coalition agreement the new government says that while capacities suffice at the present date, a capacity market shall be developed in the medium term. It shall be cost-efficient, competitive, technology-open and in compliance with EU law.

Support for secure operation according to the new draft guidelines “would be allowed only if additional energy infrastructure or alternative measures – such as a more responsive demand side or electricity storage – cannot address concerns about a sufficient flexible generation capacity”, the Commission says, adding that “such aid should not unduly favour national generation or particular technologies, in order to limit the risks of strong distortions of competition and environmental harm.”

4. Further Important Aspects

The Commission proposes to exempt certain categories of aid from prior scrutiny under the state aid rules by including them in the General Block Exemption Regulation. This would include for example public support to clean up or remediate contaminated sites, aid to promote district heating and public loans to improve the energy efficiency in buildings. Exempted measures may cover up to 40% of the public expenditure in the energy and environmental field and will therefore significantly simplify the granting by Member State and local authorities of support measures with a limited potential for distorting competition.

Comments on the guidelines can be submitted until 14 February 2014. The Commission wants to adopt the revised guidelines in the first semester of 2014.

5. Commission Investigation and EEG Overhaul

Yesterday the European Commission also opened an in-depth investigation to examine whether the reduction granted to energy-intensive companies on the surcharge promoting renewable energy sources in Germany (“EEG-surcharge”) is compatible with EU state aid rules. The Commission also investigates the reduction on the EEG-surcharge granted to suppliers that source 50% of their electricity portfolio from domestic renewable electricity (“green electricity privilege”). In its preliminary investigation the Commission came to the conclusion that the current EEG (EEG 2012) constitutes state aid, but is in line with the Commission’s 2008 guidelines on state aid for environmental protection. The Commission had, however, doubts regarding the compatibility of the surcharge reductions.

In the communication concerning the draft rules for state support in the energy and environmental field, the Commission explicitly pointed out  that “In recent years, the financing of renewable support measures has led in many Member States to an increase of electricity costs which affects the competitiveness of energy intensive users and risks leading to carbon leakage due to the relocation of production outside the EU. The draft Guidelines would therefore allow the burden for energy intensive users to be reduced, while putting in place safeguards to limit the distortions of competition that such selective support is bound to trigger and to avoid subsidy races between Member States.”

The new Conservative/Social Democrat government will have to closely consider the draft rules for state support in the energy and environmental field when amending the EEG.


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