EnergyBit: Renewables support schemes: Feed-in tariffs and EU state aid rules
Renewable energy technology is developing rapidly. For example, last week, Statoil, Vattenfall and Gasunie announced their plans to convert Vattenfall’s gas plant into the first climate-neutral hydrogen plant in the world.
More generally, as the costs to develop renewable energy are often still not profitable, it is difficult to compete with fossil fuels. In order to stimulate the production of renewable energy, various EU Member States provide for certain incentives (support schemes) such as the Dutch SDE+ scheme and ‘feed-in’ tariffs (in among others Germany and France). These measures regularly involve state aid which might bring corresponding (repayment) risks, if the state aid rules are not taken properly into consideration in advance. However, these risks can be easily avoided. This has been successfully done with respect to SDE+ which scheme has been approved by the European Commission. All grants under such scheme are therefore safe.
In Europe, the support of renewable energy often takes place via so-called ‘feed-in’ tariffs (see explanation below). These payments are, in principle, considered state aid. The good news is that the European Commission generally approves this kind of aid, which makes its provision attractive. However, in case the aid is not submitted for approval beforehand but is discovered afterwards, an interest payment (paid by the beneficiary to the granting entity) might be difficult to avoid.
In conclusion, to avoid payment afterwards make sure, as a beneficiary, to press for notification of the aid!
Feed-in tariffs are considered state aid
Through the feed-in tariff subsidy, producers of renewable energy receive a higher (guaranteed) payment for the energy generated from renewable sources. Since the production of renewable energy is not always profitable (as we have mentioned above), the feed-in tariff subsidy compensates for the difference between the cost price of renewable energy and the market value of the energy supplied: the non-profitable portion. Thus making it more attractive to produce renewable energy.
Such compensation should generally be regarded as state aid (Article 107 TFEU) since this concerns a compensation which is higher than the market price which gives the beneficiary a selective advantage. Often, it is the consumer who (eventually) pays for this contribution to renewable energy. However, since these fees are legally regulated, they are considered to be 'state resources'. In a German, as well as a French case, the European courts have clarified this. Similarly, such contributions affect the trade within the EU. As a result, all conditions regarding state aid are met.
Failure to notify can lead to (re)payment obligations
What if unauthorised state aid is discovered? In such case, the European Commission will determine whether or not the aid is compatible with the common market (see next paragraph). In case the aid is not considered compatible, the entire aid amount must be repaid. If the aid (afterwards) is deemed to be compatible, ‘solely’ the interest must be repaid. This all could end up costing a lot.
Notification of aid results in a good chance of approval
Essentially, the European Commission is favorably disposed towards feed-in tariffs. In its announcement on State Aid for Energy in 2014, the Commission clarifies that it – in principle – accepts feed-in tariffs granted prior to 2011. Support granted after such date, will receive approval if certain conditions are met. Recently, the Commission has determined that the French support of solar energy (through feed-in tariffs) is in accordance with these conditions (i.e. decisions SA.40349 and SA.41528).
How can state aid come to light?
There are several ways in which state aid can be discovered (afterwards):
- The Commission may initiate an investigation on its own accord or following a third party complaint;
- A Member State may decide to submit a notification (at a later date) for approval to the Commission; and
- An interested third party may initiate proceedings before a national court. The national court may consider that the aid was, in breach with the state aid rules, not notified to the Commission and that the aid has to be discontinued.
To conclude, if the aid is notified and approved prior to the granting of such aid, repayment risks are avoided. As mentioned above, it is very likely that aid for renewable energy will be approved. Because interest (re)payments can be quite significant, we stress the importance to be alert prior to the granting of the state aid.
if you are interested whether your (intended or already granted) aid - for renewable energy or otherwise – complies with the EU state aid rules, please contact Redmar Damsma, Claire Lombert or your regular Loyens & Loeff adviser.
firstname.lastname@example.org / +31 20 578 50 10
email@example.com / +31 20 578 58 28
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