European Commission approves €5 billion Polish support for cogenerated electricity and surcharge reductions for large energy consumers
The European Commission has approved under EU State aid rules (1) a Polish scheme to support high-efficiency cogeneration and (2) reduced surcharges to finance the scheme for energy-intensive users. It also (3) opened an investigation into reduced surcharges to finance Poland's capacity mechanism.
Commissioner Margrethe Vestager, in charge of competition policy, said: “The Polish support scheme approved today will provide an important contribution to EU environmental and climate goals without unduly distorting competition. We have also approved Polish plans to preserve the competitiveness of energy-intensive companies in Poland by reducing their contributions to the financing of the electricity cogeneration support. But we still need to assess if the reductions for certain users on the surcharge that finances the Polish capacity mechanism are in line with our State aid rules“.
(1) Support for high-efficiency cogeneration
The scheme will support combined heat and power (“CHP”) installations connected to district heating networks in Poland. The scheme, with an annual budget of €500 million, will run until 31 December 2028. The support will be granted to new and refurbished highly efficient CHP installations, as well as to existing gas-fired highly efficient CHP installations. It will be also open to generators in other Member States.
The highly efficient CHP installations benefitting from the scheme will receive support through a premiumon top of the market price (“cogeneration premium”). The level of the cogeneration premium will be set either in a competitive bidding process or, in exceptional and clearly defined cases, determined administratively at a level covering the difference between the generation costs and the market price of electricity. The cogeneration premium will be granted until the full depreciation of the installations it supports, for a maximum period of 15 years.
The Commission assessed the scheme under EU State aid rules, in particular the Commission’s 2014 Guidelines on State Aid for Environmental Protection and Energy. These rules allow support to cogeneration installations on condition that the costs of producing electricity exceed its market price, that the support is necessary to trigger investment and does not lead to overcompensation.
The Commission concluded that the scheme will support the production of electricity from high-efficiency cogeneration and lead to a better integration of cogenerated power into the electricity market, in line with EU environmental and climate objectives, without unduly distorting competition in the Single Market.
The Polish cogeneration scheme approved today will contribute to energy efficiency and lower levels of CO2 emissions, in line with the EU environmental objectives and the EU climate change goals. Today’s decision complements the Commission’s Energy Union Strategy to deliver secure, sustainable and competitive energy in Europe.
(2) Cogeneration surcharge reductions for energy-intensive users
The Polish cogeneration support scheme approved today is financed through a surcharge levied on final electricity consumers, based on their electricity consumption.
Poland has also notified to the Commission plans to lower the financial burden on certain energy-intensive users (“EIUs”), which would benefit from a reduced CHP surcharge.
EU State aid rules, in particular the 2014 Guidelines on State Aid for Environmental Protection and Energy, authorise reductions – up to a certain level – in contributions levied on energy-intensive companies active in certain sectors and exposed to international trade, in order to ensure their global competitiveness.
The Commission found that the proposed reductions in surcharges for energy-intensive users are in line with EU State aid rules. The measure will ensure the global competitiveness of energy-intensive industries, without unduly distorting competition in the Single Market.
(3) In-depth investigation into capacity mechanism surcharge reductions for energy-intensive users
In February 2018, the Commission approved under EU State aid rules an electricity capacity mechanism in Poland. The Commission found that the measures will contribute to ensuring security of supply whilst preserving competition in the Single Market.
Poland now plans to introduce reductions for certain energy intensive users on a surcharge levied on electricity consumers to finance the Polish capacity mechanism and has notified this to the Commission.
The Commission has opened an in-depth investigation to further assess whether these proposed reductions are compatible with EU State aid rules. In particular, it will consider whether reductions from the capacity mechanism surcharge for certain customers are necessary to secure the financing of the capacity mechanism. The Commission will therefore assess whether such reductions indirectly contribute to the objective of security of electricity supply pursued by the capacity mechanism.
At this stage, the Commission is concerned that the proposed surcharge reductions may lead to: inefficiently higher demand of electricity in periods of scarcity, if certain users are exempted from these costs; higher needs for extra generation capacity to ensure security of supply in these periods will be also higher.
The Commission will now investigate further to determine whether its initial concerns are confirmed. The opening of an in-depth investigation gives interested third parties the opportunity to comment on the measures under assessment. It does not prejudge the outcome of the investigation.
The cogeneration scheme approved today replaces a past scheme supporting CHP installations in Poland, which expired at the end of 2018.
Capacity mechanisms have the important objective of ensuring security of electricity supply. In February 2018, the Commission approved under EU State aid rules a market-wide capacity mechanism in Poland. Under the mechanism, capacity providers can obtain a payment for being available to generate electricity or, in the case of demand response operators, for being available to reduce their electricity consumption to help balance demand with supply.
The Commission’s 2016 sector inquiry into capacity mechanisms has formed the basis for a close cooperation between the Commission and EU Member States to ensure that capacity mechanisms are well-designed and fit for purpose.
The sector inquiry report confirmed that capacity mechanisms can be necessary where market and regulatory failures block the price signals necessary to maintain appropriate levels of security of supply. However, the report made clear that EU State aid rules are important to ensure that capacity mechanisms do not act as backdoor subsidies for specific technologies or cause other undue distortions of competition, or come at too high a price for electricity consumers.
The non-confidential version of these decisions will be made available under the case numbers SA.51192 (support to cogeneration installations), SA.52530 (reductions in cogeneration surcharge) and SA.51502 (reductions in capacity mechanism surcharge) in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.