Competition, State Aid and Renewables Legal overview Joanne McDowall

1. Competition, State Aid and Renewables Legal overview Joanne McDowall

2. Overview • Legal backdrop – Renewables Directive and state aid rules • What is state aid? • – transfer of state resources • Commission investigation – Germany • AG Opinion - France • Implications if we get it wrong! • EMR – support measures

3. Legal Backdrop • Renewables Directive – legal obligation for Member States to produce specified amount of electricity from renewable sources • National support schemes – effect of partitioning the internal market • State aid rules – not permitted to use state resources to confer advantage and distort competition - breach of TFEU • Commission approval may be required • Commission’s Energy and Environmental Aid Guidelines 2014-2020

4. State aid and transfer of state resources • What is state aid? • “[Save as otherwise provided..] any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market” [Article 107 TFEU] • All of the four requirements must be met for the state aid rules to apply • Aid granted by a Member State or through State resources • - Needs to be granted directly or indirectly through State resources AND • - Be imputable to the State. • Mere fact that the advantage is not financed directly from the State budget is not sufficient to exclude that State resources are involved; • Includes advantages granted by public/private bodies designated or established by the State

5. Preussen Elektra (2001) • National legislation obliged electricity suppliers to purchase a proportion of their electricity at minimum prices from renewable sources; • No state aid as the obligation (to purchase renewable electricity) did not involve the direct or indirect transfer of state resources. • No body established to administer the scheme on behalf of the State – multitude of bilateral contracts. • The fact that the purchase obligation was imposed by statute and conferred an undeniable advantage on certain undertakings was not capable of conferring upon it the character of state aid” • It was not necessary to interpret the provisions of the Treaty concerning state aid…as encompassing support measures which are decided upon by the state but financed by private undertakings” .

6. National support schemes – Renewable Obligation

7. Germany – levy exemption • Exemption for large electricity consumers from network charges (Section 19(2) of German Network Charges Ordinance) • Financed by final electricity consumers who pay special levy (so called article 19 surcharge) • Estimated value for 2012 of €300million • Commission investigation Instigated via complaints from energy companies, consumer associations, etc • Key question “Aid granted by a Member State or through State resources”?

8. French – obligation to purchase • Obligation on distributors to purchase wind energy at higher than market price; • Method of calculating the price/contributions from consumers are set out in Ministerial orders • Reference to ECJ on ‘state resources test’ • AG Opinion: setting of the contribution imputable to the state’ • State resources: fact that the resources remain under public control, and, therefore, available to competent national authorities is sufficient for them to be categorised as state resources. • Reaffirms the need for State resources and that this will be satisfied where compulsory contributions are imposed by state legislation and these are managed and distributed under legal requirements.

9. Consequences of unlawful state aid • Suspensive effect • Recovery order • Potential for private action for damages IMPACT ON INVESTOR CONFIDENCE ABILITY TO MEET NATIONAL TARGETS

10. EMR - Contract for Difference Renewable Generators CfD counterparty Suppliers Consumers “we are working closely with the European Commission to ensure that our policies are consistent with state aid rules. This is important to ensure that we have a stable and certain regime that has the confidence of industry” [Nov 2012]

11. Electricity Market Reform - CfDs • Generator risk – potential recovery orders • Need for Commission approval – INVESTOR CONFIDENCE

12. Conclusions • State aid rules do matter – consequences • Don’t need direct transfer of state resources from state to favoured undertakings • Renewable industry – looking for certainty • Commission’s control – approval of EMR Economic assessment is vital part of clearance process