On 13 November 2015, the European Commission announced the opening of two separate in-depth investigations into plans of the French government to remunerate electricity capacity.
The first investigation concerns the development of a country-wide capacity mechanism and the second relates to the French tender to support the construction of a new gas-fired power plant in Brittany.
Country-wide capacity mechanism
The use of intermittent weather-based renewable energy on a power grid designed for fossil fuels and the concerns about Russia as a reliable gas provider have raised the fear of blackouts in a lot of Member States.
Capacity mechanisms are national measures undertaken to ensure that adequate capacity to produce electricity is available at all times. A typical mechanism is to provide additional incentives (on top of the income from the sale of electricity on the market) to electricity capacity providers in return for maintaining existing capacity or investing in new capacity.
Capacity mechanisms can be justified but they must be designed so that they do not distort competition in the internal market and they should not unduly favour certain producers or types of technology.
To ensure that the supply of electricity meets demand at all times, the French State has plans to develop a national market-wide capacity mechanism where capacity obligations are traded between electricity providers and suppliers.
By opening the formal investigation phase, the Commission is publicly showing its concern that this current mechanism favours certain companies over their competitors and hinders the entry of new players. It will assess whether the mechanism's objectives could not be achieved with measures that are less costly and less market-distorting, and whether the planned mechanism is suitable for encouraging investment in new capacity.
Tender for gas-fired power plant
The French government also launched a tender to support the development of a new gas-fired power plant in Brittany. This should increase electricity generation capacity as the region is a bit isolated from the rest of France.
However, the Commission has some doubts about the legality of this tender as the support is only granted to one type of technology and is not open to other solutions such as other types of power generation, demand side management, network extensions or storage solutions (measures already available). The Commission has concerns about the risk of creating a subsidy-dependent market as investors will be attracted by public tenders granting aid when developing their projects.
The Commission will now investigate whether its concerns are justified or not. Both decisions for opening in-depth investigations have been sent to the French authorities, which will have the opportunity to respond to those concerns. The decisions will also be published in the Official Journal of the EU, and the Commission will invite interested third parties to comment on them.
As Commissioner Margrethe Vestager said: "France has a legitimate interest to ensure the security of energy supply for its population and protect against the risk of blackouts. It's our role to ensure that this is done in a cost-effective and competitive way, so that electricity prices are kept in check."
EU sector probe
The two formal investigations follow the European Commission’s state aid sector inquiry of April 2015 into national programmes to safeguard electricity supplies. During this sector inquiry, requests for information were sent to public authorities and stakeholders, and meetings were held during the summer. The sector inquiry included a number of Member States that have capacity mechanisms in place or are considering them, namely: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden.