Aid involved in optional transitional free allowances for the modernisation of electricity generation - EU ETS phase 3 (2013-2020)

The rules described here apply only to the specific aid measures provided for in the context of implementation of the ETS Directive (2003/87/EC).

The key legal instrument addressing the aid involved in optional transitional free allowances for the modernisation of electricity generation is European Commission Communication on Guidelines on Certain State Aid Measures in the Context of the Greenhouse Gas Emission Allowance Trading Scheme Post 2012 C(2012) 3230 final {SWD(2012) 130 final} {SWD(2012) 131 final} of 22 May 2012 (Guidelines) – see box.

General Requirements

State aid may be declared compatible with the internal market within the meaning of Article 107(3)(c) of the Treaty on the Functioning of the European Union (Treaty) if it leads to increased environmental protection (reduction of greenhouse gas emissions) without adversely affecting trading conditions to an extent contrary to the common interest.

In assessing the compatibility of an aid measure, the European Commission is obliged to balance the positive impact of the aid measure in reaching an objective in the common interest against its potentially negative side effects, such as distortion of trade and competition.

Member State must demonstrate that the aid amount to the beneficiary is limited to the minimum necessary.

The aid ceilings set out must not be exceeded regardless of whether the support is financed entirely from State resources or is partly financed by the Union.

Aid deemed to be compatible under the Guidelines may not be combined with other State aid within the meaning of Article 107(1) of the Treaty or with other forms of financing from the Union if such overlapping results in aid intensity higher than that laid down below. However, where the expenditure eligible for aid for measures covered by Guidelines is eligible in whole or in part for aid for other purposes, the common portion will be subject to the most favourable aid ceiling under the applicable rules.

Period of Application

The European Commission will apply the Guidelines from 6 July 2012. The rules in question will be applicable until 31 December 2020 (if not amended before that date).

The Commission will apply Guidelines to all notified aid measures in respect of which it is called upon to take a decision after 5 June 2012, even where the projects were notified prior to their publication. Duration of aid schemes must not be longer than the duration of Guidelines.

The Commission will apply the rules set out in the Commission Notice on the determination of the applicable rules for the assessment of unlawful State aid to all unlawful aid.

Specific rules regarding aid involved in optional transitional free allowances for the modernisation of electricity generation

Under Article 10c of the ETS Directive (2003/87/EC), Member States fulfilling certain conditions, relating to the interconnectivity of their national electricity network or their share of fossil fuels in electricity production and the level of GDP per capita in comparison to the Union’s average, have the option to temporarily deviate from the principle of full auctioning and grant free allowances to electricity generators in operation by 31 December 2008 or to electricity generators for which the modernisation investment process was physically initiated by 31 December 2008. In exchange for granting free allowances to power generators, eligible Member States have to present a national investment plan (‘national plan’) setting out the investments undertaken by the recipients of the free allowances or by other operators in retrofitting and upgrading the infrastructure, in clean technologies and in diversifying their energy mix and sources of supply

That derogation from the principle of full auctioning through the provision of transitional free allowances involves State aid within the meaning of Article 107(1) of the Treaty, because Member States forego revenues by granting free allowances and give a selective advantage to power generators. Power generators may compete with power generators in other Member States, which may, as a result, distort or threaten to distort competition and affect trade in the internal market. State aid is also involved at the level of investments that recipients of free allowances will undertake at a reduced cost.

From 1 January 2013 to 31 December 2019, State aid involved in transitional and optional free allowances for the modernisation of electricity generation and the investments included in the national plans, in accordance with Article 10c of the ETS Directive (2003/87/EC), will be considered compatible with the internal market within the meaning of Article 107(3)(c) of the Treaty provided all the following conditions are met:

(a) the transitional free allowance is granted pursuant to Article 10c of the ETS Directive (2003/87/EC) and in accordance with:

- the Commission Decision on guidance on the methodology to transitionally allocate free allowances to installations for electricity production pursuant to Article 10c(3) of the ETS Directive and,

- the Commission Communication on the optional application of Article 10c of the ETS Directive;

(b) the national plan pursues an objective in the common interest, such as increased environmental protection, in the light of the overall objectives of the ETS Directive (2003/87/EC);

(c) the national plan includes investments in retrofitting and upgrading of the infrastructure, in clean technologies and in diversification of their energy mix and sources of supply in accordance with the ETS Directive (2003/87/EC) undertaken after 25 June 2009;

(d) the market value (at the level of company groups) of free allowances during the whole allocation period (calculated in accordance with the Commission Communication on the optional application of Article 10c of the ETS Directive or the relevant guidance document applicable when the aid is granted) does not exceed the total costs for investments undertaken by the recipient of free allowances (at the level of company groups). If the total investment costs are lower than the market value of the allowances or the recipient of the free allowances does not undertake any investment eligible under the national plan, the recipients of free allowances must transfer the difference to a mechanism that will finance other investments eligible under the national plan; and

(e) the aid does not adversely affect trading conditions to an extent contrary to the common interest, in particular where aid is concentrated on a limited number of beneficiaries or where the aid is likely to reinforce the beneficiaries’ market position (at the level of company group).

 
Incentive effect

The incentive effect is deemed fulfilled for investments undertaken as from 25 June 2009.

Eligible costs

Eligible costs must be limited to the total investment costs (tangible and intangible assets) as listed in the national plan corresponding to the market value of free allowances (calculated in accordance with the Commission Communication on the optional application of Article 10c of the ETS Directive or the relevant guidance document applicable when the aid is granted) granted per beneficiary, irrespective of operating costs and benefits of the corresponding installation.

Maximum aid intensity

Aid must not exceed 100 % of the eligible costs.