For further information, please contact:
Dr. Janet Kerstin Butler
+49 30 220 02 81 726
Baker & McKenzie
Friedrichstraße 88/ Unter den Linden
10117 Berlin, Germany
+32 2 639 37 46
Baker & McKenzie
Avenue Louise 149
1050 Brussels, Belgium
+48 22 445 32 29
Baker & McKenzie Krzyzowski i Wspolnicy sp.k.
Rondo ONZ 1,
00-124 Warsaw, Poland
+33 1 44 17 53 88
Baker & McKenzie SCP 1 rue Paul Baudry 75008 Paris, France
+44 20 7919 1626
Baker & McKenzie LLP
100 New Bridge Street
London EC4V 6JA, UK
+36 1 302 3330
Kajtár Takács Hegymegi-Barakonyi
Baker & McKenzie
Andrássy út 102
1062 Budapest, Hungary
New EU Guidelines on environmental and energy state aid – Implications for the renewable energy industry
On 9 April 2014, the European Commission adopted the new Guidelines on state aid for environmental protection and energy 2014-2020 (“EEA Guidelines”)1. They replace the existing guidelines as of 1 July 2014. Particularly the EEA Guidelines' new detailed rules for the approval of operating aid for electricity generation from renewable sources will have significant implications for the renewable energy industry, as outlined below.
I. What are the EEA Guidelines and how do they affect the renewable energy industry?
The EEA Guidelines do not apply directly to plants generating electricity from renewable sources, but they limit the Member States’ freedom to design their national support schemes for renewables. Their impact on the renewable energy industry in Europe, albeit indirectly, will therefore be substantial. They affect new and existing support schemes.
The EEA Guidelines lay down the principles that the European Commission will apply when assessing whether state aid granted by Member States inter alia to producers of electricity from renewable sources is compatible with the internal market. Member States must notify state aid that does not benefit from an exemption or approval to the European Commission for approval. Otherwise such aid cannot be granted. Aid granted without approval is unlawful and remains subject to recovery with interest for 10 years.
The EEA Guidelines do not explain under what circumstances national support schemes for renewables constitute state aid.2 Governments remain free to design their support schemes so as to avoid state aid elements.
II. What do the new EEA Guidelines say on renewables support schemes?
The EEA Guidelines are the result of a lengthy consultation and negotiation process. The final version has evolved substantially from the first internal drafts.3 The key provisions of the adopted Guidelines on operating aid for renewable electricity generation are the following:
1 Available here.
2 The Commission has summarized its views on the notion of state aid in the draft Commission Notice on the notion of State aid pursuant to Article 107(1) TFEU, available here.
3 For our comments on previous internal draft versions of the guidelines, see our September 2013 client alert here and our December 2013 client alert here.
New Environmental and Energy State Aid Guidelines
European Union - State Aid / Energy
European Union – State Aid / Energy
1. Replacement of feed-in tariffs by market premiums
From 1 January 2016, all new operating aid for generation from renewables must be granted as a premium on top of the market price, with electricity generators being required to sell their electricity directly in the market.
Beneficiaries must be subject to standard balancing responsibilities, unless no liquid intraday markets exist. Furthermore, measures must be put in place to ensure that generators have no incentive to generate electricity at negative prices.
This in effect means that feed-in tariffs must be replaced by market premium-based support schemes by 2016. Exceptions are allowed only for small-scale installations with an installed capacity of less than 500 kW (wind energy: up to 3 MW or 3 generation units) and for demonstration projects.
In contrast to earlier drafts, the EEA Guidelines do not require Member States to open their national support schemes to generators from other countries.
2. Transition to competitive bidding processes
In the future, competitive bidding processes, based on clear, transparent and non-discriminatory criteria, will determine who is eligible and what amount of funding is available, thus replacing market premiums defined by statute or otherwise.
Already in 2015 and 2016, at least 5 % of the planned new electricity capacity from renewable energy sources must be granted in competitive bidding processes. From 1 January 2017 onwards, in principle, all aid granted must be awarded using such processes, except where the Member State can demonstrate that:
only one or a very limited number of projects or sites could be eligible,
a competitive bidding process would lead to higher support levels, or
a competitive bidding process would result in low project realization rates.
As a rule, the bidding process must be open to all generators producing electricity from renewable energy sources. Distinctions between different renewable energy sources are not allowed. However, in contrast to earlier drafts, the EEA Guidelines give Member States substantial leeway to justify technology specific tenders. These are permitted “where a process open to all generators would lead to a suboptimal result which cannot be addressed in the process design”, in particular in view of:
the longer-term potential of a given new and innovative technology,
the need to achieve diversification,
network constraints and grid stability,
system (integration) costs, or
the need to avoid distortions on the raw material markets from biomass support.
Installations with an installed capacity of less than 1 MW, wind installations with an installed capacity of up to 6 MW or 6 generation units, and demonstration projects are generally exempt from the bidding requirements. They can continue to be supported by market premiums or feed-in tariffs, respectively, determined by statute or otherwise beyond 1 January 2017.
European Union – State Aid / Energy
Finally, the EEA Guidelines lay down transitional provisions with respect to the introduction of bidding mechanisms. Installations that “started works” (including any firm commitment that makes the investment irreversible) before 1 January 2017 and have received confirmation of the aid by the Member State before that date can be granted aid on the basis of the scheme in force at the time of confirmation.
As an alternative to market premiums, Member States may grant renewables support in the form of green certificates. No differentiation in support levels through green certificates is allowed, unless Member States demonstrate a need for differentiation on the basis of the justifications acceptable for technology specific bidding processes (see above under 2.). The general conditions applicable to market premiums apply also to certificate mechanisms (see above under 1.).
4. Food-based biofuels / biomass
Operating aid to food-based biofuels can only be granted to plants that started operation before 31 December 2013 until the plant is depreciated, but no later than 2020. Where biofuels are subject to a legally binding supply or blending obligation, no operating aid is allowed.
As a rule, operating aid for renewables may only be granted until the plant has been fully depreciated according to normal accounting rules. For biomass, in contrast, operating aid may be compatible with the internal market even after plant depreciation, due to the relatively low investment costs and higher operating costs. The EEA Guidelines lay down detailed criteria for permissible operating aid to biomass plants after plant depreciation. These include monitoring mechanisms to avoid overcompensation.
5. Phase-out of all renewables subsidies by 2030
The Guidelines are only applicable for the period up to 2020. However, the Commission understands them as preparing the ground for achieving the objectives set in the 2030 Framework4. The Commission expects that established renewable energy sources will become grid-competitive, implying that subsidies and exemptions from balancing responsibilities should be phased out in a degressive way between 2020 and 2030. While this outlook has no legal effect, it makes clear the Commission’s aim to abolish all subsidies for established renewables in the longer term.
III. How will the new EEA Guidelines affect existing support schemes and aid granted under renewables support schemes?
The Guidelines will apply from 1 July 2014 until 31 December 2020. They will be applied to all notified aid measures on which the Commission takes a decision after 1 July 2014, even if the measure was notified before that date. The Guidelines limit the authorization of operating aid schemes to a maximum period of 10 years.
1. Existing approved aid schemes
Member States must in principle amend existing approved schemes in order to bring them into line with the Guidelines no later than 1 January 2016. However, operating aid schemes for renewables only need to be adapted to the Guidelines
4 Communication from the Commission, A policy framework for climate and energy in the period from 2020 to 2030, COM(2014) 15 final of 22 January 2014.
European Union – State Aid / Energy
when Member States (i) prolong their existing schemes, (ii) have to re-notify them after expiry of the validity of the initial approval or (iii) change them.
Where a generator has received confirmation from a Member State that it will benefit from aid under an existing approved aid scheme for a predetermined period, the support can be granted over the entire period under the conditions laid down in the scheme at the time of the confirmation. Therefore, the Guidelines will not affect plant operators that have already received such confirmation.
2. Existing unlawful aid schemes
Stricter rules apply in situations where the aid granted is based on a support scheme that was not approved by the Commission. Unlawful aid – i.e. aid that is granted in the absence of an exemption or approval – will be assessed in accordance with the rules in force on the date on which the aid was granted.
Where a generator has received confirmation from a Member State that it will benefit from operating aid in support of renewable energy under an unlawful scheme for a predetermined period, such aid can be granted over the entire period under the conditions laid down in the scheme at the time of the confirmation, but only to the extent that the aid is compatible with the rules applying at the time of the confirmation.
The new EEA Guidelines introduce two fundamental policy shifts – from feed-in tariffs to market premiums and from statutory tariffs to competitive bidding processes – that will have a substantial impact on the future design of renewables support schemes in Europe.
In contrast to earlier draft versions, however, they do allow Member States to make use of broad exceptions, in particular with respect to technology specific tenders. They also provide investors with the much-needed security with respect to investments made in the past or in the transitional phase until adaptation of the national rules to the new guidelines.
For investments in Member States that have not notified their support schemes, the guidelines provide less security. In such cases, investors are left to determine to what extent support granted in the past complied with applicable State aid rules at the time.
This client newsletter is prepared for information purposes only. The information contained therein should not be relied on as legal advice and should, therefore, not be regarded as a substitute for detailed legal advice in the individual case. The advice of a qualified lawyer should always be sought in such cases. In the publishing of this Newsletter, we do not accept any liability in individual cases.
Baker & McKenzie - Partnerschaft von Rechtsanwälten, Wirtschaftsprüfern, Steuerberatern und Solicitors is a professional partnership under German law with its registered offices in Frankfurt/Main, registered with the Local Court of Frankfurt/Main at PR No. 1602. It is associated with Baker & McKenzie International, a Verein organized under the laws of Switzerland. Members of Baker & McKenzie International are Baker & McKenzie law firms around the world. In common with terminology used in professional service organizations, reference to a "partner" means a professional who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.
Friedrichstrasse 88 / Unter den Linden
Tel.: +49 (0) 30 2 20 02 81 0
Fax: +49 (0) 30 2 20 02 81 199
Neuer Zollhof 2 40221 Dusseldorf Tel.: +49 (0) 211 3 11 16 0 Fax: +49 (0) 211 3 11 16 199
Frankfurt / Main
Bethmannstrasse 50-54 60311 Frankfurt/Main Tel.: +49 (0) 69 2 99 08 0 Fax: +49 (0) 69 2 99 08 108
Theatinerstrasse 23 80333 Munich Tel.: +49 (0) 89 5 52 38 0 Fax: +49 (0) 89 5 52 38 199