Introduction

DG Competition, the antitrust arm of the European Commission has just launched a State aid sector inquiry into capacity mechanisms in the EU. The sector inquiry is intended to look into aid granted by governments in a number of European countries. That aid was intended to ensure security of supply at national level by, inter alia, allowing for capacity reservation systems, such as building new power plants to cover the risk of a national supply shortage and avoid blackouts. 

The sector inquiry will complement the Commission's legislative proposal on electricity market design under the EU's Energy Union Strategy, including on capacity mechanisms which is expected in the course of 2016. 

The sector inquiry

This is the first time the Commission has launched a sector-wide probe into State aid, following this possibility being added to the Commission’s tool box post the modernisation of its State aid rules in 2012. That modernisation had three main, closely linked objectives: 

  • to foster growth in a strengthened, dynamic and competitive internal market;
  • focusing enforcement on cases with the biggest impact on the internal market; and
  • to streamline rules and ensure faster decisions.

The challenge for the Commission is to ensure greater integration of (still) national energy markets to guarantee better security of supply for the whole of the EU, rather than having parallel initiatives at national level to address domestic security of supply considerations. The Commission wants to limit granting aid that increases capacity in one country, when there are sufficient energy resources, in particular from renewable energy, in neighbouring countries. 

Its overall aim is also to ensure tax-payers’ money is used in the most efficient manner, supporting initiatives and aids that also allow for a greater integration of energy markets in Europe and a better use of existing resources. The Commission is concerned that some initiatives are taken from a purely national perspective, potentially maintaining silos between countries with national capacity reservation mechanisms that may or may not be used, irrespective of that country and the neighbouring countries’ needs. The aim is to ensure that Member States focus on appropriate energy investment (e.g. interconnectors, renewable energies), taking account of resources available outside of their own market, rather than building costly new power plants that will only be used in the event of an emergency.

EU Competition Commissioner Margrethe Vestager said in a statement that the sector inquiry is intended to send a clear signal to Member States to respect EU State aid rules when implementing capacity mechanisms, and to contribute to the Commission's goal to build a true energy union in Europe. Furthermore, investments should not unduly favour particular producers or technologies, or create obstacles to trade across national borders while recognising that EU governments have to protect themselves against blackouts.

The sector inquiry covers 11 Member States: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden. It focuses on both existing capacity mechanisms and plans to introduce (or modify) these mechanisms in these countries.

The Commission may decide to extend the sample of Member States at a later stage if the preliminary results indicate broader issues in other countries. 

Conclusion

As for previous sector inquiries, the inquiry will involve (at least initially) questionnaires being sent to governmental bodies as well as national energy regulators and energy companies. 

The inquiry could lead to individual cases being brought against Member States - in all previous sector inquiries investigations were opened against some of the undertakings subject to those inquiries (including an earlier energy sector inquiry back in 2007). 

The probe comes clearly in the wake of the priorities of the new Commission, which had identified energy as a key sector of focus when it came into office back in November, as well as more recently when it revealed its plans for a common energy union in February 2015. It also comes very shortly after the Commission decided to open formal proceedings against Gazprom, for potential restrictions on the flow of gas it supplies through the EU. The new inquiry constitutes another tool in the Commission’s tool box to ensure that the EU is more autonomous in terms of energy supplies. According to the Commission, this requires a better integration between Member States so that energy flows easily from where it is produced to where it is needed, without consideration of national borders or politics. 

Preliminary conclusions from the inquiry are expected by the end of 2015 and a final report by mid-2016.