Renewable energies : what are the trends
in Europe ? The new State Aid policy
Guy BLOCK
Lawyer at the Brussels and Paris Bars
Janson Baugniet Law Firm
Interlaw Energy Special Business Team, Düsseldorf, 6th June 2014
1
Today’s topics
A. Trends in support schemes
B. The new EU State Aid policy and its implications
2
A. Trends in support schemes

Price-based market instruments (Feed-in tariffs or Feed-in premium) are preferred to
Quantity-based market instruments (Quota obligations)


18 EU Member States haven chosen a price-based market instrument

Feed-in Premium (FIP) are preferred by EU Commission to Feed-in tariffs (FIT)
EUROS
EUROS
EU Commission’s New General Block Exemption Regulation (GBER) and the 2014 guidelines
on State aid for environmental protection and energy 2014-2020 confirms the tendency to
prefer price-based market instruments
YEARS
YEARS
FIP = paid to the
producers on top of the
electricity market price
Versus
3
FIT = total price per unit of
electricity paid to the
producers
The amount of the FIP =
OPEX + CAPEX + IRR (X%) – Electricity price
Advantages :
a) ensures the profitability of the project and avoids
green windfall profits;
b) introduces competition between producers (>< FIT);
c) compensates the necessary costs and allow an
appropriate profit;
d) in conformity with State aid rules and ensures a more
efficient protection of consumer’s budget.
 Downside in comparison with quota obligations :
granted on a personal basis
Not tradable
 A minimum tariff is guaranteed over a fixed period of time
(10, 15 or 20 years)
4
 Variety of feed-in premium schemes :
-
fixed or constant premiums
incentive to generate more electricity if a high demand occurs
-
sliding premiums with caps
the greater the electricity price is, the lower the premium
-
spot market gap model or “fill-in the gap model”
covers the difference between the guaranteed payment level and the
average spot market price
Example of
« fill-in the gap model »
5

EU Commission : New General Block Exemption Regulation
COMMISSION REGULATION (EU) No …/.. of XXX declaring certain categories of aid
compatible with the internal market in application of Articles 107 and 108 of the
Treaty (adopted by EU Commission but not yet approved)
Applicable from 1st July 2014 until 31st December 2020
Objectives :
(1) achieving sustainable, smart and inclusive growth in a competitive internal
market;
(2) focusing Commission ex ante of aid measures on cases with the biggest impact
on the internal market, while strenghtenning Member State cooperation in State aid
enforcement; and
(3) streamlining the rules and providing for faster, better informed and more robust
decisions based on a clear economic rationale, a common approach and clear
obligations.
The defined categories, so far a measure encounters the conditions provided by the
GBER, imply that a Member State is not obliged to notify its measure to the
European Commission.
6
The GBER provides the following sub-categories regarding environmental
protection including energy:
Investment
aid enabling undertakings to go beyond Union standards
for environmental protection or to increase the level of environmental
protection in the absence of Union standards;
Investment aid for early adaptation to future Union standards;
Investment aid for energy efficiency measures;
Investment aid for energy efficiency projects in buildings;
Investment aid for high-efficiency cogeneration;
Investment aid for the promotion of energy from renewable 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 under Directive
2003/96/EC;
Investment aid for remediation of contaminated sites;
Investment aid for energy efficient district heating and cooling;
Investment aid for waste recycling and re-utilisation;
Investment aid for energy infrastructure;
Aid for environmental studies.
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Out of these categories, 3 of them are importantly impacting renewable energy
support schemes:
1. Investment
aid for the promotion of energy from renewable sources
(article 41 of GBER)
•
Investment aid to new installations only.
•
No aid shall be granted, nor paid after the installation started operations.
•
The aid shall not be depended on the output.
•
The eligible costs admitted as State aid are the extra costs necessary to promote
the production of energy from renewable sources.
•
The aid intensity shall not exceed:


45% of the eligible costs if the eligible costs are calculated on the basis of renewable
energy-related costs or of the environmental protection related costs;
30% of the eligible costs if the eligible costs is calculated on the basis of the total
investment costs to achieve a higher level of environmental protection for small
installations where a less environmentally friendly investment can not be established as
plants of a limited size do not exist.
The aid intensity may be increased by 20% for aid granted to small undertakings and by 10% for
medium-sized undertakings.
•
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When the aid is granted in a competitive binding process, the aid intensity may
reach 100% of the eligible costs.
2. Operating
aid for the promotion of electricity from renewable sources
(article 42 of GBER) (1)
•
Aid shall be granted in a competitive bidding process on the basis of clear,
transparent and non-discriminatory criteria.
•
The call for tenders shall be open to all generators producing electricity from
renewable energy, but can be limited to specific technologies in some specific
cases.
•
In the absence of a competitive bidding process:
 Aid can be granted to installations with an installed capacity of less than
1 MW for the generated electricity from all renewable energy sources
except for wind energy;
 For
wind energy, aid can be granted to installations with an installed
capacity of less than 6 MW or to installations with less than 6
generation units.
 Installations
with a common connection point to the electricity grid shall be
considered as one installation.
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2. Operating
aid for the promotion of electricity from renewable sources
(article 42 of GBER) (2)
In any case:
•
Aid shall only be granted to new and innovative renewable technologies.
•
Aid intensity: maximum 5% of the planned new electricity capacity from
renewable energy sources per year in total.
•
Aid shall be granted as a premium in addition to the market price  feed-in
premium, and shall not be granted when prices are negative.
•
Aid beneficiaries shall be subject to standard balancing responsibilities.
When aid is granted within a non-bidding process, the following extra
conditions apply :
•
Aid per unit shall not exceed the difference between the total levelized costs of producing
energy from the renewable source in question and the market price of the form of energy
concerned;
•
The maximum rate of return used in the levelized cost calculation shall not exceed the
relevant swap rate plus a premium of 100 basis points; and
•
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Aid shall only be granted until the installation
has been fully depreciated according to
generally accepted accounted principles.
3. Operating
aid for the promotion of energy from renewable sources in
small scale installations
•
Aid shall only be granted to installations with an installed capacity of less than
500 kW for the production of energy from all renewable sources except for wind
energy and for biofuels.
•
For wind energy, aid shall only be granted to installations with an installed
capacity of less than 3MW or with less than 3 generation units.
•
For biofuels, aid shall only be granted to installations with an installed capacity
of less than 50.000 tones/year.
•
Aid per unit shall not exceed the difference between the total levelized costs
of producing energy from the renewable source in question and the market
price of the form of energy concerned.
•
The maximum rate of return used in the levelized cost calculation shall not
exceed the relevant swap rate plus a premium of 100 basis points.
•
Aid shall only be granted until the installation has been fully depreciated
according to generally accepted accounted principles.
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Consequences of the adoption of such a GBER:
Member States’ obligation to notify is significantly reduced;
Schemes
based on a feed-in premium and respecting the different
conditions allowed;
The
new GBER has clarified the admissibility of support schemes
regarding State Aid;
The
favoured
competition.
regime
is
based
on
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a
bidding-process
allowing

EU Commission : New guidelines on State
environmental protection and energy 2014-2020
aid
for
Applicable from 1st July 2014 until 31st December 2020
Forecast : established RES will become grid-competitive in the period between 2020
and 2030
Consequence : subsidies and exemptions from balancing responsibilities should be
phased out in a degressive way
Objective : transition to a cost-effective delivery through market-based mechanisms
Investment and operating State aid to RES can get clearance, if it complies with the
following principles:
- Aid is aimed at common interest
- Need for State intervention
In any case :
- Aid is an appropriate instrument
No overcompensation
(windfall profit) allowed
- Aid has an incentive effect
- Aid is proportionate to the objective
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
Transitional phase for the years 2015 – 2016 :
≥ 5% of the planned new electricity capacity from RES is granted in a
competitive bidding process on the basis of clear, transparent and nondiscriminatory criteria

From 1st January 2016, additional conditions for operating State aids for
electricity from RES apply to all new support schemes and measures :
(a) Aid is granted as a premium in addition to the market price
whereby the generators sell its electricity directly in the market
( ⁄⁄ feed-in premium );
(b) Beneficiaries are subject to standard balancing responsibilities,
unless no liquid intra-day markets exist;
(c) Measures are put in place to ensure that no incentive are given to
generate electricity while prices are negative.
These conditions do not apply to units with an installed electricity capacity < 500
kW and demonstration projects except for electricity generated from wind energy
where an installed electricity capacity of 3 MW or 3 generation units is sufficient for
having to comply with these conditions (// GBER).
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
From 1st January 2017 :
Only competitive bidding process on the basis of clear, transparent and
non-discriminatory criteria are compatible with State aid rules
Except if :
a) An EU Member State demonstrates that only one or a very limited
number of projects or sites could be eligible; or
b) An EU Member State demonstrates that a competitive bidding process
would lead to higher support levels (for example to avoid strategic
bidding); or
c) An EU Member State demonstrates that a competitive bidding process
would result in low rates of project realisation (avoid underbidding).
-
The bidding process can be limited to specific technologies where a process open
to all generators would lead to a suboptimal result.
-
No mandatory competitive process for aids to installations with an installed
electricity capacity < 1MW or demonstration projects except for electricity
generated from wind energy with an installed electricity capacity of up to 6 MW or
15
6 generation units.

In the absence of a competitive bidding process, the same conditions
as the ones applicable from 1st January 2016 to operating State aids
for electricity from RES will be applied
For “Green certificates” schemes

From 1st January 2016, the same conditions as the ones applicable
from 1st January 2016 to operating State aids for electricity from RES
will also apply to tradable assets directly or indirectly granted by the
State, when technically possible.

Additionally, “green certificates” schemes are compatible with State
aids rules if :
a) they are essential to ensure the viability of the renewable energy
sources concerned;
b) they do not result in overcompensation over time and across
technologies or for individual less deployed technologies in so far as
differentiated levels of certificates per unit of output are introduced
and;
c) they do not dissuade renewable energy producers from becoming
more competitive.
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 The compatibility with State aids rules for energy from renewable
sources other than electricity and for existing biomass plants after plant
depreciation is subject to other conditions
State aid in the form of reductions in the funding of support for
energy from renewable sources :
-
The guidelines allow reducing the costs of financing RE support for a
limited number of energy intensive undertakings in sectors defined for the
whole EU
-
EU Member States are allowed under the new guidelines to reduce the
burden of RES support schemes on highly energy intensive undertakings in
other sectors if they have an electro-intensity of at least 20% and belong to a
sector with a trade intensity of at least 4% at EU level
-
The Commission will consider the aid to be proportionate if undertakings
pay at least 15% of additional costs without reduction
-
When needed, Member States have the possibility to further limit the
amount of the costs resulting from financing support schemes to renewable
energy to be paid at undertaking level at 4% of the gross value added of the
undertaking concerned
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LAW FIRM
Guy Block
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18
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