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EU state aid proceedings on renewable surcharge

In late 2013, the European Commission opened an in-depth investigation into whether or not the (partial) exemption of energy-intensive companies from payment of the surcharge under Germany’s Renewable Energy Act (renewables surcharge) violates EU state aid rules. In the meantime the German Federal Government has obtained a consensus at the EU level such that certain industries are allowed to grant green energy rebates.

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.

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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.


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