ENERGY AND ENVIRONMENTAL AID - GENERAL OVERVIEW Diana BARGLAZAN *, Zora MINCHEVA *, Christos PEOLIDIS * DG Competition * The views expressed are purely those of the writers and may not in any circumstances be regarded as stating an official position of the European Commission

State aid for energy and environment 1.What is State aid? 2.Energy and Environmental Aid Guidelines (EEAG) 3.General Block Exemption Regulation (GBER) – The environmental section 4.Specific rules for different categories of State aid 5. Q&A 2

What is State aid? –> Art 107 TFEU Article 107(1) of the Treaty defines State aid as: ‘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 […], in so far as it affects trade between Member States’ 3

Existence of State aid State resources Selectivity Advantage Undertaking / economic activity Distortions of competition Effects on trade Commission Notice on the notion of State aid as referred to in Article 107(1) TFEU 4

2014 Energy and Environmental Aid Guidelines (EEAG) In force since 1 July 2014 Common assessment principles Specific rules for certain categories of aid Thresholds for individual notification 5 5

Common assessment principles Contribution to common objective Need for State intervention Appropriateness (of the aid and the instrument) Incentive effect Proportionality Avoidance of undue negative effects Transparency 6

Scope of the EEAG (point 18) 1)aid for going beyond Union standards or increasing the level of environmental protection in the absence of Union standards (including aid for the acquisition of new transport vehicles); 2)aid for early adaptation to future Union standards; 3)aid for environmental studies; 4)aid for the remediation of contaminated sites; 7

Scope of the EEAG (point 18) 5)aid for energy from renewable sources; 6)aid for energy efficiency measures, including cogeneration and district heating and district cooling; 7)aid for resource efficiency and, in particular, for waste management; 8)aid for CO2 capture, transport and storage including individual elements of the Carbon Capture Storage (‘CCS’) chain; 9)aid in the form of reductions in or exemptions from environmental taxes; 8

Scope of the EEAG (point 18) 10)aid in the form of reductions in funding support for electricity from renewable sources; 11)aid for energy infrastructure; 12)aid for generation adequacy measures; 13)aid in the form of tradable permits; 14)aid for the relocation of undertakings. 9

Thresholds for individual notification Category (individual aid)Notification threshold: Investment aid€15 million Operating aid for RES250 MW Operating aid for cogeneration300 MW Operating aid for biofuels t/year New - Energy infrastructure€50 million New - Carbon capture and storage €50 million New - Generation adequacy€15 m/project/undertaking No individual notification for competitive bidding processes 10

General Block Exemption Regulation (GBER) In force since 1 July 2014 Thresholds for notification and evaluation Currently about 90% of all measures are under GBER Environmental section mirroring the Energy and Environmental Aid Guidelines (EEAG) 11

Environmental section of the GBER Aid to increase environmental protection compared to standards (Articles 36 and 37). Energy efficiency (Articles 38 and 39 (buildings)) High efficient cogeneration (Article 40) Renewable energy (Articles 41 – 43) Environmental taxes (Article 44) Remediation of contaminated sites (Article 45) Energy efficient district heating and cooling (Article 46) Recycling and re-utilisation (Article 47) Energy Infrastructure (Article 48) Environmental studies (Article 49) 12

Investment aid for high efficiency CHP Available for newly installed or refurbished installations Up to 45% - 80% of the extra investment costs. 13 Investment aid for energy from RES Available for new installations only Up to 45% - 80% of the the extra investment costs Special rules for certain small installations (if a credible counterfactual cannot be established, then the aid is up to 30% - 65% of the total investment costs Special rules for aid granted in a competitive bidding process (aid can go up to 100% of the extra investment costs.

Investment aid for energy efficiency measures  Not for investments necessary to comply with Union standards already adopted  Up to 30% - 65% of the extra investment costs 14 Investment aid for energy efficiency projects in buildings  Aid via financial intermediaries / energy efficiency funds  Form of aid: financial instruments (loans or guarantees)  Up to EUR 10 mil.

Investment aid to go beyond standards or increase the level of environmental protection in the absence of Union standards  Not for investments necessary to comply with Union standards already adopted  Up to 40% - 75% of the extra investment costs Investment aid for early adaptation to future Union standards  At least one year before the date of entry into force of the standard  Up to 5% - 40% of extra investment costs 15

Investment aid for waste recycling and re-utilization (waste management and resource efficiency) 16 For waste generated by other undertakings For investments that go beyond the state of the art. Up to 35 % - 70% of the extra investment costs compared to a conventional process Under GBER – only recycling and re- utilisation Under EEAG – waste management and resource efficiency

17 Investment aid for remediation of contaminated sites ‘Polluter pays’ principle Up to 100% of the difference between the expenditure incurred in remediating the site and the resulting increase in value of the land. Aid for environmental studies Aid for studies, including energy audits, directly linked to environmental investments Not for the mandatory energy audit for large undertakings, carried out under Article 8(4) of the Directive 2012/27/EU. Up to 50 % - 85% of the costs of the studies

Not for electricity and gas storage projects, not for oil infrastructure The aid amount shall not exceed the difference between the investment costs and the operating profit / funding-gap approach. The operating profit shall be deducted ex ante or through a claw-back mechanism. Investment aid for energy infrastructure 18 Under GBER: only energy infrastructure in assisted areas, and subject to full tariff and access regulation according to internal energy market legislation. Under the EEAG the need for State aid is presumed for PCI, smart grids and assisted regions

Investment aid for energy efficient district heating and cooling Aid for the construction of the production plants in energy efficient district heating or cooling projects: Up to 45% - 80% of the the extra costs 19 Aid to the construction of the distribution network: The aid amount shall not exceed the difference between the investment costs and the operating profit. The operating profit shall be deducted ex ante or through a claw-back mechanism.

Operating aid for electricity from renewable sources Aid granted in a competitive bidding process Integrating RES into the market aid as premium, balancing responsibilities, no support when prices are negative Flexible rules for small installations (similar to EEAG) Aid only until the plant has been fully depreciated Investment aid must be deducted 20

Operating aid for energy from renewable sources produced in small scale installations (and energy other than electricity) Small scale = up to 500 kW (for wind 3MW or 3 generation units), or up to t/year for biofuels The aid (per unit of energy) shall not exceed the difference between the total levelized production costs and the market price of the form of energy concerned. Maximum rate of return: the relevant swap rate plus a premium of 100 basis points (GBER) / reasonable rate of return (EEAG). Aid only until the installation has been fully depreciated. Investment aid must be deducted. Same rules apply under EEAG to energy other than electricity produced from renewable energy sources 21

Aid in the form of reductions in environmental taxes Beneficiaries selected based on transparent and objective criteria Form: tax reduction or fixed compensation amount or a combination of the two Under GBER: The beneficiaries shall pay at least the respective minimum level of taxation set by Directive 2003/96/EC. Under EEAG: more flexibility, applicable also to non-harmonized environmental taxes 22

Reductions in funding support for RES Aim: Targeted reductions to secure sufficient financing base for RES support, help reaching RES targets, competitiveness. Eligible beneficiaries: 68 sectors (trade exposure & electro-intensity). Possibility to add other beneficiaries with similar criteria. Partial compensation: Up to 85% of the RES costs (caps possible). Transition phase until 2019 Adjustment plan 23

Generation Adequacy Capacity mechanisms can come under different forms. When they entail State aid, there's a need to limit distortions and preserve internal market o Clear assessment of causes of problem of generation adequacy o Support only for availability o Include demand-side response / storage / interconnection measures o Open to new and existing generation o Allow for sufficient lead time o Open to other Member States when possible 24

THANK YOU FOR YOUR ATTENTION! Questions ? 25