Support of electricity production from renewable energy sources is normally compatible with the internal market. Reduction of taxes on electricity used by energy-intensive industries is allowed only for certain sectors exposed to international trade and only when they bear a certain cost. Taxes on imported electricity normally infringe free-trade and non-discrimination provisions, unless commensurate benefits are extended to imported electricity.
[Note to the reader: Because of the length and complexity of the case reviewed here, the article appears in two parts. The second part will be published next week.]
Part I
Introduction
This article reviews Commission decision SA.33995 concerning i) support of electricity production from renewable sources of energy and ii) support of energy-intensive users in Germany.[1] It took the Commission almost three years to investigate the German measure. The investigation was launched after a complaint was received in December 2011 and was concluded in November 2014.
The case is very rich for at least four reasons. First, the German measure is very complex with undertakings involved at five different levels of trade. Second, Germany claimed that the measure did not confer any advantage and that it was not selective. The Commission had to examine these claims in detail with extensive references to the relevant case law. Third, the aid was financed by a charge on electricity that also covered imported electricity. That meant that the Commission also considered whether other provisions of the treaty were infringed. Fourth, the aid that was eventually found to be incompatible with the internal market was not aid of a type not allowed by the relevant guidelines but aid whose amount fell below the minimum thresholds of costs that had to be borne by electricity users.
The aid measure
The Erneuerbare-Energien-Gesetz [EEG 2012] came into force in January 2012. It has since been revised by EEG 2014. The Commission approved EEG 2014 in decision SA.38632 after Germany took out all the features that the Commission was investigating in EEG 2012.[2]
The EEG 2012 operated at five levels:
Level 1: Network operators [NOs] had to buy electricity produced from renewable energy sources [RES]. Prices or “feed-in tariffs” were fixed by law. Producers of RES electricity could also sell their electricity directly on the market – so-called “direct marketing”. When they did so, they received a market premium from the network operator. The amount of that market premium was also fixed by law.
Level 2: NOs then had to transfer EEG electricity to their respective Transmission System Operators [TSOs]. There are four TSOs in Germany. TSOs were obliged to compensate NOs for the entire cost resulting from the feed-in tariffs and the market premium.
Level 3: The EEG 2012 also established an equalisation mechanism whereby the financial burden resulting from the purchase obligation was spread between the four TSOs so that every TSO covered the costs of a quantity of electricity that corresponded to the average share of EEG electricity compared to the total electricity delivered by the individual TSO in the previous calendar year.
Level 4: TSOs were obliged to sell the EEG electricity on the spot market. If the price obtained on the spot market was less than the financial burden from their payments to NOs, TSOs could request electricity suppliers to pay a share of this burden proportionate to the respective quantity of electricity delivered by the electricity suppliers to their final consumers. The EEG 2012 explicitly defined the charge that the TSO recovered from electricity suppliers as constituting the EEG-surcharge. The four TSOs together had to determine the EEG surcharge. The methodology was fixed and TSOs had no discretion to change it. The EEG-surcharge ensured that all of the additional costs which the NOs and the TSOs incurred were compensated.
Level 5: Energy-intensive undertakings benefited from a capped EEG-surcharge. The EEG 2012 limited the amount of the surcharge that could be passed on by electricity suppliers to energy-intensive undertakings [EIUs]. Upon application by the EIUs to a designated public authority, the so-called “special compensation rule” was activated. The purpose of the rule was to reduce their electricity costs so that they could maintain their international competitiveness. An energy-intensive undertaking was defined as an undertaking that used at least 1 GWh per annum and had a ratio of electricity costs to gross added value of at least 14%.
The green electricity privilege
The EEG-surcharge was decreased for electricity suppliers where the EEG electricity they deliver to all of their final consumers fulfilled certain conditions; the so-called green electricity privilege. The reduction is granted when the supplier has bought EEG electricity directly from national EEG electricity producers under direct marketing arrangements and at least 50% of the electricity the supplier delivers to all of their final consumers is EEG electricity. The reduction of 2 ct/kWh is applied on the entire electricity portfolio, provided that the electricity of the supplier is at least 50% EEG electricity.
Pass on to consumers
In practice, all electricity suppliers passed on the EEG-surcharge in its entirety.
Formal investigation
While the support for EEG electricity was found to be compatible with the internal market on the basis of Article 107(3)(c)TFEU, the Commission voiced doubts as to whether the reductions of the EEG-surcharge could be found compatible with the internal market.
In addition, the Commission expressed doubts as to whether the financing of the support for EEG electricity under the EEG 2012 complied with Articles 30 and 110 TFEU. The reason was that although the EEG-surcharge only benefited EEG electricity production in Germany, it was also imposed on the consumption of imported EEG electricity.
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Existence of State aid
The main issues at hand was, first, whether the EEG 2012 conferred a selective advantage and, second, whether the various transfers between different groups of undertakings could be imputed or attributed to the state. In its opening decision, the Commission found that the EEG 2012 involved two types of selective advantage. The first advantage was conferred on producers of EEG electricity through the feed-in tariffs and the market premium both of which guaranteed the producers of EEG electricity a higher price for the electricity they produce than the market price.
The second advantage consisted in the reduction of the EEG-surcharge for certain EIUs. The Commission found that EIUs in the manufacturing sector enjoyed an advantage because their EEG-surcharge was capped.
Germany argued that there was no economic advantage either at the level of EEG electricity producers, or at the level of EIUs, for the following reasons. First, EEG electricity producers did not receive any economic advantage resulting from the EEG-surcharge. Rather, the EEG-surcharge merely compensated the losses incurred by the TSOs. Moreover, the remuneration of the EEG electricity producers satisfied the Altmark criteria. Second, EIUs did not obtain an economic advantage, but rather they were compensated for the disadvantage suffered in comparison with their competitors in other Member States, which had lower RES financing costs and third countries, which mostly bore no comparable burdens.
The Commission rejected both arguments. “(70) The fact that an undertaking is compensated for costs or charges, it has already incurred does not in principle exclude the existence of an economic advantage. Nor, is the existence of an advantage ruled out by the mere fact that competing undertakings in other Member States are in a more favourable position, because the notion of advantage is based on an analysis of the financial situation of an undertaking in its own legal and factual context with and without the particular measure.”
“(71) […] The existence of an advantage has to be assessed irrespective of the competitive playing field in other Member States. […] the very nature of the preferential tariff, […], is enough to conclude that the undertaking concerned was not bearing all the charges which should have normally burdened its budget. […] the existence of an advantage results from the simple description of the price differentiation mechanism, that is to say, a compensation mechanism, the purpose of which is to exonerate a company from the payment of a part of the price for electricity necessary for producing goods that are sold on the territory of the Union.”
“(72) Similarly, the reductions of the EEG-surcharge improve the beneficiaries’ financial situation by relieving them from a cost burden they would have to bear under normal conditions.”
Altmark
The Commission also rejected the claim that the EEG-surcharge was compatible with Altmark. Germany maintained that the support of RES producers pursued an objective of common interest, laid down in Article 3(1) of the Directive 2009/28 for promoting the use of renewable energy. According to Germany, the parameters for the compensation of EEG electricity producers were established in advance in an objective and transparent manner in the EEG 2012. The third criterion was also fulfilled since RES producers were not overcompensated. Finally, the level of support to EEG electricity producers was determined on the basis of an analysis of the costs which a typical, well run and adequately endowed undertaking would have incurred in discharging its obligations. The Commission rejected all of the arguments.
Because the Altmark criteria are cumulative, the Commission concluded that the EEG-surcharge was not Altmark compliant because the first Altmark criterion requires that the provider of the public service is entrusted with a public service obligation. “(85) Under the EEG 2012 producers are not under an obligation to produce, but are reacting to an economic incentive provided by the German State.”
In addition, Germany claimed that the reduction of the EEG surcharge did not constitute an economic advantage. It quoted the judgments in C-67/85, Van der Kooy, T-157/01, Danske Busvognmand v Commission and T-270/00, Hotel Cipriani v Commission. In Van der Kooy , the Court found that tariff reductions were not State aid if they were economically justified for the purpose of responding to competition. The Commission explained that with respect to Van der Kooy, there was no indication that Germany behaved like a private investor. With respect to the other judgments, the Commission considered that the General Court concluded that compensation for structural disadvantage was still State aid, unless it complied with Altmark, which did not.
Imputability
Germany disputed the imputability of the measure on the grounds that the state merely enacted legislation laying down obligations for private parties and the network operators were acting on their own accord. The Commission explained at the outset that “(97) the question of imputability may require a careful assessment where only the behaviour of publicly owned enterprises is concerned. However, there is no doubt about the fact that actions of the public administration and of the legislator are always imputable to the State.”
Concerning the support for producers of EEG electricity, “(98) […] the TSOs had been designated by the State to administer the EEG-surcharge and the revenues from the EEG-surcharge constituted a State resource. (99) The State has not only defined to whom the advantage is to be granted, the eligibility criteria and the level of support, but it has also provided the financial resources to cover the costs of the support to EEG electricity. […] the EEG-surcharge is created and imposed by the legislature, that is to say, the State, and is not merely a private initiative of the TSOs which the State renders compulsory in order to prevent free-riding.”
“(100) The mere fact that the advantage is not financed directly from the State budget is not sufficient to exclude the possibility that State resources are involved. Moreover, the originally private nature of the resources does not prevent them from being regarded as State resources within the meaning of Article 107(1) of the Treaty. The fact that the resources are not, at any time, the property of the State does also not prevent them from constituting State resources, if they are under the control of the State”.
The Commission contrasted the EEG surcharge arrangements with those of the landmark cases PreussenElektra and in Doux Elevage. “(103) While the Court excluded the existence of State resources in PreussenElektra and in Doux Elevage, this was due to the specific circumstances of those cases. In PreussenElektra, there was neither a surcharge or contribution, nor a body established or appointed to administer the funds, as the obligations imposed on the private operators had to be met by them with their own money. In Doux Elevage, there was indeed a contribution rendered compulsory by the State, but the private organisation was free to use the revenues from that contribution as it saw fit. There was therefore no element of State control over the funds collected.”
More specifically with respect to Doux Elevage, the Commission further explained that “(128) in Doux Elevage, it is the inter-trade organisation that decides how to use the resources, which are entirely dedicated to pursuing objectives determined by that organisation in the case at hand, the purpose of the EEG-surcharge has been set by the State and the implementation is fully controlled by the State. Moreover, […], the State has established the whole mechanism of calculating and equalising the costs between the private operators.”
“(105) Through the EEG 2012, the State has introduced a special levy, the EEG surcharge, and has defined its purpose, which is the financing of the difference between the costs TSOs incur in purchasing EEG electricity and the revenue they generate from selling this electricity. […] This ensures that TSOs incur no losses, but also implies that they cannot use the revenue from the surcharge for anything else than the EEG financing.” “(106) Moreover, […] the TSOs had been designated to administer the surcharge.”
The Commission also considered that “(126) […] State control over the resources does not mean that there have to be flows from and to the State budget involving the respective resources. In order for the State to exercise control over the resources, it is enough that it fully regulates what is supposed to happen in the event of a deficit or a surplus in the EEG account. The decisive element is that the State has created a system where the costs incurred by the network operators are fully compensated by the EEG-surcharge and where the electricity suppliers are empowered to pass on the surcharge to consumers.”
Germany counter-argued that regulation and supervision of flows of private money alone could not constitute State aid. Germany compared the system established by the EEG 2012 to other areas of economic regulation [e.g. consumer protection in banking, the obligation of drivers to obtain car insurance, or price regulation in telecoms and health]. The Commission rejected the view that EEG 2012 was just like other fields of regulation because “(127) […] there is a significant difference between those fields where the State merely provides a protective framework for consumers and the situation at hand. Here, the State has enacted a separate piece of legislation, the EEG 2012, the primary purpose of which is not consumer protection. Here, the State ensures a continuous flow of money across the sector in order to serve the policy goals of that legislation. Moreover, it is settled case-law that funds financed through compulsory charges imposed by the legislation of a Member State, managed and apportioned in accordance with the provisions of that legislation, must be regarded as State resources within the meaning of Article 107(1) of the Treaty even if they are managed by entities separate from the public authorities. Therefore, the EEG 2012 cannot be compared with State measures which the State does not influence or for which it does not ensure financing.”
“(135) The concept of the State is not limited to the executive, as it also encompasses the legislator, nor is it required that the State can dispose of the funds as if they were part of its own budget. It is irrelevant whether the entity administering the State resources is private or public.”
On the basis of the above reasoning, the Commission concluded that the EEG 2012 did involve State aid because, in addition to transfer of state resources which conferred a selective advantage, trade was affected and competition was distorted.
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[1] The full text of the decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/251153/251153_1609393_4127_2.pdf.
[2] The full text of this decision can be accessed at:
http://ec.europa.eu/competition/state_aid/cases/252523/252523_1589754_142_2.pdf.
