Securing Electricity Generation Capacity
An assessment through the lens of EU State aid law
Eleni Manaridou, LL.M.
Ph.D. Fellow
Centre for European Studies in Economic Law (CESEL)
6th Annual CRNI Conference – Brussels, 22 November 2013
08-04-2015
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Outline of the presentation
1. Under-investment in generation capacity in EU
2. Capacity mechanisms
3. Capacity mechanisms: State Aid?
• Capacity Mechanisms as Compensation for PSO
4. Compatibility with the Internal Electricity Market
• Draft Environmental and Energy Aid Guidelines (EEAG)
5. Conclusion
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Under-investment in generation capacity
Can energy-only markets guarantee generation
adequacy?
- Retirement of ageing conventional power plants
- Increase of intermittent RES in the system
- Lack of sufficient investment incentives:
 Priority dispatch of RES
 Governmental price caps
 Demand decrease due to economic crisis
 Member States’ response: Capacity Mechanisms
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Capacity Mechanisms
Electricity generators get
keeping capacity available.
remunerated
for
- Capacity payments
- Capacity requirements/Capacity Obligations
- Reliability contracts/Capacity Options
- Strategic
reserves/Contractual
arrangements
- Capacity subscriptions
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guarantees
and
Capacity Mechanisms: State Aid?
EU State Aid Concept
- Aid in any form whatsoever
- Granted by a Member State or through State resources
- Gives an advantage to selected undertakings
- Distorts or threatens to distort competition
- Affects inter-state trade
 Prohibited
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No Advantage when Capacity Mechanisms: PSO
Altmark criteria
1. Clearly defined PSO
2. Compensation methodology established in advance
3. No overcompensation; compensation must not exceed
costs plus reasonable profit
4. Public tender or costs of a typical, well-run and
adequately equipped undertaking.
 No notification
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PSO/SGEI notion
Member States have wide margin of discretion subject to
control by the Commission for manifest error.
•
Article 3(2) Electricity Directive
Having full regard to the relevant provisions of the
Treaty, in particular Article [106], Member States may
impose on undertakings operating in the electricity
sector, in the general economic interest, public service
obligations which may relate to security, including
security of supply, regularity, quality and price of
supplies and environmental protection, including energy
efficiency, energy from renewable sources and climate
protection.
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PSO/SGEI notion (cont.)
Federutility set strict conditions:
•
Is State intervention necessary?
•
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2011 SGEI Communication: ‘It would not be
appropriate for Member States to attach specific
obligations to a service, which is already provided or
can be provided satisfactorily by market participants
and under conditions, [...], consistent with the public
interest, as defined by the State’.
PSO/SGEI notion (cont.)
Federutility set strict conditions:
•
Is State intervention necessary?
•
2011 SGEI Communication: ‘It would not be
appropriate for Member States to attach specific
obligations to a service, which is already provided or
can be provided satisfactorily by market participants
and under conditions, [...], consistent with the public
interest, as defined by the State’.
•
Recital 46 Electricity Directive: ‘It is important that
the public service requirements can be interpreted
on a national basis, taking into account national
circumstances and subject to the respect of [Union]
law’.
 Quality terms set by the Member States
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PSO/SGEI notion (cont.)
Federutility set strict conditions:
•
Limited in duration; periodic reassessment
•
Not beyond what is necessary
•
Clearly defined
•
Transparent
•
Non-discriminatory
•
Verifiable
•
Equal access for EU electricity undertakings to
national consumers
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Compatible with Internal Electricity Market?
Upcoming public consultation on:
- Draft Guidelines on environmental and energy aid
2014-2020 (EEAG) and
- Communication on delivering the internal market and
making the most of public intervention
Public intervention must be:
- Well-designed
- Targeted
- Proportionate
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EEAG
Three-step balancing test
(1) Is the aid measure aimed at a well-defined objective
of common interest?
(2) Is the aid well-designed to deliver the objective of
common interest, i.e. does the proposed aid address
the market failure or other objective?
a.
Is the aid an appropriate policy instrument?
b.
Is there an incentive effect?
c.
Is the aid measure proportional?
(3) Are the distortions of competition and effect on trade
limited, so that the overall balance is positive?
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EEAG (cont.)
• A common objective and the necessity for State
intervention
- Objective, e.g. target excess capacity margin
- Shortage of capacity and lack of alternative options,
like interconnectors
- Cause of the problem
- Why the market cannot deliver the objective
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EEAG (cont.)
•
Appropriate policy instrument
Remuneration strictly limited to keeping available capacity;
clause to withdraw the measure; open to supply-side
(existing
and
potential
operators)
and
demand-side
participation
•
Incentive effect
Counterfactual
scenario:
no
construction
of
capacity
without aid
•
Proportional measure
Reasonable rate of return; preferably through bidding
process; clause to adjust the level of aid; claw-back of
excess aid
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EEAG (cont.)
• Overall balance: positive
-
Limited in time
-
Non-discriminatory
-
Participation of generators from other Member States
-
Demand-side participation
-
Incentives for building of interconnectors not to be
negatively affected
-
Technologically neutral
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Conclusion
“State intervention is one of the causes
and one of the effects of the current lack of
competition in the energy sector”
AG Colomer, Federutility, para. 30
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Thank you for your attention!
Eleni Manaridou, LL.M.
PhD Fellow
Centre for European Studies in Economic Law (CESEL)
Law Faculty – University of Copenhagen
eleni.manaridou@jur.ku.dk
08-04-2015
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