On 29 April 2015, the European Commission (the “Commission”) launched its first sector inquiry under State aid rules to look into national measures to ensure that adequate capacity to produce electricity is available at all times to avoid black-outs (so-called "capacity mechanisms"). The Commission press release is available here.

Sector inquiries are largely used by the Commission to detect undertakings' anticompetitive behaviour in specific sectors and have been effective in detecting several cartels. Previous competition law commissioner, Joaquin Almunia, opined that sector inquiries should also become a tool for State aid enforcement, in order to allow broader understanding of a sector than it would be the case on the basis of information made available by complainants or public sources. This has subsequently been enshrined into the State aid procedural rules when they were modernised in 2013. Clearly, the objective of sector inquiries is to proactively investigate a sector for illegal State aid.

In the case at hand, the Commission has observed that Member States increasingly introduce capacity mechanisms whereby they encourage investment in new power plants or provide incentives for older ones to continue to operate, with a view to guaranteeing their security of supply. Although the Commission recognises that such national measures may in some cases be justified, it would like to verify that they are necessary and adequate and that they do not distort competition. Hence, the choices made by Member States in ensuring their security of supply are going to be scrutinised by the Commission. Commissioner Margrethe Vestager gave as an example that: "in some cases it might be more efficient to invest in improving electricity grid connections between EU countries than to build new power stations."

According to the Commission's press release, questions will be sent to selected public authorities and market participants initially in eleven EU Member States (Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden). After having assessed the replies, the Commission will invite comments on its preliminary findings before the end of 2015. It intends to publish the final results of the inquiry mid-2016. It is to be noted that under the recently modernised State aid procedural rules, market participants that would intentionally or through gross negligence provide incorrect or misleading information to the Commission or not answer at all, may incur a fine up to 1% of their turnover of the previous year. Additionally, a lack of responsiveness may lead to a periodic penalty of a maximum of 5% of the average daily turnover of the undertaking. Such fines or penalties may be imposed even if the market participant is itself a recipient of aid and may potentially have to reimburse any advantage accrued to it if it discloses the requested information. The Commission will thus expect the greatest cooperation from Member States and undertakings to improve its understanding of capacity mechanisms and their potential distortion of competition.