Article

New Guidelines for State Aid to Energy Infrastructure – A Helpful Move Toward Europe 2020?

 Robert Miklós Babirad

  

1        Introduction

On April 9, 2014, the European Commission adopted in principle new State aid guidelines, which will now encompass the application of State aid to energy infrastructure within the European Union.[1]  In 2008 the present Community guidelines on State aid for environmental protection[2] were established, which extended in duration through 2014.[3] The focus of the 2008 Guidelines centered upon the improvement of performance with regard to environmental concerns.[4]  Energy issues were addressed to the extent that they related to the support of environmental or climate related goals, but energy infrastructure failed to be specifically or adequately considered.[5]  This article will begin with a brief overview of Europe’s 2020 energy and climate goals.  The Commission’s inclusion of specific guidelines for energy infrastructure will then be assessed as well as their helpfulness with regard to achieving the goals of Europe 2020 and with respect to the Single Market.  In conclusion, it will be suggested that by extending the present Guidelines, specifically into the area relating to energy infrastructure, there will be an overall positive impact upon Europe in attaining its 2020 energy and climate objectives while minimizing any accompanying market distortions.

 

2        Europe’s 2020 Climate and Energy Goals

The goals of Europe 2020 include creating an EU wide policy for energy, which seeks to provide for energy services and products that are uninterrupted while fostering European innovation, technology, the development of a market for energy that is integrated and the overall attainment of Europe’s climate and energy goals as a whole.[6]  Europe 2020 also provides that by the year 2020, there will be an increase in the efficiency of energy by the EU’s Member States of 20% and with respect to emissions that are connected with global warming, a reduction of 20%.[7]  The European Union’s energy and climate objectives also provide for the goal of attaining 20% of Europe’s energy derivation from renewable resources by this time.[8]

  

3        Controversy Concerning State Aid In The Energy Sector

There is a concern as to whether extending the 2008 State aid environmental guidelines into the area of energy infrastructure will actually aid in the securing of Europe’s 2020 climate and energy objectives or instead result in a negative and measurable disruption of market forces.

Article 107(3)(b) TFEU permits the promotion of “an important project of common European interest” even where competition may be potentially distorted.  However, a concern is always present with regard to the conflict between unaltered competition in a market based economy and that of subsidies being applied through the granting of State aid, which may result in the internal market being disrupted.

It is important though to note that policy objectives have also always played a crucial role alongside competitive concerns.  Dr. Townley suggests that even agreements under Article 101 TFEU have been upheld by the Commission where they were even only “theoretically” based upon the larger policy objective of ensuring the supply of energy and this has occurred despite concerns regarding the integration of the Single Market or economic efficiency being negatively impacted.[9]  The Commission’s decisions in International Energy Agency are offered by Dr. Townley as support for the value, which has been attributed by the Commission to the certainty of availability with respect to particular goods of importance.[10] State aid becomes an essential instrument for the provision of a secure and reliable energy supply and attainment of European climate and energy objectives where energy operators on the market are unable to otherwise provide an adequate and modern energy infrastructure and supply; and also acts as an important device for overcoming failures both with regard to the market and existing regulatory schemes.[11]

The application of State aid as an instrument for achieving policy may therefore be employed, but must operate in tandem with the goal of minimizing distortions of the Single Market.  The Commission’s proposed Guidelines for energy and particularly energy infrastructure do not appear to be an unreasonable extension of policy making through the application of State aid, but rather a logical progression toward the attainment of Europe’s climate and energy goals.

Extending the guidelines to energy infrastructure becomes necessary, particularly because of the intended purpose of the rules, which is to aid in the creation of a European energy market that is integrated and able to meet Europe’s 2020 energy and climate objectives.[12]  Additionally, there is a focus on providing State aid to energy infrastructure projects that will enhance the flow of energy across Member State borders and encourage the establishment of energy infrastructure in those areas of Europe, which to date have experienced a lesser degree of overall development.[13]

Revised guidelines developed specifically for State aid to energy infrastructure become particularly essential when it is considered that for renewable energy resources to be used to their full potential while reducing expenditures, new facilities that are enabled to store the energy must be provided for that have the ability to convert “intermittent supplies of these energy sources” into an energy supply that is secure.[14]  Guidelines for State aid to energy infrastructure can aid in the effective attainment of this objective.

 

4        The  Helpfulness of the Guidelines for State Aid to Energy Infrastructure

A key aspect of the new guidelines is that they extend the 2008 environmental rules for assessing the application of State aid into the energy field and now specifically include rules for supporting energy infrastructure.[15]  This is an important step by the Commission, which resolves an existing failure to address State aid for the development of energy infrastructure.

The need for State aid guidelines for energy infrastructure is evident through the Commission’s acknowledgment that the generating of electricity has experienced a transition within Europe from a supply that was previously continuous and “relatively stable” to one that is now from a greater number of “variable sources,” which provide production on a smaller scale.[16]  As a result, the EU has had to find new ways to secure adequate energy production and supply.[17]  The establishment of guidelines for State aid to energy infrastructure is one manner of helping to address this challenge.

The Commission also notes that failures of both a regulatory and market nature have the potential to create a lack of sufficient investment in “generation capacity,” without the application of State aid, which may be used to ensure adequacy of the energy supply and the employment of renewable energy within the EU’s Member States.[18]  These acknowledgements by the Commission are important, because they recognize the changing nature of how energy is being supplied throughout the E.U. and the need for State aid and accompanying guidelines for energy infrastructure if market and regulatory failures are to be corrected and adequate energy production is to be ensured.

The Guidelines also encourage an avoidance of using State aid as a subsidy for fossil fuels, which would have the potential to result in harmful environmental effects.[19]  This is an important move by the Commission toward encouraging the development of an energy infrastructure that will foster the use of renewable energy and aid in the overall achievement of Europe 2020’s energy and climate goals.

The burden is also placed upon the Member State to provide reasoning as to why State aid is necessary for “adequate capacity” and why this cannot be met by the market.[20]  This is a positive aspect of the Guidelines in that an undue reliance on State aid is discouraged and market forces are instead supported.  However, the Commission provides that factors to be considered in the assessment should include a consideration of “the impact of variable generation,” and this will extend to that which is available in neighbouring Member States, the availability of interconnectors, projects that may be in the planning stages or already under construction and any additional factors with the potential to “cause or exacerbate the generation adequacy problem.”[21]

The difficulty is that the Commission fails to explain the scope of these broad factors, which must enter into an assessment of whether State aid should be granted to energy infrastructure.  Factors that have the ability to result in a failure to generate sufficient energy need to be more clearly defined if this provision of the Guidelines is to be interpreted meaningfully.  The Commission also neglects to provide for the extent that energy generation facilities in neighbouring Member States must be considered in the assessment.  Additionally, it is problematic that projects, which have not been completed, as well as those that are under construction and which may not come to fruition, are to be considered as viable factors in the State aid assessment.  As a result, State aid may be needlessly granted or incorrectly denied to the development of energy infrastructure in a Member State.

The Commission also provides that State aid to energy infrastructure should not provide for the undertaking to be remunerated for energy being sold, but rather compensation should only be provided through State aid for the actual availability of the energy provided by the undertaking.[22]  This is a positive ideal, but requires greater clarification by the Commission. The cost charged by an operator for “availability” may be inflated and thereby enable an energy operator to benefit from the State aid, which it is in receipt of, while also obtaining a profit through inflating its cost for the “availability” of the infrastructure.  A misapplication of State aid could subsequently result under this provision if greater oversight is not provided by the Commission in how aid will actually be dispensed with regard to this provision.

It is beneficial to Europe 2020’s energy and climate objectives that the appropriateness of State aid to energy infrastructure will be evaluated in terms of whether the measure encourages “adequate incentives” to operators and generators for the use of technology that is sustainable.[23]

The Commission also provides that the measure receiving State aid should possess a design that enables other undertakings, which are able to “effectively contribute to addressing the generation adequacy problem” to be able to take part in the measure, but only where this is “physically possible.”[24]  This is a positive aspect of the Guidelines that should encourage the improvement of cross-border energy flow and support less developed regions.

It is also noted that the measure, which is receiving the State aid should avoid the creating of “negative effects on the internal market” or measures that would “unduly strengthen market dominance.”[25]  The Commission appears to be taking concerns with regard to competition into account as well as limiting potential market distortions through the inclusion of these provisions.  These guidelines in particular help to alleviate concerns regarding the Commission enabling an excessive dependence on State aid subsidies for the development of energy infrastructure.

It is also interesting to note that market distortions through the application of State aid are minimized by the new Guidelines, which support market based tools for encouraging the use and development of renewable energy through the application of certificate schemes as well as the Commission’s endorsement of market premiums.[26]  A particularly positive aspect is that a tradable permit scheme for energy infrastructure must exceed the mandatory environmental standards, which have been established.[27]  Additionally, an undertaking that has poor performance with regard to environmental standards for energy production will receive a reduction in their allowances under these schemes, which are provided for in the Guidelines.[28]

The Commission’s endorsement of tools that are based on the market with regard to trading schemes are a positive step in continuing to support competition and market based tools alongside the application of State aid to energy infrastructure.[29] The incorporation of a trading scheme assessment into the guidelines will also aid the climate objectives of Europe 2020 in that allowances for harmful emissions and the associated costs to energy infrastructure will foster the development of a European energy infrastructure that pursues the use of technology that is efficient and based less upon carbon and fossil fuels.[30]

The employment of a tradable permit scheme under the new guidelines for energy infrastructure serves as both an endorsement of market based tools for achieving EU objectives as well as an important aid for the attainment of Europe 2020’s energy and climate goals.  It is also important to note that the EU Emissions Trading System (ETS) is a long-standing instrument of EU environmental policy, which the new guidelines will continue to build upon in their future application.

 

5        Conclusion

The extension of the 2008 State Aid Guidelines on Environmental Protection into the area of energy infrastructure will enable the European Union to more effectively achieve its 2020 energy and climate objectives.  Critics may suggest that competition will be unduly distorted by the measure.  Ambiguities are certainly present in the new guidelines, which will need to be eventually clarified by the Commission, so as to prevent State aid from being needlessly dispensed or incorrectly denied to energy infrastructure applicants in a Member State.  However, the Commission effectively addresses concerns with regard to the Single Market by endorsing market based tools throughout the new 2014 Guidelines and generally succeeds in ensuring that market disruptions are minimal and greater gains are achieved toward the EU’s energy and climate objectives through a more effective application of State aid with regard to energy infrastructure throughout the European Union.


[1]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 5th of June 2014.

[2] Community guidelines on State aid for environmental protection OJ 2008 C82/01

< http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52008XC0401(03):EN:NOT> Accessed 11th of March 2014.

[3] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 2.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[4] Ibid.

[5] Ibid.

[6] Commission Communication, A Strategy for Competitive, Sustainable and Secure Energy COM (2010) 639 final, p. 2, 5-6.

< http://europa.eu/legislation_summaries/energy/european_energy_policy/en0024_en.htm> Accessed 11th of March 2014.

[7] da Graça Carvalho, Maria, Matteo Bonifacio, and Pierre Dechamps.  “Building a low carbon society.” Energy 36, no. 4 (2011): 1842-1847, p. 1842.

[8] Ibid. at p. 1843

[9] Townley, C. Article 81 EC and Public Policy (Hart Publishing, Oxford, 2009), p. 169.

[10] Ibid, at p. 165; See also: Commission decisions, International Energy Agency (1994) and International Energy Agency (1983).

[11] Commission Paper, Draft Guidelines on Environmental and Energy Aid for 2014-2020 OJ 2013, p. 52.

<http://ec.europa.eu/competition/consultations/2013_state_aid_environment/index_en.html> Accessed 11th of March 2014.

[12] Ibid.

[13] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 1.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[14] da Graça Carvalho, Maria, Matteo Bonifacio, and Pierre Dechamps.  “Building a low carbon society.” Energy 36, no. 4 (2011): 1842-1847, p. 1843.

[15]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 5th of June 2014.

[16] Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3, p. 52.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 28th of May 2014.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] Ibid. at p. 53.

[21] Ibid.

[22] Ibid.

[23] Ibid.

[24] Ibid. at p. 54.

[25] Ibid. at pps. 54-55.

[26] Commission Press Release of 18 December 2013, State aid: Commission consults on draft rules for state support in energy and environmental field, IP/13/1282, p. 1.

< http://europa.eu/rapid/press-release_IP-13-1282_en.htm> Accessed 11th of March 2014.

[27]Commission Communication, Guidelines on State Aid for Environmental Protection and Energy 2014-2020 C(2014) 2322/3, p. 55.

<http://ec.europa.eu/competition/sectors/energy/legislation_en.html>

Accessed 28th of May 2014.

[28] Ibid. at pps. 55-56.

[29]Schleich, Joachim, Karoline Rogge, and Regina Betz.  “Incentives for energy efficiency in the EU Emissions Trading Scheme.” Energy Efficiency 2, no. 1 (2009), p. 1.

[30] Ibid. at p. 2.