EU state aid proceedings on renewable surcharge

The­re­fore, the over­whel­ming ma­jo­rity of com­pa­nies that con­sume a lot of elec­tri­city need not fear that they will lose their pri­vi­le­ges. Ac­cor­ding to the new en­ergy gui­de­lines, Sta­tes may re­duce the bur­den of the costs of green en­ergy sub­si­dies on cer­tain in­dus­tries. The gui­de­lines ad­op­ted by the EU Com­mis­sion on 9 April 2014 pro­vide for ex­emp­ti­ons of the sort that have al­re­ady been gran­ted in Ger­many for the re­ne­wab­les surch­arge un­der the Re­ne­wable En­ergy Act. Howe­ver, in the fu­ture these ex­emp­ti­ons will pri­ma­rily be gran­ted only to com­pa­nies in cer­tain in­dus­tries. It is not yet clear which in­dus­tries will be in­vol­ved. But the EU Com­mis­sion has re­fer­red to the che­mi­cals in­dus­try and pa­per and cera­mics ma­nu­fac­turers. All told, the EU has selec­ted 65 in­dus­tries for pri­vi­le­ged tre­at­ment. These gui­de­lines are to re­main in ef­fect un­til 2020.

While ap­pro­xi­mately 2,100 com­pa­nies in Ger­many have be­ne­fi­ted from the spe­cial tre­at­ment to date, it is li­kely that only 1,600 com­pa­nies will be able to claim the ent­ire sub­sidy in the fu­ture. The amount of the be­ne­fits will not change ma­te­ri­ally. Com­pa­nies that are no lon­ger en­tit­led to the pri­vi­le­ges in the fu­ture will not have to pay the ent­ire re­ne­wab­les surch­arge, but only 20%. On the other hand, the EU Com­mis­sion re­jec­ted a ge­ne­ral hardship clause.

The EU Com­mis­sion has ap­pa­rently de­ci­ded to not to re­quire re­pay­ment of the en­ergy price reba­tes gran­ted to Ger­man in­dus­try, as had been fea­red. In ad­di­tion, the new more re­stric­tive pro­vi­si­ons for the reba­tes do not have to be fully im­ple­men­ted un­til Ja­nu­ary 2018.
Howe­ver, the agree­ments re­ached with the EU are not in­clu­ded in the amend­ment to the Re­ne­wable En­ergy Act ad­op­ted by the Fe­deral Ca­bi­net on 9 April 2014, which pro­vi­des for sub­sidy cuts and the ex­pan­sion of wind en­ergy. The EU Com­mis­sion's en­ergy gui­de­lines will be im­ple­men­ted in an in­de­pen­dent law, which is ex­pec­ted to be in­tro­du­ced into the le­gis­la­tive pro­cess in May.

Back­ground:

Dra­wing on a de­ci­sion of the Eu­rope Court of Justice (the “Preus­sen­Elek­tra” case), the Com­mis­sion es­sen­ti­ally ru­led back in 2002 that the 2000 re­ne­wab­les surch­arge did not con­sti­tute aid. Howe­ver, the cur­rent in­ves­ti­ga­tion per­ta­ins to the 2012 re­ne­wab­les surch­arge. In the eyes of the Eu­ro­pean Com­mis­sion, the 2012 surch­arge is sub­stan­ti­ally dif­fe­rent.

Af­ter its preli­mi­nary in­ves­ti­ga­tion, the Eu­ro­pean Com­mis­sion held that the pro­mo­tion of elec­tri­city ge­ne­ra­tion th­rough re­ne­wable en­ergy sour­ces is com­pa­ti­ble with EU state aid ru­les. Howe­ver, the Com­mis­sion has con­cerns about two as­pects of the 2012 re­ne­wab­les surch­arge:

• The Com­mis­sion views the ex­emp­tion of en­ergy-in­ten­sive com­pa­nies from pay­ment of the re­ne­wab­les surch­arge as an ad­van­tage that li­kely dis­torts com­pe­ti­tion wi­thin the In­ter­nal Mar­ket and which, ba­sed on the de­tai­led de­scrip­ti­ons pro­vi­ded wi­thin the Re­ne­wable En­ergy Act its­elf, qua­li­fies as being fun­ded from state re­sour­ces. At the same time, the Com­mis­sion con­siders that the ex­emp­ti­ons could be le­gi­ti­mate in or­der to pre­vent car­bon le­akage. The­re­fore, the Com­mis­sion will ex­amine whe­ther the ex­emp­tion is ju­sti­fied and re­ason­able as well as whe­ther it dis­torts com­pe­ti­tion.

•  The “green elec­tri­city pri­vi­lege,” a 50% ex­emp­tion gran­ted for power that is ge­ne­ra­ted from re­ne­wable en­ergy sour­ces do­mesti­cally, ap­pears to dis­cri­mi­nate against power that is ge­ne­ra­ted from re­ne­wable en­ergy sour­ces and im­por­ted. In this re­spect, the Eu­ro­pean Com­mis­sion will in­ves­ti­gate the pre­sence of si­mi­lar mea­su­res in for­eign pro­mo­tio­nal sche­mes.

The Com­mis­sion points out that there are no pre­con­cei­ved no­ti­ons re­gar­ding the out­come of the in­ves­ti­ga­tion pro­ce­dure and that no con­clu­si­ons should be drawn about the out­come from the in­ves­ti­ga­tion’s in­itia­tion.

Ger­many’s fe­deral go­vern­ment has made it clear on se­veral oc­ca­si­ons that it does not be­lieve the Re­ne­wab­les En­ergy Act vio­la­tes EU state aid laws. In par­ti­cu­lar, it holds ba­sed on the Eu­ro­pean Court of Justice’s PreußenElek­tra de­ci­sion that the ex­emp­tion does not qua­lify as aid that is fun­ded by agen­cies that are un­der state con­trol. The fe­deral go­vern­ment also points out that the ex­emp­tion is used to pre­vent dis­tor­ti­ons of com­pe­ti­tion since elec­tri­city pri­ces in other EU sta­tes are lo­wer than in Ger­many.

Un­la­wful state aid must be paid back with in­te­rest. In prin­ci­ple, a claim can be made for re­co­very of the last ten years’ worth of aid re­cei­ved. Howe­ver, since the Com­mis­sion’s in­ves­ti­ga­tion is li­mited to the 2012 re­ne­wab­les surch­arge, and does not en­com­pass ear­lier ver­si­ons, ex­emp­ti­ons gran­ted up to 2012 are beyond dis­pute.

The in­ves­ti­ga­tion pro­ce­dure can af­fect the an­nual fi­nan­cial state­ments in two ways. On the ba­lance sheet, it may be ne­cessary to form pro­vi­si­ons for con­tin­gent lia­bi­li­ties, and in the ma­nage­ment re­port it may be ne­cessary to dis­cuss the risks re­la­ted to the in­ves­ti­ga­tion pro­ce­dure.

Ac­cor­ding to de­ci­si­ons made by the Bun­des­fi­nanz­hof (The Fe­deral Fis­cal Court), pro­vi­si­ons must be for­med if it is more li­kely than not that a lia­bi­lity exists. The re­por­ting com­pany ma­kes this as­sess­ment ta­king into ac­count all avail­able in­for­ma­tion. Since the Eu­ro­pean Com­mis­sion its­elf points out the un­cer­tainty of the pro­ce­dure’s out­come, the 2000 re­ne­wab­les surch­arge did not con­sti­tute aid pur­su­ant to the Preußen-Elek­tra de­ci­sion, and Ger­many’s fe­deral go­vern­ment will ex­er­cise its in­flu­ence in the mat­ter, it seems re­ason­able to as­sume that the li­ke­li­hood that a re­pay­ment ob­li­ga­tion does exist is no grea­ter than the li­ke­li­hood that one does not exist ba­sed on the in­for­ma­tion avail­able as of De­cem­ber 19, 2013. Ne­vert­he­less, a re­con­side­ra­tion of the in­for­ma­tion avail­able when the an­nual fi­nan­cial state­ments have been pre­pa­red will be in or­der.

Ir­re­spec­tive of whe­ther a pro­vi­sion is for­med, the re­mai­ning un­cer­tain­ties must be quan­ti­fied and dis­cus­sed in a trans­pa­rent fa­shion in the ma­nage­ment re­port so that re­aders can de­ve­lop their own pic­ture of the risk si­tua­tion. There also must be a dis­cus­sion of the con­se­quen­ces that any re­co­very of the aid would ent­ail for the com­pany.