EU Commission denies approval under State aid rules of the privileging of self-supply cogeneration installations
ENERGY NEWS #02/2018
The EU Commission did not endorse the privileging of self-supply with cogeneration installations (combining energy and heat). As of 1 January 2018 they are now subject to the entire EEG surcharge. Specifically, this affects all cogeneration installations which were commissioned after 1 August 2014. If the operator supplied itself with electricity from these installations, it only had to pay a reduced EEG surcharge. However, this privileging was subject to the EU Commission’s approval under State aid rules, and in December 2017, the Commission refused to grant this approval. The Federal Ministry of Economics is apparently striving nonetheless to retain this privileging, but a rapid agreement and a new regulation are not foreseeable at this time. Affected companies must therefore (at least temporarily) expect to pay high additional costs.
On 31 December 2017, the approval under State aid rules for the privileging of certain entities under the Renewable Energy Sources Act expired, but the EU Commission did not re-approve EEG surcharge privileges for self-suppliers using new, highly efficient, cogeneration installations. As a consequence, sections 61b no. 2 Renewable Energy Sources Act, which provides for a reduction of the EEG surcharge for highly efficient cogeneration installations which have been commissioned since 1 August 2014, can no longer be applied.
As of 2018, operators will have to pay the full EEG surcharge for self-consumed energy generated from such installations. This comes to additional costs of around 4 cent per kilowatt hour for affected installation operators.
Renewable Energy Sources Act 2017 and EU State aid rules
Since the introduction of the Renewable Energy Sources Act 2014, self-suppliers have generally also had to pay the EEG surcharge. However, this principle is limited by exceptional provisions for existing self-suppliers, as well as reductions for renewable energy plants and highly efficient cogeneration installations. Accordingly, up to now, pursuant to section 61b no. 2 Renewable Energy Sources Act 2017, only a reduced rate of 40% of the EEG surcharge had been payable for self-consumed electricity from highly efficient cogeneration installations that were commissioned after 1 August 2014. The EU Commission deems these reductions to be State aid within the meaning of Article 107 Treaty on the Functioning of the European Union (TFEU), which generally has to be approved. The EU Commission did so, but the approvals for reductions relating to self-supply were limited until 31 December 2017. While the Commission renewed its approval of most of the other privilege eligibility criteria with its decision of 19 December 2017, it explicitly excluded a reduction pursuant to section 61b no. 2 Renewable Energy Sources Act 2017 for the aforementioned cogeneration installations, since it deemed this to comprise unjustified preferential treatment. This is indicated by press releases by the Commission and the Federal Ministry of Economics, even if the actual decision has not yet been published. The decision came as a surprise to both companies and industry representatives, as well as politicians, especially since the Federal Ministry of Economics had already stated in 2016 that it had reached agreement with the Commission on the rule which has been in force since 2014.
Consequences of the Commission’s decision
As a result of the negative decision by the Commission, as of 1 January 2018 it will no longer be permissible to apply section 61b no. 2 Renewable Energy Sources Act 2017. This means that the grid system operators will now be obliged to bill the full EEG surcharge of 6.792 cent per kilowatt hour (in 2018) even for self-consumed electricity from highly efficient cogeneration installations which were commissioned after 1 August 2014. This comes to an absolute cost increase of around 4 cent per kilowatt hour. For companies with a great amount of own consumption from corresponding cogeneration installations, this will lead to considerable additional costs. According to interest groups, up to 10,000 installations are affected and the additional costs will be in the low hundred millions. This affects not only major corporate groups but also, for example, medium-sized and municipal undertakings which have converted their electricity supply to modern cogeneration installations. The additional costs will increase the amortisation time for cogeneration installations substantially, so investments in this sector will become less attractive. Only operators of installations of no more than 10 kW will not be affected.
According to the Federal Ministry of Economics, the 40 percent rule is still the subject of negotiations with the EU Commission. However, it still remains open whether, and if so when, it will be possible to achieve a compromise. Once an agreement has been reached, an attempt will be made to regulate the statute accordingly. In view of the long and drawn-out government formation process and the fact that a new provision would then also have to be presented to the Commission again, a solution cannot be expected for the near future.
Besides, the draft coalition contract of 7 February 2018 gives no specific indication that any endeavours will be made to amend the statute. It merely states that combined heat and power should be further developed and comprehensively modernised “so that it will have a future in the course of the energy transition.” Combined heat and power should be designed to produce less CO2 and made more flexible. There is no clear signal here for self-suppliers and companies in the energy sector.
Moreover, with regard to an amendment, the question arises whether the Federal Government will amend the provisions on the EEG surcharge privilege retroactively, i.e. as of 1 January 2018. In a similar case in which the approval under State aid rules was eliminated for energy tax relief, the legislature put the new regulation into effect retroactively, so companies only incurred additional costs temporarily. To our understanding, there are some initial legislative initiatives on a federal level, and the Federal Government is being called upon to maintain the EEG privilege for highly efficient cogeneration installations to the greatest possible extent and, ultimately, to implement a comparable solution for section 61b no. 2 Renewable Energy Sources Act 2017. However, right now it is impossible to predict whether or to what extent the surcharge privilege will be retained. Companies must expect to pay the full EEG surcharge on self-consumed electricity generated from highly efficient cogeneration installations at least for a transitional period. Given the fact that pursuant to section 60(3) in conjunction with section 61(3) Renewable Energy Sources Act 2017, late payments of the EEG surcharge are charged interest at a rate of five percent and the scope of a statutory amendment cannot be foreseen, it would be advisable to settle claims of grid system operators for the full EEG surcharge subject to the proviso of a recovery on the basis of a statutory amendment (which will then hopefully be in compliance with State aid rules). Moreover, where installations are connected directly to the transmission system, in cases of arrears in payment – following a warning and threat of termination – the transmission system operator can also terminate the balancing group contract pursuant to section 60(2) sent. 3 Renewable Energy Sources Act 2017.
Gleiss Lutz commentary
The issue of self-supply, which was already very complex, has now been enriched by yet another unexpected aspect. For the time being, additional costs, which can be considerable, must be incorporated into calculations, as an amendment in the near future is nowhere in sight. Even if the Commission and the government can agree to continue to privilege self-supply cogeneration installations in some form or other, the reduction could still turn out to be much smaller than before. Depending on how it is structured, certain forms of supply or certain companies could be completely excluded from receiving financial support.
Nonetheless, in view of a future amendment, it would be advisable for the affected companies to continue to comply with all metrological requirements. Moreover, notification deadlines should also be adhered to. Should a (retroactive) exemption or reduction occur, it will certainly not impose any less stringent requirements on measurements and notifications than the present ones. The most important deadlines in this connection are:
- 28 February 2018: Notification of self-supply under the EEG to distribution grid operators
- 31 March 2018: Combined Heat and Power Act surcharge privilege
- 31 May 2018: Notification of self-supply under the EEG to transmission system operators
Citation: Ruttloff, Kindler, EU Commission denies approval under State aid rules of the privileging of self-supply cogeneration installations, Gleiss Lutz Energy News #2//2018 as of 22 February 2018