German Renewable Energy Surcharge (EEG 2012) does not involve State aid ECJ finds

Consequences for similar support systems

On 28 March 2019, the Court of Justice of the European Union (ECJ) ruled that the Renewable Energy Act 2012 (EEG 2012) does not constitute a State aid regulation within the meaning of Art. 107(1) TFEU. It has thus set aside the first-instance judgment of the General Court and annulled the contested decision of the European Commission. This gives the German parliament considerable room for manoeuvre, as similar support schemes have so far been notified to the Commission as State aid, e.g. the KWKG or the regulation on individual network tariffs under Sec. 19(2) of the StromNEV. The crucial question was whether the EEG surcharge constituted State resources. The ECJ has now denied this – continuing its case law in the PreussenElektra case of 2001.

1. Background

a) Content of the EEG 2012

The EEG 2012 – like its previous versions – provided for the promotion of renewable energy by means of a nationwide compensation mechanism. By law, the support mechanism ended with the utilities. They then passed on the burdens resulting from the surcharge to their respective end customers on the basis of contractual regulations.

The question at issue was whether the support mechanism under the EEG was funded by the State’s budget or was government-controlled or merely a “redistribution” from the electricity customer's pocket to the operators of renewable energy plants. In the latter case, there would be no aid due to a lack of State resources, as only private would be redistributed to private.

b) Commission decision and its confirmation by the General Court

On 18 December 2013, the Commission decided to open a formal investigation with regard to the measures contained in the EEG 2012, in particular the EEG surcharge and the privileged treatment of electricity intensive companies. On 25 November 2014, the Commission issued the contested decision (SA.33995 (2013/C) (ex 2013/NN)).

The Commission found that the financing mechanism of the EEG 2012 surcharge was a State aid scheme, but that it was compatible with the internal market subject to conditions. In addition, it was critical of the reduced surcharge for electricity intensive companies, but concluded that it was largely compatible with the Environmental and Energy Guidelines 2014 - 2020, so that only partial recoveries were made.

The Commission based its view essentially on two judgments of the ECJ in France v. Commission of 16 May 2002 (Case C-482/99), in which the CJEU also classified the French support scheme as State aid, and on the judgment of 19 December 2013 in Association Vent De Colère! et al. (Case C-262/12), which was based on an obligation on the part of the State to meet costs if the undertakings participating in the support scheme were unable to cover their costs. Both judgments dealt with the question of whether the State had the power to dispose of the aid amounts in a manner similar to a levy and thus whether State aid was involved. In the Commission's view, such equivalence could be considered where the State, through the legal system, organises and determines a transfer of funds and monitors the purposes for which these funds may be used. The actors obliged under this system would not act on and for their own account, but as administrators of aid granted through State resources.

Against this background, the Commission came to the conclusion that the surcharge under the EEG 2012 is also financed from State resources, although no funds were provided from the federal budget. It affirmed the State's power of disposal due to the fact that the surcharge, although not mandatory (Sec. 37(2) EEG 2012), is in practice passed-on to the end consumers. The parties involved would therefore not have been free to pass on the surcharge or not.

The Federal Republic of Germany has – inter alia with reference to the ruling of the ECJ’s PreussenElektra case in 2001 – consistently and quite vehemently opposed this view of the European Commission, because it means an infringement of the sovereignty of the Member States and clearly complicates the legislative process due to a notification required in each case (Art. 108(3) TFEU). As a middle course, it was then agreed that the EEG 2014 should be structured in accordance with the European Commission's view and notified as State aid. The same applied since then to comparable support schemes (e.g. under the KWKG or the regulation for individual network tariffs pursuant to Sec. 19(2) StromNEV).

Since the Federal Republic of Germany maintained its legal position on the lack of State aid, it brought an action against the Commission decision to the General Court on 2 February 2015. However, in its judgment of 10 May 2016, Case T-47/15, the General Court confirmed the Commission's decision, with the result that the Federal Republic of Germany appealed to the European Court of Justice.

2. The judgement of the ECJ

On 19 July 2016, the Federal Republic of Germany appealed against the decision of the General Court, following which the ECJ, by judgment of 28 March 2019 in Case C-405/16 P, set aside the General Court's judgment and annulled the Commission's decision at issue.

In its judgment, the ECJ denies the use of State resources, since the EEG 2012 does not oblige utilities to pass on the amounts paid on the basis of the EEG surcharge to end consumers (para. 70 of the judgment). It is not sufficient for the EEG surcharge to have the same characteristics as a levy on energy consumption, just because “‘in practice’, the financial burden resulting from the EEG surcharge was passed on to the final customers and, consequently, could ‘be assimilated, from the point of view of its effects, to a levy on electricity consumption’” (para. 71 of the judgment). However, the General Court “failed to establish that the State held a power of disposal over the funds generated by the EEG surcharge or even whether it exercised public control over the TSOs responsible for managing those funds” (para. 73 of the judgment). Even if public authorities monitor the proper implementation of the EEG 2012 (in this case the Federal Network Agency), this does not automatically lead to the conclusion that the funds generated by the EEG surcharge are themselves under State control (para. 80 of the judgment).

Furthermore, in the opinion of the ECJ, the General Court wrongly interpreted the ECJ ruling in the Association Vent De Colère! case, which inter alia affirmed the State's power of disposal from two points of view. Firstly, on the basis of the State's obligation to assume liability if the surcharge passed-on to the end consumers prove insufficient to cover the costs. This would at least have resulted in a potential reduction of the State budget. Secondly, the compensation amounts in the present case had not been transferred to an independent administrative authority, such as the Caisse des dépôts et consignations. In Association Vent De Colère!, these compensation amounts always remained under State control (para. 84 et seq. of the judgment). In the opinion of the ECJ, neither of these was the case with the EEG surcharge. Consequently, although the German State controlled the implementation of the EEG surcharge, it did not control the sums generated, so that the existence of State aid is ruled out.

Consequently, the reduced surcharge for electricity-intensive enterprises by means of the special compensation scheme (Besondere Ausgleichsregelung) cannot be regarded as State aid either, since no State resources are used.

3. Conclusion

The decision of the ECJ has considerable consequences with regard to the question which rules apply to the design of national support schemes. The parliaments of the Member States have thus regained considerable powers as a result of the ECJ’s decision and can now decide quickly and flexibly on the design of such support schemes without prior involvement of the European Commission. The significance of the current revision of the Environmental Protection and Energy Aid Guidelines 2014 - 2020 will therefore decline in the present context.

The decision, however, goes far beyond the context of the EEG (remember recently the never-ending decision-making process on the rules for the grandfathering of self-supply), since the decision is likely to be transferable to other support systems (such as the KWKG). In addition, the question arises whether the Federal Republic of Germany will stick to the tenders forced upon it by the European Commission or whether it will carry out another system change. For the German market, the present decision means that the German parliament will become considerably more important as a point of contact for market players with regard to the promotion of renewable energy, as the feedback with the European Commission that has been provided so far for risk reasons will no longer apply.

Should you have any questions regarding the effects of the ECJ decision, please do not hesitate to contact us. In the past, we have advised on a number of energy law cases with respect to State aid law.