Introduction
As part of the EU’s Green Deal and the transition to a greener and most sustainable economy, the European Commission’s guidelines on State aid for climate, environmental protection and energy [CEEAG] also allow public support for the construction of energy infrastructures. In a recent decision, the Commission approved a German State aid scheme [SA.104749] for high-power charging infrastructure for electric vehicles.[1]
A factor that discourages consumers from buying electric vehicles, apart from their high price, is their limited operating radius and the time that takes to recharge batteries. Naturally, as more charging stations are built and as technological innovations reduce charging time, consumers would be more willing to pay the price premium for electric cars.
In Germany, the transport sector is the third largest emitter of greenhouse gasses and road traffic alone accounts for close to 95% of gas emissions in the transport sector. Therefore, the purpose of the German measure, which was brought to the attention of the Commission in September 2021 and formally notified in November 2022, was to support the expansion of high-power charging [HPC] infrastructure that could reduce charging times to about 15-30 minutes. The measure would fund about 8500 HPC points in 900 locations.
The beneficiaries would be operators of HPC infrastructure who would be selected via a competitive bidding process for the allocation of 23 lots in predefined areas so as ensure sufficient competition on the market.
In order to determine the relevant geographic areas and the number of lots, the German authorities carried out a market assessment taking into account the number of expected electric vehicles by 2030. That assessment also revealed that the market, if left alone, would fall far short of the total number of HPC points estimated to be needed by 2030.
The budget of the measure was EUR 1.8 billion and the aid would be “(19) in the form of direct grants and recurring payments, including (i) a one-off payment for grid connection costs, (ii) a one-time payment for the installation of each HPC point and (iii) a yearly remuneration for the operation of each HPC point.”
Aid granted on the basis of a competitive procedure
The Commission decision explains the procedure in paragraphs 47 to 59. Accordingly, “(47) the allocation procedure was organised as a competitive procedure with negotiation […] Such a procedure provides for the following phases:
(a) Publication of a call for competition, providing the information for qualitative selection […]
(b) Invitation by the authorities to economic operators selected on the basis of the information provided […]
(c) Subsequent screening, discussions, revision of the tender documents by the authorities and of the bids by the economic operators
(d) Submission of the final bid based on the revised tender documents. The final bids are not subject to negotiations between the bidders and the authorities, so no ex post adjustments to the bidding process outcome can be made.”
A large number of interested parties were able to participate in the procedure for all lots. “(49) The German authorities assessed the suitability of the companies for the contract on the basis of the selection criteria communicated in the contract notice, namely:
(i) the applicants’ ability to pursue the activity,
(ii) their economic and financial capacity, and
(iii) their technical and professional capacity.”
Then a limited number of parties [0 –10] per lot were invited to submit an initial bid on the basis of criteria made public in the tender document. This resulted in the submission of [100 – 200] initial bids for the 23 lots.
“(52) On the basis of the initial bids, discussions took place between the German authorities and all the participating parties covering topics ranging from technical requirements to legal aspects as laid down in the draft contract. In line with public procurement rules, the German authorities confirmed that the minimum requirement (i.e., the location of the search areas and their methodological derivation) and the award criteria were not subject to negotiations.”
“(53) Subsequently, the German authorities revised the procurement documents to take account of the information obtained in the context of the procedure. The German authorities confirmed that all bidders who submitted an initial bid will be invited to submit a final bid based on the revised procurement documents.”
Bids were selected on the basis of the most economically advantageous offers (best price-performance/quality ratio). The award criteria were weighted as follows:
“(a) Price (65%)
(b) Quality (35%), comprising:
Site availability (15%)
User friendliness (15%)
Design concept (5%).”
“(58) The volume of HPC points related to the bidding process has been set at a level that is lower than the expected supply, and is, therefore, a binding constraint, which will ensure effective competition in the bidding process.”
The reference project
Germany also defined a reference project which was considered to be representative of the average aided project. According to paragraph 60 of the decision, the reference project would have a life of eight years and the following characteristics [euros]:
Investment costs [nominal]: 0.1 – 0.2 million
Operating costs (mainly electricity) [nominal]: 0.2 – 0.3 million
Projected revenues: 0.1 – 0.2 million
Funding gap (discounted at a WACC of 4% – 4.5%] [NPV]: (– 0.1) – (– 0.2) million
Assessment of compatibility with the internal market
After finding that the measure constituted State aid, the Commission proceeded to assess its compatibility with the internal market on the basis of the general principles in section 3 of the CEEAG and the specific conditions in section 4.3.2, which refer specifically tor recharging infrastructure.
In particular, the Commission had to verify that the aid measure would contribute to the development of an economic activity, that it had an incentive effect, that it did not breach any relevant provision of EU law, that there was a need for state intervention, that the aid was appropriate and proportional, that there would be no undue negative effects on competition and trade and that the positive effects would outweigh the negative effects.
Incentive effect
The Commission recalled that environmental aid had to induce “(86) the beneficiary to change its behaviour towards the development of an additional or more environmentally-friendly economic activity”. The Commission also had to determine whether “this change in behaviour would not occur without the aid”. “(87) In order to demonstrate the presence of an incentive effect, point 28 CEEAG requires Member States to identify the factual scenario and the likely counterfactual scenario in the absence of aid.”
“(89) First, […], the market cannot, on its own, provide sufficient incentives to invest in HPC infrastructure in the identified locations. Currently, and for the foreseeable future recharging infrastructures cannot always operate at break-even, let alone at profit. […] Second, […], there are no Union standards in place requiring undertakings to deploy publicly accessible recharging infrastructure […] Third, […] the reference project displays a negative NPV […] i.e. is expected to be unprofitable.”
No breach of EU law
The Commission noted that “(100) there is nothing to suggest that a breach of Union law, including of public procurement rules, would relate to an aspect that is so inextricably linked to the object of the aid that it is impossible to evaluate them separately.” Then the Commission indicated what could be considered to be “inextricably linked to the object of the aid”. “In particular, there is no indication that a breach of Union law has altered the object, the beneficiary or the amount of the aid or that it has produced additional distortions of competition and trade on the relevant market.”
Necessity of the aid
The Commission referred to specific provisions in section 4.3.2. of the CEEAG and explained that “(105) it is apparent from the wording of those points that an ex ante open public consultation and an independent market study are not mandatory, as such elements constitute only two of the appropriate instruments that the Member State may use in order to verify the necessity of aid to incentivise the deployment of recharging or refuelling infrastructure of the same category as the infrastructure that would be deployed with State aid.”
“(106) In the present case, the German authorities demonstrate that infrastructure of the scale and coverage as the notified measure is not likely to be developed on market terms in the short term. This is primarily due to the high investment costs linked to the deployment of HPC infrastructure and the limited share of electric vehicles in circulation, leading to an expected limited utilisation rate of the supported infrastructure throughout the duration of the contracts, i.e. eight years”.
“(107) To assess the necessity of aid for the deployment of recharging and refuelling infrastructure, the Commission considers the following elements. First, the German authorities submitted a quantification of costs and revenues of a reference project in the factual scenario showing a negative NPV […], demonstrating that investing in HPC infrastructure would not be profitable for the beneficiaries. […] Second, in line with point 195 of the CEEAG, the German authorities submitted information on the level of market penetration of electric vehicles in Germany as well as the traffic volumes in the regions concerned […] The infant stage of this market and the uncertainty surrounding demand levels for recharging infrastructure would not make it possible for undertakings to invest in the types of projects supported under the notified measure without the aid.”
“(108) In addition, the German authorities determined the necessity of aid based on the preliminary market analysis and consultation processes they carried out prior to the notification of the notified measure”.
Interestingly, the Commission also noted that “(111) the public procurement procedure chosen by the German authorities for the implementation of the notified scheme, i.e. the competitive procedure with negotiation as set out in Article 29 of Directive 2014/24/EU, also shows that the German authorities sought to obtain from the market information a broad range of issues including both technical and legal aspects to be included in the draft contract”.
Appropriateness of the aid
Member State need to demonstrate that alternative policy options are not be equally capable of contributing to the development of the economic activity concerned and that no alternative, less distortive, aid instruments can deliver equally efficient outcomes.
(114) The Commission notes that, new regulatory measures would likely not be sufficient to incentivise investors to commit to the investment targeted by the notified measure. While existing and proposed EU policies intend to stimulate the shift to zero-emission mobility […], in the absence of financial support, the necessary investments would likely not take place.”
“(115) As regards the form of the aid, the Commission notes that […], existing funding measures, which allow for the coverage of part of the investment costs, are not suitable to promote the deployment of recharging infrastructure to the necessary extent. This is demonstrated, first, by the fact that only approximately 45% of the projects that were granted support under existing funding measures have actually been implemented and are operational; and, second, by the fact that, as shown by the limited coverage of HPC infrastructure in Germany, those measures did not allow for the emergence of a nationwide network of recharging infrastructure”.
“(116) To the extent that the utilisation rate of the HPC infrastructure remains limited, the provision of a direct grant only would not be sufficient on its own to bring forward investments in new HPC points, as it only addresses the need to cover the upfront costs of the project, without addressing the uncertainty of the level of demand for recharging services and its evolution.”
“(118) The Commission considers that, the type of aid chosen, i.e. direct grant as opposed to a loan or tax credit, is in comparison to the latter the most suitable aid instrument in order to achieve the objective of the measure with the greatest possible effect within the shortest possible time. It is also easily and directly accessible (without additional administrative procedures) and enables to support operators in a simple and straightforward manner without significant delays”.
Proportionality of the aid
Allocation of aid according to a competitive procedure is always treated favourably by the Commission.
“(121) Point 49 of the CEEAG states that when the aid amounts are determined through a competitive bidding process, the result of that process will provide a reliable estimate of the minimum aid required so that detailed assessments of the net extra costs necessary for carrying out the investment will not be required. It further provides the criteria that must be fulfilled so that the aid is deemed proportionate:
- The bidding process is open, clear, transparent and non-discriminatory, based on objective criteria, defined ex ante in accordance with the objective of the measure and minimising the risk of strategic bidding;
- The criteria are published sufficiently far in advance of the deadline for submitting applications to enable effective competition;
- The budget or volume related to the bidding process is a binding constraint in that it can be expected that not all bidders will receive aid, the expected number of bidders is sufficient to ensure effective competition, and the design of undersubscribed bidding processes during the implementation of a scheme is corrected to restore effective competition in the subsequent bidding processes or, failing that, as soon as appropriate; and
- Ex post adjustments to the bidding process outcome are avoided as they may undermine the efficiency of the process’s outcome.”
The Commission concluded that the aid measure complied with the above four criteria.
Avoidance of undue negative effects
“(130) The Commission notes that the way in which the notified measure is designed does not displace activities nor investments from one region to another within the internal market without any net environmental impact. On the contrary, it favours the development across the German territory of investments supporting the economic activity of deployment of recharging infrastructure for electric vehicles, and therefore also having the potential to improve environmental protection and contribute to climate change mitigation that would otherwise not materialise. Moreover, […], the choice of the locations appears to be driven by the policy choice to deploy HPC infrastructure in areas where no sufficient infrastructure of that type is available […] Therefore, the Commission considers that the notified measure does not result in any manifestly negative effects on competition and trade, in line with point 69 of the CEEAG.”
“(131) The Commission notes first, that the notified measure is a scheme open to any potential beneficiaries, and that the minimum eligibility requirements are merely meant to ensure that beneficiaries would have the professional and financial capacity to carry out the aided activity […] Second, the Commission notes that both the eligibility conditions […] and the award criteria […] are relevant to contribute to the objective of [developing the HPC infrastructure] […] Third, the design of the measure and the processes leading to its adoption and implementation include features aimed at giving the opportunity to a large number of operators to participate and benefit from aid under the notified scheme”.
The Commission also noted that the aid measure would not strengthen the market power of any undertaking and that access to the HPC infrastructure would be open and based on non-discriminatory terms and market prices.
Conclusion
Since the negative effects of the aid were kept to the minimum necessary, the Commission concluded that the positive effects would outweigh the negative ones and therefore, the aid was compatible with the internal market.
[1] The full text of the decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202307/SA_104749_A07E5086-0000-CFF5-8039-2447716C3C35_85_1.pdf
