EU General Court: Germany’s 2012 Renewable Energy Source Act Involves State Aid

Published on May 10, 2016 in Biomass, Court, Electricity, Environmental Politics, Europe, Geothermal, Legislation, Renewable, Solar, Water and Wind. 7 Comments Tags: , , .

The EU’s General Court today sided with the Commission’s view that the EEG 2012 involved state aid. It rejected Germany’s arguments to the contrary, seeking annulment of a Commission decision of 25 November 2014 on a scheme for the support of renewable electricity and of energy-intensive users.

Today’s decision is an important milestone in the debate on what constitutes state aid when it comes to renewable energy support schemes – and a major win for the Commission. It supports the Commission’s state aid position in this area, which is also key for the Commission’s state aid guidelines for assessing public support projects in the field of energy and the environment for the period 2014 to 2020. It is also relevant for the state aid assessment of the upcoming EEG 2016, as it supports the EU’s role in reviewing national renewable support schemes. However, the debate is not quite over yet, and it remains to be seen whether the EU’s Court of Justice will ultimately share the view of the Commission and the General Court.

1. Background

The debate on whether or not the German Renewable Energy Sources Act (EEG) – in its 2012 iteration (EEG 2012) – constitutes state has been controversially discussed for a while.

Following a complaint, on 18 December 2013 the Commission informed Germany about its decision to initiate the formal investigation procedure in respect of the measures contained in the EEG 2012 and implemented in the form of aid supporting renewable electricity and energy-intensive users. The German government officially rejected this position, and challenged the opening decision by the European Commission. This action was later withdrawn in April 2015, following the adoption by the Commission of the decision concluding the formal EEG 2012 investigation.

On 25 November 2014, the European Commission decided that aid granted under the German Renewable Resources Act of 2012 (EEG 2012) was largely in line with EU state aid rules. The Commission also approved the majority of reductions granted to energy-intensive companies on the surcharge paid by end consumers to finance the support for renewables (EEG-surcharge). As the Commission found a limited portion of the reductions exceeding what is permitted under EU state aid rules, the Commission ordered a partial recovery for the years 2013 and 2014.

A key element of the decision was the Commission’s view that the EEG 2012 involves state aid. More specifically, the Commission considered that the feed-in tariffs and market premiums, which guarantee producers of EEG electricity a higher price for the electricity they produce than the market price, constitute state aid compatible with the internal market. Furthermore, it considered that the reduction of the EEG surcharge for certain energy-intensive users also constitutes state aid, the compatibility of which with the internal market is recognised only if it falls into certain categories.

On 2 February 2015, the Federal Republic of Germany brought an action (case T-47/15) against the Commission, claiming that the Court should annul the contested decision.

The EEG 2012 applied between 1 January 2012 and 31 July 2014, and has meanwhile been replaced by the EEG 2014. The EEG 2014 was approved by the Commission on 23 July 2014. A revised EEG for 2017 is currently in the making.

2. Decision General Court

The General Court rejected all German arguments, dismissing the action in its entirety. Germany had brought the case under Article 263 TFEU for the annulment of Commission Decision (EU) 2015/1585 of 25 November 2014 on the aid scheme SA.33995 (2013/C) (ex 2013/NN) implemented by Germany for the support of renewable electricity and of energy-intensive users. The Court held that the reduction in the EEG surcharge for electricity-intensive undertakings conferred an advantage within the meaning of EU law on State aid. The grounds underlying an aid measure do not suffice to exclude the measure at the outset from classification as aid.

Under settled case-law only advantages granted directly or indirectly through State resources are to be considered aid within the meaning of Article 107(1) TFEU. The EEG 2012 involved State resources. The Court pointed out that the distinction between aid granted by the State and aid granted through State resources serves to bring within the definition of aid not only aid granted directly by the State, but also aid granted by public or private bodies designated or established by the State. EU law cannot permit the rules on State aid to be circumvented merely through the creation of autonomous institutions charged with allocating aid. The Court noted that the German transmission system operators (TSOs) are entrusted by the EEG 2012 with managing the system for supporting the production of electricity from renewable sources. As the Commission found, the EEG 2012 clearly conferred on the TSOs a series of obligations and rights as regards implementation of the mechanisms resulting from that law, so that the TSOs were the central point in the operation of the system laid down by it. The tasks for the management and administration of that system, laid down in particular by Sections 34 to 39 of the EEG 2012, can be assimilated, from the point of view of their effects, to a state concession. The funds involved in the operation of the EEG 2012 were administered exclusively for purposes in the general interest, in accordance with detailed rules defined beforehand by the German legislature.

The Court also notes that it is settled case-law that, in order for a levy to be capable of being regarded as forming an integral part of an aid measure, it must be hypothecated to the aid measure under the relevant national rules, in the sense that the revenue from the levy is necessarily allocated for the financing of the aid. The levy collected by the EEG surcharge, had to be considered hypothecated to the aid measure supporting the production of EEG electricity

The above assessment was not changed by the fact that German state does not have actual access to the resources generated by the EEG surcharge, in the sense that they indeed did not pass through the State budget. The state still had dominant influence over the use of the resources, and was able to decide in advance, through the adoption of the EEG 2012, which objectives are to be pursued and how those resources in their entirety are to be used.

The Court considered the EEG 2012 to be substantially different from the mechanism established by the previous German law which had been cleared by the Court of Justice in the PreussenElektra case. It held that the funds at issue in PreussenElektra could not be considered a state resource since they were not at any time under public control and there was no mechanism established and regulated by the Member State, for offsetting the additional costs arising from that obligation to purchase and through which the state offered those private operators the certain prospect that the additional costs would be covered in full.

3. Why is it so Relevant?

The decision goes to the core of European energy policy, more specifically on the powers of the European Commission to influence Member States’ energy policy. The European state aid law regime is a very strong sword. When Germany made changes to the EEG that led to the EEG 2012, people relied on the PreussenElektra case and basically thought that they were outside of the Commission’s state aid law influence. This all very much changed after the Commission started its in depth investigation into the EEG in 2013. The EEG 2014 was the first German renewable energy law that was materially shaped by the Commission’s view on state aid law requirements.

In practice, all major ManyElectronics policy revisions have since been also looked into from the European state aid law perspective. With the Commission’s state aid guidelines for assessing public support projects in the field of energy and the environment for the period 2014 to 2020, the Commission materially expanded its influence on Member State energy policy. While Germany formally always upheld the position that the EEG 2012 did not constitute state aid, in practice things have been very much discussed with the Commission. In fact, the current work on the EEG for 2017 is due to the fact that the Commission only cleared the renewables support regime EEG 2014 only for a limited time, using its state aid law powers. If the General Court had said that the EEG 2012 does not constitute state aid, this would have also meant that Germany (and other Member States) would be much more free in shaping their national renewable energy support schemes. The revision of the EEG for 2017 would perhaps look quite different. As well as several other Energiewende projects.

4. Next Steps

Germany can bring an appeal before the Court of Justice, limited to points of law only, within two months of notification of the decision (Art. 256 TFEU). It remains to be seen if the German government decides to do so.

The question of whether the EEG 2012 and its special equalisation scheme for energy-intensive uses involves state aid can also come before the Court of Justice in other procedures, such as in a reference for a preliminary ruling procedure. This procedure enables national courts to question the Court of Justice on the interpretation or validity of European law.

[Amended, section “Why is it relevant”]

Sources: Judgment General Court, press release General Court

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by Mutthias Leng

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