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Member States may reduce the amount of State aid they grant and companies may not claim they have a right to State aid.

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Introduction

Close to 60% of all aid granted to industry and services in the EU goes to support environmental protection, energy efficiency and the generation of electricity from renewable sources of energy. However, as technology improves, the relevant authorities in Member States have also tended to reduce the amount of aid they grant to green electricity producers. These changes have sparked a number of disputes between investors in green electricity and Member States.

At the same time, Member States use a variety of instruments to subsidise green electricity. It is very rare for such instruments to escape from the scope of Article 107(1) TFEU. On 20 September 2019, the General Court ruled, once more, this time in case T‑217/17, FVE Holýšov v European Commission, that public measures which rely on compulsory levies in order to generate revenue to support green electricity constitute State aid.[1] FVE applied for partial annulment of Commission decision SA.40171 concerning the promotion of electricity production from renewable energy sources in the Czech Republic.

In November 2016, the Commission found in that decision that the Czech measure constituted compatible State aid. However, about 12 years earlier, in response to a complaint, the Commission had concluded that the measure in its initial form did not constitute State aid because it did not involve state resources. But when the measure was formally adopted into law, the support for green electricity production was financed by a levy imposed on end customers – the so-called renewable energy sources [RES] levy. The revenue from the levy was transferred to distributors [DSO] and system operators [TSO] to cover the additional costs they incurred from purchasing green electricity.

Existence of State aid

One of the pleas of the applicants was that the initial scheme was not State aid. The General Court dismissed it. First the Court established that “(90) the initial scheme provided for the introduction of the RES levy, special and compulsory levy, imposed by law on end customers and intended to be used to finance that scheme.”

Then it rejected that alternative forms of compensation could have been used to offset the extra cost of green electricity.

“(91) It does not follow […] that the RES levy is ‘optional’, as the applicants claim, or that the TSO and the DSOs remain free to choose whether they pass on to the end customers or whether they themselves absorb the additional cost for the purchase of energy from RES.”

Next, the General Court examined whether the scheme could be attributed to the Czech state. “(99) As regards, in the first place, the condition that the measure must be attributable to the State, it is necessary to examine whether the public authorities must be regarded as having been involved in the adoption of that measure.”

“(100) In that regard, it must be noted that the initial scheme was established by a law passed in 2005 […] and that the RES levy was imposed under the […] decrees and price decisions […] and that they must therefore be considered to be attributable to the State.”

“(101) As regards, in the second place, the condition that the advantage must be granted directly or indirectly through State resources, it is to be recalled that measures not involving a transfer of State resources may fall within the concept of aid”. “(102) The concept of ‘intervention through State resources’, is intended to cover, in addition to advantages granted directly by the State, those granted through a public or private body appointed or established by that State to administer the aid”. “(103) The distinction made in that provision between ‘aid granted by a Member State’ and aid granted ‘through State resources’ does not signify that all advantages granted by a State, whether financed through State resources or not, constitute aid but is intended merely to bring within that definition both advantages which are granted directly by the State and those granted by a public or private body designated or established by the State”. “(104) EU law cannot permit the State aid rules to be circumvented merely through the creation of autonomous institutions charged with allocating aid”.

Then the Court considered the fact that the revenue for the support of green electricity was generated from a levy.

“(107) It has also been held that funds financed through compulsory charges imposed by the legislation of the Member State, managed and apportioned in accordance with the provisions of that legislation, may be regarded as State resources within the meaning of Article 107(1) TFEU even if they are managed by entities separate from the public authorities”.

“(108) The decisive factor, in that regard, consists of the fact that such entities are appointed by the State to manage a State resource and are not merely bound by an obligation to purchase by means of their own financial resources”.

“(110) In the present case, the initial scheme was financed entirely by means of the RES levy imposed by regulatory acts of the public authorities. That levy was compulsorily charged to end customers by the TSO and the DSOs, which thus collected the income from that levy.” “(113) The TSO and the DSOs were designated by law to administer the initial scheme under the control of the State.”

The General Court concluded that the arrangements of the Czech scheme proved that “(116) the funds resulting from the RES levy collected by the TSO and the DSOs are not freely available to them, but are subject to compulsory redistribution, the amounts of which are decided upon by the ERO, and, second, that they remain, as a result, constantly under the control of the ERO.”

The General Court also examined the applicability of the reasoning of the Court of Justice in the landmark case C‑405/16 P, Germany v Commission of earlier this year. Although, as mentioned at the beginning of this article, it is very rare for public support measures of green electricity not to constitute State aid, Germany wrote legal history in March 2019 when it persuaded the Court of Justice that it had devised a measure that obliged distributors of electricity to buy expensive green electricity without using state resources to compensate them.

“(119) As regards the judgment of 28 March 2019, Germany v Commission (C‑405/16 P, EU:C:2019:268), relied on by the applicants at the hearing, it must be observed in particular that, unlike in the present case, the German legislative framework establishing the measure at issue in the case giving rise to that judgment did not oblige electricity suppliers to pass on to end customers the amounts paid in respect of the levy for energy generated from RES (paragraph 71 of that judgment). That fact was one of the decisive factors enabling the Court to conclude that the measure at issue in that case did not involve State resources. By contrast, in the present case, the RES levy is mandatory for end customers and thus constitutes, in essence, a parafiscal charge.”

“(120) Next, as regards the case that gave rise to the judgment of 13 March 2001, PreussenElektra (C‑379/98, EU:C:2001:160), the Court held in that judgment that the obligation imposed on private electricity supply undertakings to purchase electricity generated from RES at fixed minimum prices could not be regarded as an intervention through State resources, in so far as no direct or indirect transfer of State resources to undertakings which produced that type of electricity was brought about by that obligation. As the Court has already had occasion to point out […] the private undertakings had not been appointed by the Member State concerned to manage a State resource, but were bound by an obligation to purchase by means of their own financial resources.”

Having found that the two German cases were not relevant to the Czech measure, the General Court turned its attention to other landmark judgments.

“(123) In contrast, the present case is closer to the case that led to the judgment of 17 July 2008, Essent Netwerk Noord and Others C‑206/06, EU:C:2008:413), in which the Court characterized as a ‘charge’ the additional price imposed on electricity purchasers at issue in that case, on the grounds, in particular, that that additional price constituted a charge unilaterally imposed by law, which the customers were required to pay (paragraphs 45, 47 and 66 of that judgment). That is precisely the position in the present case.”

The General Court also clarified that the legal status of the distributors – the TSO and DSOs – was immaterial.

“(126) What matters is whether those bodies have been ‘appointed’ or are ‘under a mandate’ from the State to manage aid […] That is the case here: the TSO and the DSOs are appointed and are under a mandate from the State to manage the collection of the RES levy and the redistribution of the funds accordingly raised under the control of the State. In the light of all of the foregoing, it must be held that the Commission did not err in considering that the initial scheme entailed the use of State resources.”

Reduction of State aid: Is the principle of protection of legitimate expectations violated?

Another plea of the applicants was that subsequent changes to the Czech scheme reduced the amount of aid they received.

In this respect, the General Court agreed with the Commission that no one has a right to State aid.

First, the General Court reiterated that State aid may not violate any other provisions of the TEFU. “(152) It follows from the general scheme of the Treaty that the [State aid] procedure […] must never produce a result which is contrary to the specific provisions of the Treaty”.

“(155) In paragraph 135 of the contested decision, the Commission observed that, according to the case-law, traders are not protected against future changes to an ongoing situation, and the immediate application of the new rule of law is the general rule for the application in time of new rules. In accordance with those principles, it took the view, […], that the amended scheme was not retroactive and did not infringe the principle of the protection of legitimate expectations. In its view, that is all the more true since the initial scheme did not guarantee a certain purchase price or green premium, but only a simple return on the investment over a period of 15 years. Consequently, the levy on producers of photovoltaic energy has been calculated so as to ensure such simple return on investment and nothing more.”

“(156) In paragraph 149 of the contested decision, the Commission added that the Czech Republic had not infringed the principles of the protection of legitimate expectations and equal treatment either under national law or under EU law. In its view, since EU law is a component of the law applicable under both the ECT and the German-Czech Treaty on bilateral investments, the principle of the protection of legitimate expectations, in accordance with the condition relating to fair and equitable treatment in those Treaties, must be interpreted in conformity with the content of that principle as it exists in EU law.”

“(157) It follows that, […], the Commission examined whether the Czech Republic, by granting the State aid in question and acting in that manner within the scope of EU law, had complied with the general principles of that law, including the principle of the protection of legitimate expectations. In accordance with the case-law cited in paragraph 152 above, the Commission is acting within the limits of its powers where, ruling in the field of State aid, it examines whether the measures at issue comply with other provisions of EU law than those governing the matter before it. Indeed, the Commission cannot authorise a measure which is contrary to the specific provisions of the Treaty and the general principles of EU law. It follows that, in examining whether the Czech Republic had infringed the principle of the protection of legitimate expectations established in EU law, when it granted the aid at issue, the Commission did not infringe Article 5 TEU.”

“(158) It is true that, […], the Commission stated that the Czech Republic has not infringed the principle of the protection of legitimate expectations, either in accordance with EU law or ‘under domestic law’. Although it is clear that the Commission does not have competence to rule on whether a Member State has complied with its domestic law, the fact remains that that assertion is included purely for the sake of completeness of that decision, and cannot therefore entail the annulment of that decision; consequently, the applicants’ complaint on that point must be rejected as ineffective.”

Awards by arbitration tribunals

Lastly, the applicants contested the validity of the Commission’s view that arbitration tribunals were not empowered to award compensation. In the end the General Court did not rule on this point because it found it not to be relevant. “(159) As regards, secondly, the argument that the Commission did not have the power to find, […], that any compensation granted by an arbitral court in the context of a dispute internal to the European Union between an investor of a Member State and another Member State would constitute State aid in itself, would infringe Article 108(3) TFEU and would not be enforceable, it is sufficient to observe, in that regard, that that is also a ground that was included in the decision purely for the sake of completeness. Indeed, that paragraph refers, by definition, to a hypothetical situation and therefore is not part of the necessary reasons for that decision, so that it is irrelevant, in any case, to the legality of the decision […]. Therefore, that argument must be rejected as irrelevant.”

At any rate, and in view of several ongoing cases involving disputes between investors and Member States, it should be said that the position of the Commission is that decisions by arbitration tribunals are contrary to several provisions of the EU Treaty [e.g. free establishment, free provision of services, free movement of capital, etc.] and therefore do not apply to situations internal to the EU. Moreover, any awards by such tribunals would constitute illegal State aid.

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[1] The full text of the judgment can be accessed at:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=217991&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=114322.



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