New State Aid analytical grid for Energy Infrastructures

The European Commission has updated its State Aid analytical grid on the notion of State Aid for Energy Infrastructures. This working document promises to give undertakings the necessary tools to self-assess whether State Aid is a part of their infrastructure projects.

Introduction and applicable criteria for energy infrastructures

On 22 November 2017 the European Commission (“EC“) has updated its analytical grid in relation to State Aid for the financing of construction, replacement, upgrading and operation of energy infrastructures.

These grids must be complemented by the definitions contained in the Guidelines on State Aid for environmental protection and energy 2014/2020.

The grids apply to energy infrastructures, in particular to transmission, distribution and storage infrastructures for electricity, gas and oil. This guidance will not be applicable to energy production units and district heating and cooling units.

Cases in which the existence of State Aid may be excluded

• Construction or management of infrastructures in legal monopolies: In legal monopolies, the Transmission System Operator (“TSO“) and the Distribution System Operator (“DSO“) are the only entities entitled to operate the network. The legal monopoly excludes competition in and for the market; thus, there is no competition with other alternative energy networks. Cross-subsidization must not exist in cases where the infrastructure operator is active in another (geographical or product) market to be able to exclude possible State aid.
• Construction of energy infrastructures in natural monopolies: In Member States where it is uneconomical to duplicate electricity or gas infrastructures, distortion of competition may be excluded if the infrastructure cannot be duplicated and no other operators are involved aside from TSOs/DSOs. In addition, alternative financing, apart from that of the TSO/DSO, must be insignificant and the infrastructure must not be designed to selectively benefit a specific undertaking. In addition, the funds must not be used to cross-subsidize other activities of the TSO/DSO.

Cases in which potential effect on trade cannot be excluded

The EC highlights that there are certain categories of infrastructures that are built by market actors with market financing; thus, they cannot be legal or natural monopolies. Per categories, those infrastructures could be:

• Electricity: interconnectors and storage facilities that are typically revenue-generating facilities and are activities open to competition.
• Gas: Gas storage, LNG terminals, import pipelines and interconnectors. Only in specific situations can these infrastructures be part of a legal or natural monopoly, thus, the existence of aid may be ruled out.
• Oil: Since infrastructures in this market are generally developed by undertakings that compete against each other, aid would normally be considered as State Aid.

Cases where no economic advantage must be granted

We can highlight three different categories, related to the role of the undertaking:

• At the level of owner/developer of the infrastructure, State aid can only be ruled out if aid granted by the State is granted under market conditions as if it was granted by a private investor (same economic terms and conditions as private investors; guaranties; business plan validated by external experts; normal market return; etc.).
• At the level of operator/concessionaire, the latter should be selected applying the Market Economy Operator Principle, meaning that the concessionaire should not pay less for the use of the aided infrastructure than under normal market conditions. In general, selection must be made applying rules of public procurement in line with the Treaty on the Functioning of the European Union or, applying prior general accepted assessment methodology when there is no tender in place. When the operator is compensated for rendering services of general economic interest (SGEI), the following is necessary (i) the project is necessary for the provision of the SGEI; (ii) compensation parameters are established objectively and transparently in advance; (iii) no compensation beyond net costs and reasonable profit only; (iv) the SGEI is assigned through public procurement or the compensation does not exceed that required by an efficient company.
• At the user level, an operator that has received aid or that operates State infrastructures may grant an economic advantage to the users of the infrastructure if they are undertakings. In those cases, an economic advantage might be ruled out if the fees for use/access have been set pursuant to a competitive, transparent, non-discriminatory and unconditional tender process. In cases of energy and gas transmission networks, aid would not constitute illegal aid if the tariffs are regulated and access is granted on fair and non-discriminatory conditions.

Cases where it is unnecessary to notify the aid granted

As in the past, aid can be granted without notification if it complies with the thresholds established in the Commission Regulation (EU) nº 651/2014 declaring certain categories of aid compatible with the internal market in application of articles 107 and 108 of the Treaty and the Commission Decision, of 20 December 2011, on the application of article 106(2) of the Treaty on the Functioning of the European Union on State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest.

Cases where clearance is required

If the aid does not comply with any of the aforementioned criteria, clearance from the EC must be obtained. Aside from taking into account the rules on State Aid (please refer to the link below), the assessment will also need to take into account the conditions detailed in the Guidelines on State aid for environmental protection and energy 2014-2020 and, if this is the case, the European Union framework for State aid in the form of public service compensation (2011).

Link: http://ec.europa.eu/competition/state_aid/modernisation/grid_energy_en.pdf