Locations
These are questions each time requiring a nuanced reply, certainly in the framework of a reduction of state aid and impact on investor's certainty. We try to follow up any new jurisprudence that adds to this topic. This time from France.
1. Background
On 27 January 2023 and 3 February 2023, the French Conseil d'État delivered two judgments on the legality of acts modifying the electricity market structure and subsidies. While the first one deals with the modification of the electricity feed-in tariffs from photovoltaic installations, the second concerns the mechanism of regulated access to historical nuclear energy (ARENH) and in particular the increase of the volume sold by Electricité de France (EDF) in the context of an exceptional rise in electricity prices.
These two rulings attract attention in that they set out the position of the French Conseil d'État regarding the obligation to notify the European Commission of aid measures included in State aid mechanisms already in force.
2. Decision of 27 January 2023: notify to the European Commission (even if the aid is reduced), since it's never been done before
(i) Background
In this case, several French renewable energy associations requested the Conseil d'État to annul the decree n°2021-1385 of 26 October 2021, revising certain support contracts for the production of electricity from PV. This decree amends prior administrative acts establishing the conditions applicable to contracts concluded for the purchase of electricity produced by photovoltaics installations, and therefore has an impact on the existing schemes and related contracts.
The attacked decree n°2021-1385 is part of the finance law n°2020-1721 of 29 December 2020, for 2021. This Finance Act provides for a reduction in the feed-in tariff for electricity produced by solar installations for the remaining period of execution of contracts concluded between 2006 and 2010.
In a nutshell, the purpose of this legislation was to lower the prices to which electricity produced by PV was sold. As a matter of fact, the French government fixed, in administrative acts from 2006 and 2010, feed-in tariffs that were higher than the market prices, with the objective to foster the deployment of renewable energy electricity.
Following the growing role of renewable energy distributors on the electricity market and the higher profitability of green electricity notably produced by PV installations, the legislator eventually decided to decrease the amount of the aid attributed to renewable energy producers through higher feed-in tariffs. We see, next to the state aid notification discussion, an interesting tension between support with a goal to foster deployment of new markets vs. support strictly related to financial return / profitability in this mechanism.
(ii) Ruling
In the judgement, the Conseil d'État confirms that the modification of a State aid, even though it reduces the amount of the advantage conferred by a mechanism, has not previously been approved by the EU Commission, and constitutes a new State aid requiring notification to the EU Commission. According to the Conseil d'État:
- The attacked decree preserved the profitability of the installations that were subject of purchase contracts signed between 2006 and 2010, by setting purchase tariffs corresponding to a reasonable return on the immobilised capital.
- The obligation to purchase electricity from PV at a price higher than its market value constitutes, amounting to the difference between the feed-in tariff paid by the obliged purchasers and the cost avoided to those purchasers, a State aid.
- The aid scheme resulting from the 2006 and 2010 Acts was not notified to the European Commission.
- Consequently, the attacked Act of 2021, although it reduces the scale of the aid resulting from the contracts concluded pursuant to the Acts of 2006 and 2010, constitutes new State aid and should have been notified to the European Commission. For this reason, the Act has been declared illegal.
3. Decision of 3 February 2023: don't always notify to the European Commission, even if the conditions change…
(i) Background
This second case needs to be read in light of the French specific electricity market, which is highly relying on nuclear power. In a decision of 16 June 2002, the EU Commission approved the State aid measure implemented by France, aimed at developing a system of regulated access to historical nuclear energy (ARENH) produced by existing nuclear installations.
This measure consists in obliging the company Electricité de France (EDF), for a period up to 31 December 2025, to sell to its competitors on the retail electricity market, part of its nuclear electricity production up to a ceiling of 100 TWh.
By two decrees of 11 March 2022, the Ministers in charge for Economy and Energy increased the allocated volume of 100 TWh by 20 TWh.
In consequence, EDF requested the Conseil d'État to annul these decrees, which set the maximum volume of electricity sold under the ARENH at 120 TWh, arguing that the EU Commission should firstly approve this increase, accordingly to State aid rules of art.107 and 108 TFEU.
(ii) Ruling
The Conseil d'État argued that the contested acts do not establish a separate scheme from the ARENH regime, but merely increase the maximum overall volume of electricity that may be sold by EDF for the year 2022:
- The Conseil d'État emphasized that the Commission's decision already recognised that the ARENH scheme contributes to the development of the French and European electricity market.
- ARENH must be regarded as "a mechanism for rebalancing charges between operators on the French electricity market in order to promote competition and cannot therefore constitute aid within the meaning of Article 107 TFEU".
- The contested measure does not establish a mechanism distinct from the ARENH regime and the transitional provisions and it certainly lays down a necessary measure in an exceptional energy crisis context without disproportionately infringing EDF's freedom to carry on business.
- Consequently, the additional delivery of 20 TWh decided for the year 2022 should not be considered as an illegal ad hoc state aid for not being notified.
4. Comments
The two decisions are complementary and clarify the point of view of the French Council of State when a change in a State aid measure would or would not require a new notification.
In the first decision, the Conseil d'État bases the illegality of the decree questioned on the lack of notification of the initial decrees that were never notified to the European Commission, thus creating a new aid measure.
At the same time, in the second decision analysed above, the Conseil d'État did not declare the illegality of the decree modifying the volume transferred by EDF within the framework of ARENH, due to the already-existing notification and approval by the EU Commission of this regime. The fact that the allocated volume of 100 TWh increased by 20 TWh did not trigger for the French Conseil d'État the requirement of a new notification, although it significantly impacts the stakeholders concerned.
It is worth noting that one of the characteristics of this ARENH approved mechanism, as defined in the EU Commission's decision, is the ceiling on the volume of regulated historical nuclear electricity set at 100 TWh. Its increase envisaged by the government, beyond the volume mentioned in the 2012 decision, is not foreseen in this decision. The French competition authority, in an opinion of 25 February 2022, considered that this 20TWh raise came from a compromise and was justified by the fact that the 100TWh ceiling was initially adopted at a time when competitive penetration was still low, whereas the market share of alternative suppliers is now more developed.
Last but not least, and specifically on the ARENH mechanism, the French Conseil d'État approach towards notification of State aids in the electricity market sector attracts interest both for its European competition and energy mix implications. Indeed, France is highly characterized by its nuclear fleet, influencing deeply the establishment of mechanisms purposing at diversifying its electricity production and enhancing the development of fair competition on the energy market.
In this sense, it should be emphasised that the French Conseil d'État already in 2015 considered that the French capacity mechanism did not involve any State resources and therefore would not require any notification to the EU Commission. The European Commission replied the other way around, stating that this mechanism created an allocation of capacity certificates to capacity operators and thus defined public resources. Moreover, it highlighted both the selective nature of this advantage and its impact on distorting competition and affecting trade between Member States. It started for these reasons a formal investigation procedure against France.
While France decided to amend the capacity mechanism in order to obtain a compatibility decision from the Commission in 2016, the above discussed 2015 and 2023 judgments reflect a certain reluctance by the French Conseil d'État to notify this type of measures.
Considering the controversy generated by the ARENH and more generally the nuclear question among Member States and in Brussels, it will be far-reaching interesting to follow up on the European Commission's position on this matter: will it agree with the French Council of State or see it differently, as has been the case in 2015? To be followed up.