On 28 May 2014, the Conseil d'Etat invalidated a 2008 ministerial order [arrêté ministériel] setting out feed-in tariffs (FIT) for energy produced by onshore and offshore wind turbines (the "2008 Order") on the basis that it constituted illegal state aid.1 In a new decision dated 15 April 2016, the Conseil d'Etat has now ordered the French government to recover interest payable by wind energy producers on the portion of the payments made to them constituting illegal state aid (CE, 15 April 2016, Association Vent de colère ! Fédération nationale et autres, no. 393721).
The recovery is to be undertaken:
- using the method and interest rate set out in Commission Regulation (EC) No 794/2004 of 21 April 2004, of which details are provided below;
- within six (6) months of the notification of the decision to the government, subject to a penalty for non- compliance of €10,000 per day.
This decision draws all the legal consequences of the government's failure to notify the European Commission of the 2008 Order and the resulting classification of that order as unlawful state aid. Moreover, other ministerial orders concerning tariffs for other renewable energy sources (solar, biomass, etc.) have not been notified to the Commission either. As a result, the Versailles Court of Appeal recently submitted a request for a preliminary judgment to the EU Court of Justice on whether or not the ministerial orders on PV power feed-in tariffs of 10 July 2006 and 12 January 2010 should also be regarded as illegal state aid.
It is becoming urgent for the government to take the necessary action to limit the risk of other ministerial orders on FITs for renewable energy sources also being classed as illegal state aid.
Given its support for the renewable energy sector, from a strictly political point of view, the government might not be inclined to recover interest on the payments made (as has been the case in other matters that have garnered media attention and despite the legal obligation to recover the aid). However, if the interest were to be recovered, the affected producers could consider taking legal action against the government.
In this e-briefing, we will first provide a brief overview of the facts and proceedings that led the Conseil d’Etat to order the government to recover the interest in this case (1) and subsequently summarise the main consequences of the decision for wind energy producers and other beneficiaries of FIT procedures in the renewable energy sector (2).
- Facts and proceedings
The 2008 Order set out feed-in tariffs (FIT) above market rates at which EDF OA or certain other distributors must purchase the electricity produced by onshore or offshore wind turbines. A French anti-wind energy NGO named "Vent de colère !" challenged the legality of the 2008 Order before the Conseil d’Etat, claiming that the tariff system established by the 2008 Order (the "Wind Power FIT") constituted state aid and was illegal in that it had not been notified to the European Commission.
After submitting a preliminary question2 to the EU Court of Justice (the "CJEU") and applying the CJEU's judgment of 19 December 2013 (CJEU, case C-262/12), which determined that the Wind Power FIT was financed through state resources, the Conseil d’Etat decided to invalidate the 2008 Order on 28 May 2014.3 In the meantime, the European Commission came to the conclusion (decision of 27 March 20144) that the Wind Power FIT constituted a state aid procedure compatible with EU law.
According to CJUE case law, all illegal state aid must be recovered.5 However, if the aid is subsequently declared compatible with EU law, the national court has two options:6
- it can order the recovery of the illegal aid, without affecting the right of the Member State to grant the same aid in the future;
- it can order the beneficiary of the aid to pay interest for the period between the date of payment of the illegal state aid and the declaration of compatibility issued by the European Commission.
Nevertheless, in its decision of 28 May 2014, the Conseil d’Etat invalidated the 2008 Order with retroactive effect but did not order the government to recover interest from the beneficiaries, despite the suggestion of its advocate general [rapporteur public]. At the same time, the French government issued a new FIT order (dated 17 June 2014, effective on 2 July 2014) and stated that it would not revise any agreements already signed.7 A challenge filed by Vent de colère ! against this second order was dismissed.8
After observing that the government had not commenced the recovery of interest further to its 2014 decision, the Conseil d’Etat began the process of ordering the government to take action [procedure d'astreinte d'office], subject to penalties for non- compliance, on 28 September 2015.
This time, the decision followed the recommendations of the advocate general, issued on 30 March 2016. The 15 April 2016 decision states as follows: "where the Conseil d'Etat, ruling further to a legal challenge, invalidates a regulatory instrument introducing aid without taking into account the obligation to notify the European Commission thereof in advance, the government must take all necessary measures to ensure the recovery of the aid paid on the basis of the illegal system or of interest calculated over the applicable period of illegality from the beneficiaries of the aid".9
In so far as no action was taken further to its 2014 decision to recover interest from the wind energy producers on the portion of payments considered as illegal state aid, the Conseil d’Etat has now ordered the government to commence the recovery process within six (6) months of the date of notification of its decision of 15 April 2016, subject to a penalty for non-compliance of €10,000 per day.
- Consequences of the decision
2.1. Recovery of interest from the beneficiaries of the 2008 Order
The Conseil d'Etat decision of 15 April 2016 requires the government to recover interest on the difference between the market rate and the FIT received in accordance with the power purchase agreements (PPAs) concluded on the basis of the 2008 Order until 27 March 2014 (the date on which the European Commission found that the Wind Power FIT derived from the 2008 Order was compatible with EU law).
The calculation method of the interest rates applicable to the recovery of illegal state aid is set out in Chapter V of Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty. The applicable rate is that in force on the date on which the illegal aid was provided to the beneficiary. The recovery rates are published on the EU website.10
It will likely be difficult for the government to calculate the interest payable by each energy producer and recover the relevant funds due to the number of PPAs concluded (around 430, representing an annual amount of around €500 million11) and the period to be covered (over five (5) years). Although the courts have recognised that it can be "absolutely impossible" for a government to recover illegal aid, thus discharging that government of liability for the recovery, the interpretation afforded to this exception by both the CJEU12 and the Conseil d’Etat13 is very narrow. As a result, from a legal standpoint, it seems doubtful that these issues would constitute an "absolute impossibility" to recover the interest.
In other politically charged situations, the government has shown little inclination to recover aids that were declared illegal, causing the European Commission to take action against France before the CJEU for its inertia in dealing with aid found to be incompatible with EU law (aid granted to the fruit and vegetable industry, the SNCM, etc.).14
Moreover, the fact that the Conseil d'Etat has set a high penalty for non-compliance will not necessarily encourage the government to change its policy. For example, concerning the oil and gas sector, the French courts have in numerous cases ordered the government to issue a new decision on applications for mining permits. The government has not always complied,15 despite incurring penalties of up to €10,000 per day in certain cases.16
2.2. Projects based on other FITs for renewable energy sources
French FITs for other renewable energies (solar, biomass, etc.) are also at risk of being classed as illegal state aid in so far as they have never been notified to the Commission and are based on the same financing rules as the 2008 Order.
The Versailles Court of Appeal recently submitted a request for a preliminary judgment to the CJEU, asking whether PV FIT orders issued on 10 July 2006 and 12 January 2010 should also be viewed as illegal state aid.17
It is becoming urgent for the government to take the necessary action to limit the risk of other ministerial orders on FITs for renewable energy sources also being classed as illegal state aid. For example, concerning the orders mentioned in the preliminary question submitted by the Versailles Court of Appeal, the government needs to issue the official notifications for these orders at the earliest opportunity to ensure they are declared compatible by the Commission (which seems likely given its decision on the 2008 Order).
2.3. Possible remedies against the government
If the French government recovers interests on the illegal state aids, the energy producers impacted by this recovery could have grounds to bring an action for damages. Since granting illegal state aid constitutes a wrongful action,18 EU19 and French20 case law allows damages to be sought.
Nevertheless, the court would need to comply with the following:
- liquidated damages would only be awarded if the affected producers demonstrates that it suffered a loss other than the one directly resulting from the recovery; and
- there would need to be a causal link between the French government's failure to notify the Commission of the 2008 Order and the alleged loss.
The court might also consider the beneficiaries to have been negligent, as they should have been aware that the 2008 Order qualified as illegal state aid,21 and therefore apportion the liability between the government and the beneficiaries.22
In any event, the possibility of bringing an action for damages on this basis would need to be assessed on a case-by-case basis.