Support granted by Member States may distort competition because it unfairly strengthens the position of companies that benefit from it vis-à-vis their competitors. This is why EU law foresees a general prohibition of State aid. Despite this prohibition, in some circumstances government intervention is necessary for a well-functioning and equitable economy. Therefore, the Treaty leaves room for a number of policy objectives for which State aid can be considered compatible. In the energy sector, these policy objectives include the promotion of:
- Energy from renewable sources
The Union set ambitious climate change and energy sustainability targets in particular as part of the 2030 Climate & Energy Framework. Several Union legislative acts already support the achievement of those targets. However, their implementation may not always result in the most efficient market outcome and under certain conditions State aid can be an appropriate instrument to contribute to the achievement of the Union objectives and related national targets. See more details in the National energy and climate plans 2021-2030.
- Energy efficiency measures
Energy efficiency measures target negative externalities by creating individual incentives to attain environmental targets for energy efficiency and for the reduction of greenhouse gas emissions. The Commission considers that State aid may be needed to promote investments in energy efficiency in order to meet the targets of the Energy Efficiency Directive.
- Energy infrastructure
Energy infrastructure is a precondition for a functioning energy market. However, investments in this area are often characterized by market failures. At the same time, energy infrastructure may generate substantial positive externalities, whereby the costs and benefits of the infrastructure may occur asymmetrically among the different market participants and Member States.
- Generation adequacy
Measures for generation adequacy aim at addressing concerns brought about by the lack of flexible generation capacity to meet sudden swings in variable renewable energy production. An instrument to guarantee generation adequacy is represented by capacity mechanisms, namely measures taken by Member States to ensure that electricity supply can match demand in the medium and long term.
Capacity mechanisms are designed to support investments to fill the expected capacity gap and ensure security of supply. Typically, capacity mechanisms offer additional rewards to capacity providers, on top of income obtained by selling electricity on the market, in return for maintaining existing capacity or investing in new capacity needed to guarantee security of electricity supplies.
Capacity mechanisms have an impact on competition in the internal electricity market. Many of these mechanisms involve State aid, so they are subject to EU State aid rules.
- Tradable permit schemes
Tradable permit schemes can be set up to reduce emissions from pollutants and can involve State aid, when Member States grant permits and allowances below their market value. If the global amount of permits granted by the Member State is lower than the global expected needs of undertakings, the overall effect on the level of environmental protection will be positive. At the level of each individual undertaking, if the allowances granted do not cover the totality of expected needs of the undertaking, the undertaking must either reduce its pollution, therefore contributing to the improvement of the level of environmental protection, or buy supplementary allowances on the market, therefore paying a compensation for its pollution.
To verify State aid, the European Commission has strong investigative and decision-making powers. At the heart of these powers lies the notification procedure which the Member States have to follow.
Certain State aid measures do not need to be notified to the Commission for assessment and approval; they are deemed to result in a limited distortion of competition in view of their limited aid amount. These measures are regulated by:
- the de minimis aid Regulation where the ceiling of EUR 200,000 per beneficiary over three fiscal years is not exceeded.
- the General Block Exemption Regulation which covers measures below a certain notification threshold specified in Article 4 including:
- investment ad for high-efficiency cogeneration
- investment aid for the promotion of energy from renewable energy sources
- operating aid for the promotion of electricity from renewable sources
- operating aid for the promotion of energy from renewable sources in small scale installations
- aid in the form of reductions in environmental taxes
- investment aid for energy efficient district heating and cooling
- investment aid for energy infrastructure
Other measures going beyond those thresholds, or which concern other specific forms of aid, have to be notified to the Commission and can be examined under:
- the Guidelines on State aid for environmental protection and energy 2014-2020 (EEAG) enable Member States to fund projects for environmental protection (including climate protection and green energy) and energy generation adequacy in a cost-effective and non-distortive way.
- the Guidelines on certain State aid measures in the context of the system for greenhouse gas emission allowance trading post-2021 enable Member States to support some heavy electricity users at risk of carbon leakage.
If an aid category is not covered by the above guidelines, it may still be directly assessed under and declared compatible with the Treaty rules. The Commission will balance the positive effects of the aid (the aid must facilitate the development of an economic activity) against the negative ones (the aid measure cannot unduly affect trading conditions to an extent contrary to the common interest).
A revision of the EEAG and the relevant provisions of the GBER is currently ongoing. This initiative is guided by the general main objective of coherence with the twin green and digital transformation of the economy. The revision should result in a modernised, simplified, easy to apply and future-proof enabling framework for public authorities to help reaching the EU environmental and energy objectives in a cost effective manner with minimum distortions of competition and trade within the Union. More information on the revision of the guidelines can be found here.