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EU energy sector set for crucial state aid decisions in 2019

15/01/2019

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Belgium

2018 witnessed multiple state aid rulings in the European energy industry, putting state aid and competition back at the core of energy regulation. Wouter Vandorpe, of counsel, energy and utilities...

2018 was a watershed year for state aid regulations in the EU energy sector.

A number of landmark rulings by the European Commission towards different member states have challenged the legality of various state aid measures and prompted governments to reconsider mechanisms for supporting domestic energy sectors.

In particular, early-stage capacity mechanism procedures for many member states have been scrutinised, albeit favourably, and subsidy mechanism or tariff exemption reviews have been performed, with often harsh decisions.

Specifically, the German network charges exemption decision of May 2018 showed the Commission meant serious business about drawing a line and recovering illegal state aid in the sector.

This comes at a time when many European countries are ramping up their transition from fossil fuel energy generation to renewable power supply, in order to meet emissions reduction targets laid down by the Paris Climate Agreement, and are consequently facing new issues such as security of supply and the need for base load power plant production or energy storage.

The result is a tricky balancing act for both governments and businesses seeking to develop fair, competitive and sustainable energy markets.

Outlook for 2019

2019 promises to be an even more active year in this field.

Recent cases have seen German corporations challenge attempted EU clawbacks of around €300 million of what the European Commission views as illegal state aid paid to large electricity users (see German network charges); a rejection by the Court of Justice of a French utility's appeal against the EU's decision to reclaim more than €1 billion-worth of tax breaks dating back over 20 years; and a UK energy player winning a ruling from the European Court of Justice that the UK’s £1bn capacity market constitutes illegal state aid.

Earlier this month, it emerged that the European Commission is keeping its eye on Poland's moves to introduce a new law curbing domestic electricity prices to the EU, potentially leading to EU state aid issues.

In Belgium, politicians are in the middle of voting on the government's proposed capacity mechanism to finance natural gas plants that are set to replace the country's nuclear power plants by 2025.

The Belgian draft bill to install the capacity mechanism is ready, but faces challenges to passing the new law because of the recent collapse of Belgium's coalition government over a migration dispute.

The timing of this decision (the legislative process is expected to be completed in Q2 2019) and if and when the proposed mechanism receives the green light from the European Commission will determine whether it is realistic for Belgium to reach the 2025 deadline for energy transition.

These issues and many more anticipated decisions in the pipeline concerning state aid in the EU energy sector will likely put pressure on the European Commission to review and fine tune its state aid rules.

For legal advisers in this area, it will be our task to do two things:

(i) Identify the general legal tendencies and precedents established by these cases in order to accurately inform the industry about legislative changes and any consequent compliance issues;

And

(ii) Be mindful of and clarify the distinction in facts, technical diversity and needs of our clients compared with the cases under review.

 

For more information on Fieldfisher European energy regulatory expertise, click here.

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