Liliane Gam discusses the impact of the Court of Justice of the EU’s 2019 State aid judgment in Germany v Commission

Podcast - State aid: German renewable energy support scheme does not involve State resources

Earlier this year in Germany v Commission, the Court of Justice of the EU ruled that the German Renewable Energy Act 2012 (EEG 2012) does not constitute State aid. The CJEU overturned a General Court judgment dismissing an action for annulment by Germany to the GC of a European Commission State aid decision which held that the EEG 2012 did constitute State aid.

The CJEU judgment confirms that the interpretation of the criterion of State resources under the EU State aid rules, as set out in the CJEU’s 2001 judgment in PreussenElektra, is still relevant. You may recall that in PreussenElektra the Court of Justice held that an obligation to purchase electricity produced from renewable energy sources at minimum price did not constitute State aid. This was because it did not involve a direct or indirect transfer of State resources, although the obligation was imposed by statute and did confer an advantage to certain undertakings.

PreussenElektra received criticism for supporting a formalistic approach to the notion of State resources, instead of focusing on the economic effects of a measure. Subsequently, the EC tried to limit the impact of PreussenElektra in its practice. Court judgments such as Essent and Vent de Colère demonstrate that the EC had considerable success.

The judgment in Germany v Commission, as well as the recent ENEA judgment, serve as a reminder that PreussenElektra is still a valid precedent and should not be ignored.

Background

In understanding the importance of the judgment, it is necessary to recall the background to this case.

For the period between 1 January 2012 and 31 July 2014, the EEG 2012 obliged German distribution system operators (DSOs) to purchase electricity produced from renewable energy sources and mine gas (EEG electricity) at a regulated price higher than market price. DSOs had to sell the EEG electricity to transmission systems operators (TSOs) and were entitled to pass on the additional cost. TSOs were required to sell the EEG electricity, which they fed into their network, on the spot market of the electricity exchange. If the price obtained did not enable them to cover the additional cost imposed by the EEG 2012, they were entitled to require electricity suppliers to compensate for the shortfall in proportion to the quantities sold (EEG surcharge). In practice, electricity suppliers passed on the EEG surcharge to customers, but they had no obligation to do so. The EEG 2012 capped the amount of the EEG surcharge that could be passed on by electricity suppliers to electricity-intensive companies.

Following a complaint by the German Association of Energy Consumers and letters from citizens, the EC investigated and ultimately adopted the decision at issue in November 2014. It found that:

(i)  the support for the production of electricity from renewable sources which guaranteed EEG electricity producers a price for electricity above market; and

(ii) the special compensation scheme, through which the EEG surcharge could be reduced for energy-intensive users, constituted State aid.

Germany brought an action for annulment of the EC’s decision which was dismissed by the GC on 10 May 2016. Germany subsequently appealed to the CJEU.

CJEU’s judgment

The CJEU held that, although the EEG 2012 was imputable to the State, the GC wrongly found, in upholding the EC decision, that the support deriving from the EEG 2012 was granted through State resources. First, the CJEU stated that the funds generated by the EEG surcharge did not constitute a levy unilaterally imposed by the State given that, although electricity suppliers passed on the financial burden resulting from the EEG surcharge to their customers, they had no obligation to do so. There was no mandatory charge. Second, the GC failed to demonstrate that the State held a power of disposal over the funds generated by the EEG surcharge or that it exercised control over the TSOs responsible for managing those funds. The CJEU further found that the fact that TSOs managed funds collected from the EEG surcharge in the general interest and subject to State monitoring was not equivalent to State control.

The CJEU found that the GC had incorrectly concluded that the advantages provided for by the EEG 2012 involved State resources and therefore constituted State aid. The CJEU annulled the underlying EC decision for the same reasons.

What have we learned?

What we learn from this judgment is that:

  • First, it is not sufficient that a measure is attributable to the State in a broader sense. It must also entail a transfer of State resources.
  • Second, Member States have some leeway to implement support schemes without the need to seek prior authorisation from the EC under the State aid rules or to act within the constraints of the General Block Exemption for State aid.

It is important to keep in mind that the non-application of State aid rules does not necessarily mean that other provisions of EU law do not apply. State interventions in a market which risk distorting competition may fall within the scope of other Treaty provisions. Such as those governing measures having equivalent effect to quantitative restrictions and the general principle of non-discrimination, as well as sector-specific regulations.