FREE

EU state aid and the energy sector

In certain situations, European law allows granting state aid. For environmental protection, for instance, this is done on the basis of the European Commission’s Guidelines, or based on General Block Exemption Regulation (GBER) or directly under the Treaty on the Functioning of the European Union (TFEU). Al-though Art. 107 (1) of the TFEU forbids state aid as “incompatible with the internal market”, Articles 107 (2), 107 (3) (b) and 107 (3)(c) allow it under certain conditions. The analysis zooms on several examples of the way in which European Member States utilize this opportunity offered by the European legislation to make investments in the energy sector (most of which are approved directly under the Treaty) (EC approved a state aid in amount of EUR 465 million for the construction of new gas pipelines inside Poland) as well as briefly presents the key areas that shall constitute the primary focus of the state aid Guidelines in 2014-2020. Under certain circumstances, state aid is deemed a suitable instrument to correct market failures, being a selectively acceptable public policy tool to address what is called “residual market failures” (failures caused by the absence of other policy measures or issues unsolved by the measures currently in place). Therefore, state aid is directed at those situations where the aid “can bring a material improvement that the market cannot deliver itself” and where benefits clearly outweigh the potential distortions of competition.

We shall present below several examples of the way in which EU Member States use European state aid legislation to make investments in the energy infrastructure.

Last year Poland received approval from the Com-mission to grant state aid in amount of 465 million Euros for the construction of new gas pipelines that shall build the North-South gas corridor inside Poland allowing to access the Northern gas (e.g: Norwegian and Qatari gas that will arrive at the LNG terminal in Swinoujscie).

 

SUCCESSFUL PROJECTS

Greece received the Commission’s approval last fall for 134 million Euro worth of state aid (financed by both, the Greek state and through structural funds) for the following 4 natural gas infrastructure projects: to increase the storage capacity of the LNG terminal in Revithoussa, to install a natural gas com-pressor station at Nea Messimvria, to bring natural gas supplies to two areas currently not connected to the gas infrastructure (Aliveri and Ag Theodoroi Meg-alopoli). The total value of these 4 projects amounts to 414 million Euro.

On November 20, 2013, the Commission autho-rized a state aid of 448 million Euro (as state guar-antees for loans) for the construction of the LNG terminal at Klaipeda, Lithuania. Upon completion, the operator of the facility shall supply regasification ser-vices to third parties on a non-discriminatory basis.

As recent as February 4, the Commission has cleared a state aid of 14,725 million Euro (as direct grant) for the construction of a waste-to-energy gas-ification plant in Finland, a project that shall reduce the need for future landfill use and will contribute to sustainable waste management.

In all the cases presented above, state aid was found compatible with EU legislation based on Art. 107 (3) (c) of the Treaty on the Functioning of EU (TFUE), which allows Member States to grant state aid for development of cer-tain economic activities.

 

MODERNIZATION

A few words about the recent public consultation by the Commission (December 18, 2014 to February 14, 2014) on the Draft version of the Environmental and Energy Aid Guidelines for 2014-2020. The current provisions (State aid Guidelines on Environmental Protection) were adopted in 2008 and are valid until the end of 2014, yet they target energy only inasmuch as it is related to the topic of environmental protection and serves the goals of combating climate change. How-ever, because energy and environment policies have grown more intertwined lately, the aim of the 2014-2020 Guidelines is to broaden the scope of the measures currently applicable to environment to include energy infrastructure as well. The revision is part of a larger initiative to modernize European rules on state aid with a view to simplify them and facilitate sustainable growth, aligned with the goal of decarbonizing the EU energy supply and of further integrating the common European energy market.

Concerning the Guidelines for 2014-2020, it is worth mentioning that the Commission has identified several areas of compatibility with provisions of Art. 107(3)b and Art.107 (3)c which, according to the draft document, shall be the primary focus of state aid granted for energy and environment (2014-2020 Guidelines – the aim is to broaden the scope of the measures currently applicable to include energy infrastructure as well):

• Aid for going beyond Union standards or in-creasing the level of environmental protection in the absence of Union standards (incl. transport vehicles);
• Investment aid for early adaptation to future Union standards; for district heating and cooling; for the remediation of contaminated sites; for resource efficiency and waste management; for environmental studies; for CO2 capture, transport and storage (CCS);
• Investment and operating aid for energy from renewable sources; for energy efficiency; for cogeneration installations;
• Operating aid in the form of tradable permits;
• Operating aid in the form of reductions in or exemptions from environmental taxes; and in the form of reductions in funding support for electricity from renewable sources;
• Investment aid for energy infrastructure;
• Investment and operating aid for generation adequacy measures.

The details, principles and implications of each as well as the criticism that some measures have attracted are to be the subject of the next article.

 

 

State Aid approved by the Commission for selected energy projects

Country	Beneficiary	Approved date	Project type	Aid in Mil. EUR
Poland	GAZ SYSTEM	16 Oct. 2013	Construction of new gas pipelines and network upgrade	465
Grecia	DESFA	16 Oct. 2013	4 projects to extend the gas transmission infrastructure	134
Lithuania	AB Klaipedos nafta	20 Nov. 2013	Construction of the Klaipeda LNG terminal	448
Finland	Lahti Energia	4 Febr. 2014	Waste-to-energy gasification plant in Lahti	14,72