Page 2 of 3
Risk for carbon price reference level
Risk identification
The draft Guidelines define the ‘EUA forward price’ used in the above formula in the following manner: the simple average of the daily one-year forward EUA prices (closing offer prices) for delivery in December of the year for which the aid is granted, as observed in a given EU carbon exchange from 1 January to 31 December of the year preceding the year for which the aid is granted. For example, for aid granted for 2016, it is the simple average of the December 2016 EUA closing offer prices observed from 1 January 2015 to 31 December 2015 in a given EU carbon exchange. The currency in which the EUA price will be denominated is EUR.
Theoretically there is possible to discuss what basis should be used for the aid calculation as regards this issue – in particular whether it ought to be forward or spot price. Divergent timelines for the said determination could be also considered.
But regardless of the assumptions adopted the general conclusion would be applicable - if given supplier delivering electricity to the industrial plant covered by carbon leakage sectors includes in its electricity price the EUA cost component at the level higher than the reference level specified above, the said industrial plant will face the risk of receiving aid in the amount that won’t compensate for the costs incurred.
Risk parameterisation
It is difficult to set parameter for this risk in the current extremely volatile carbon market.
Possible measures for management for risk
It seems reasonable to verify the basis for CO2 cost component in the electricity price applied in the electricity supply contract and, where necessary and possible, to renegotiate the agreement.
Risk for electricity consumption volume inconsistent with baseline electricity consumption
Risk identification
The draft Guidelines introduce definitions for ‘baseline electricity consumption’, ‘electricity consumption efficiency benchmark’ and ‘fallback electricity consumption efficiency benchmark’ in the following wording:
‘baseline electricity consumption’, in MWh, means the average electricity consumption at the installation over the reference period 2005-2011 (baseline electricity consumption) for installations operating every year from 2005 to 2011. If the installation did not operate for at least one year from 2005 to 2011, the baseline electricity consumption will be defined as yearly electricity consumption until there are four years of operation on record, and afterwards it will be defined as the average of the last three years for which operation has been recorded. The aid will be increased by 40 % if average production during the aid granting period increases to more than 40 % of baseline output. The aid will be reduced by 40 % if average production during the aid granting period decreases to less than 40 % of baseline output;
‘electricity consumption efficiency benchmark’, in MWh/tonne of output and defined at Prodcom 8 level, means the product-specific electricity consumption per tonne of output achieved by the most electricity-efficient methods of production for the product considered. The corresponding electricity consumption benchmarks for products covered by eligible sectors are listed in Annex III.
‘fallback electricity consumption efficiency benchmark’, in % and not productspecific, corresponds to the average reduction effort imposed by the application of the electricity consumption efficiency benchmarks (benchmark electricity consumption/ex-ante electricity consumption). It is applied for all products which fall within eligible sectors or subsectors but for which an electricity consumption efficiency benchmark is not defined.
Given the above definitions it is clear that facilities with electricity consumption above the benchmark value will not fully recover the costs incurred. It is true equally with regard to the electricity consumption benchmarks for products covered by eligible sectors that are listed in Annex III to the draft Guidelines as well as to facilities thereto fallback electricity consumption efficiency benchmark, set at the level of 0.7, applies.
There are also other risks – of real electricity consumption of the facility not exactly reflecting the baseline characterisation specified in the draft Guidelines. Also risks flowing from the 40 % threshold could be perceived – every change in production not exactly responding to the said threshold exposes the facility to the risk of being inadequately compensated through State aid scheme.
Risk parameterisation
The scale for the said risk is generally the difference between the electricity consumption of the given facility and the value of the specific electricity consumption benchmark.
It could further be analysed taking into account possible variations in the electricity consumption and output volumes of the specific plant.
Possible measures for management for risk
Implementation of the energy efficiency measures.
Monitoring for the volume of the electricity consumption and the facility output in such a manner to avoid the situation where costs are not fully compensated.