Introduction
Germany has been very creative in devising measures of support of renewable sources of energy that do not constitute State aid [see the landmark judgments in PreussenElektra, EEG2012, etc]. The decisive element in those measures was the absence of state resources.
In January of this year, Germany succeeded to persuade the General Court that a new measure was also free of State aid because it was not funded by state resources. That case, that is explained in more detail below, concerned the use of a surcharge on electricity users to support plants of combined heat and power [CHP plants] combined with a reduction of that surcharge for hydrogen producers.
As a result of that judgment, the Commission recently adopted a no aid decision with respect to another measure – SA.108556 – concerning reduction of the CHP surcharge for vessels that dock in German ports and use electricity supplied by the grid rather than electricity generated by their on-board engines.[1] This reduces pollution and noise.
Background
In 2021, the Commission approved two German aid schemes: 1) SA.57610 to support the production of electricity from offshore wind installations and 2) SA.57779 to support the production of electricity from renewable energy sources.
The German law on which he two schemes were based was the Erneurerbare Energien Gesetz 2021 [EEG 2021]. This law also provided for a reduction of two surcharges on the price of electricity: the offshore surcharge and the EEG surcharge. The purpose of these two reductions was to support the supply of shore-side electricity to ships while at berth in ports.
In 2021, the Commission also approved, as compatible with the internal market, a similar scheme [SA.56826] for the support of the production of electricity from renewable energy sources under the law on combined heat and power [the CHP Act]. This measure was financed via another surcharge – the CHP surcharge.
In January 2024, the General Court in case T-409/21, Germany v Commission, annulled the Commission decision on scheme SA.56826, on the grounds that the surcharge did not constitute State aid because it did not involve the transfer of state resources as the surcharge was not an obligatory levy. This case was reviewed here on 13 February 2024. It can be accessed at:
https://www.lexxion.eu/stateaidpost/state-resources-control-and-imputability/
An appeal by the Commission is still pending before the Court of Justice in case C-242/24 P, Commission v Germany.
In the meantime, however, Germany notified scheme SA.108556 which is a prolongation of scheme SA.57779. Scheme SA.108556 also provides for a surcharge reduction for shore-side electricity supply of seagoing vessels which dock in German ports. Its construction is very similar to scheme SA.56826 that was found by the General Court to be free of State aid. Following the judgment of the General Court, Germany changed its position and considered that the scheme fell outside the scope of Article 107(1), instead of being aid compatible under Article 107(3)(c). It therefore asked the Commission to confirm that scheme SA. 108556 was free of State aid.
Description of the measure
“(6) The main objective of the measure is to incentivise shipowners and ship operators to use shore-side electricity when at berth in ports, rather than generating fossil-based electricity on board, to decrease pollution and noise in German ports. To achieve this objective, the measure aims to reduce electricity costs for shipowners and ship operators with a view to making shore-side electricity economically competitive compared to self-generation of electricity on board.” A more detailed description of the measure and how the surcharge reduction applies to shipowners and ship operators using shore-side electricity can be found in the Commission’s decision SA.57779.
“(9) The measure concerns a reduction of two surcharges for shore-side electricity installations:
(a) The CHP surcharge (KWKG-Umlage), aimed at covering financing needs for the development of cogeneration installations (CHP plants, heat/cooling networks and heat/cooling storage facilities).
(b) The offshore network surcharge (Offshorenetzumlage), aimed at covering financing needs for the connection of offshore wind farms to the transmission grid.”
“(10) The German authorities confirmed that the CHP surcharge and the offshore network surcharge are treated equally under German law, and that their functioning as regards the collection and limitation set out by the EnFG can be considered identical.”
“(12) The total budget envisaged by Germany for the duration of the measure is EUR 12.49 million (estimated total aid amount at time of the notification).”
Commission assessment
Given that the criteria of Article 107(1) TFEU are cumulative and given the earlier judgment of the General Court, the Commission examined only whether the measure was funded by state resources.
“(19) To be considered aid in the meaning of Article 107(1) of the TFEU, the aid must be granted directly or indirectly through State resources. In accordance with case law, resources of an undertaking are to be considered State resources if the State is capable, by exercising its dominant influence over the undertaking, to direct the use of its resources.”
“(20) Furthermore, as recalled in the CHP surcharge judgment and the Court’s standing case law, in order for a surcharge to be classified as State resources within the meaning of Article 107(1) TFEU a) it needs either to be financed by a tax or other compulsory levies under national legislation and managed and distributed in accordance with that legislation or b) the concerned funds or fund managers need to remain under constant public control, and be, therefore, available to the competent national authorities.”
In other words, for a public measure to be considered as funded by state resources, the state must either determine how the measure is to be financed and how the funds are to be used or the funds must go through an undertaking or come from an undertaking that is controlled by the state.
“(21-22) In the CHP surcharge judgment the General Court […] argued in recital 59 of the CHP surcharge judgment with regard to the first criterion that there are two tiers of the electricity supply chain. The first tier corresponds to the relationship between, on one hand, the operators of CHP plants and other CHP installations and, on the other hand, the network operators. The second tier refers to the relationship between network operators and their customers. Moreover, in recital 60 of the CHP surcharge judgment, in the context of the first tier, the Court noted that the network operator has a legal obligation to pay financial support (the surcharge) to the operators of CHP plants and other CHP installations. However, in the context of the second tier, the network operator may, but is not legally obliged to, pass on the financial burden onto its customers. Therefore, the surcharge could not be considered as compulsory surcharge within the meaning of the case law cited in recitals 57 and 58 of the CHP surcharge judgment. Furthermore, in recitals 70 to 78 of the CHP surcharge judgment, the Court stated that it cannot be assumed that the existence of an obligation of network operators to pay surcharges to the final beneficiaries (i.e. the CHP plant operators and other CHP installations) in the first tier of the supply chain is sufficient to establish the existence of a tax or other compulsory levy capable of characterising the commitment of State resources, since that fact merely makes it possible to establish that the funds have been allocated in accordance with the law, but it gives no indication as to the origin of the funds used by the network operators to implement their obligations.”
“(23) Regarding the second criterion, the Court argued in recital 98 of the CHP surcharge judgment, that the funds received by the CHP plant operators and other CHP installations are used exclusively for the performance of the tasks assigned to them by law (i.e applying the legal principle that the funds should be allocated exclusively), thus demonstrating that, in the absence of any other evidence to the contrary, the State is not in a position to dispose of those funds. Therefore, the State could not decide on a different allocation from what is provided for by law. The Court also argued in recital 99 that the fact that the CHP surcharge is established by national legislation (i.e. under the CHP Act, see recital (2)) and managed and distributed in accordance with that legislation is not sufficient to conclude that the concerned funds remain under constant public control and, therefore, available to the competent national authorities. Moreover, the fact that network operators are subject to authorisation or licensing and are holders of concessions is not sufficient to establish that they operate purely under public control. In light of the above, the Court concluded that the Commission did not demonstrate that the CHP surcharge could be classified as State resources in line with the standing case law (see recital (20)).”
Two comments are in order here. First, I agree that the authorisation of network operators is not linked to the measure in question, nor does it confer to the state any control over their resources.
Second, and more importantly, I cannot see how the use of funds specifically determined by law cannot be equivalent to control by the state. I hasten to add that the regulation by law of financial relations between undertakings does not involve the use of state resources, as is well explained in the landmark judgment in PreussenElektra [C-379/98]. This is the case where the financial obligations of one undertaking to another are settled by means of private resources; i.e. the resources of undertakings, which are not identified by the law imposing the obligations. But, in the CHP measure, the German law identified explicitly the resources that were to be used to support CHP plants. The fact that they were raised from a non-compulsory surcharge is not relevant, in my view, as long as the law [which is the state] dictates that whatever revenue is raised by the surcharge must necessarily be used for the specific purpose of supporting CHP plants.
At any rate, the Commission further noted that “(24) the Court in the CHP surcharge judgment also found in recital 125 with respect to a reduction of the CHP surcharge levied on hydrogen producers, that “in so far as the surcharge in question is not a State resource, the reduction of that surcharge […] does not constitute a renunciation of State resources.””
“(25) The notified measure concerns equally the CHP surcharge and the offshore network surcharge, which are treated identically and jointly under the EnFG (see recitals (9) and (10)). Therefore, in view of the CHP surcharge judgment, both the CHP surcharge and the offshore network surcharge do not involve State resources, which equally applies to any reductions from those surcharges.”
The Commission concluded that “(26) in view of the findings of the Court in Case T-409/21, which concerns a partly identical and partly similar measure, the notified aid does not involve a transfer through State resources. Therefore, the notified measure does not constitute aid within the meaning of Article 107(1) TFEU.”
Conclusions
The Commission in this case has to follow the case law. It, nevertheless, appealed against the judgment of the General Court, which is predicated on the shaky, in my view, premise that funds identified by law prevents the state from deciding how they can be allocated. To me this is inherently contradictory.
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202430/SA_108556_27.pdf
