European State Aid: Commission to launch the first state aid sector inquiry into electricity capacity mechanisms

On 29 April, the European Commission has announced the launch of a state aid sector inquiry into capacity mechanisms. These are national measures ensuring that adequate capacity of electricity is produced in order to avoid potential black-outs. While already in 2005-2007 the Commission carried out an energy sector inquiry in the field of antitrust law, the current sector inquiry will examine the issue from the state aid law perspective. This is the first sector inquiry under EU state aid rules and is in line with the revised Procedural Regulation[1] within the State Aid Modernization package that conferred the Commission with additional market investigation powers. In the field of antitrust law, sector inquiries have proven to be an efficient tool to detect uncompetitive practices and often lead to the individual investigations against undertakings. It is therefore not surprising that this tool has now also been introduced to the field of state aid. For the time being, it remains, however, an open question whether sector inquiries will have the same effect in state aid, i.e. will uncover illegal state aid practices by Member States.

Some Member States introduced capacity mechanisms in order to ensure that electricity supply matches the demand in the medium and long term. The Commission, however, has already addressed its concerns regarding the capacity mechanisms. In November 2013 it issued a Communication accompanied by guidance on the design of capacity mechanisms while in February 2015 it adopted a comprehensive Communication on the EU energy union, also addressing potential adverse effects of the capacity mechanisms. Similar concerns are formulated in the Guidelines on State aid for environmental protection and energy adopted in July 2014.[2] On the basis of these Guidelines the Commission has so far approved only one capacity mechanism in the UK.

Contrary to an individual state aid decision, a sector inquiry is a market investigation tool the Commission uses to assess the market situation where there is a possibility that state aid measures may distort competition in several Member States. With this sector inquiry the Commission will gather the necessary information in order to better understand the capacity mechanisms already implemented and to ensure that these mechanisms will not fragment the EU single market and distort competition by favoring certain producers or certain types of technology and create barriers to trade across national borders. This is in line with the goals of the Energy Union to create a connected, integrated and secure energy market in Europe by encouraging groups of countries to build cross-border electricity and gas links through regional cooperation.

The sector inquiry will initially request information from 11 sample Member States (Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden). The Commission will assess their replies and invite comments on its preliminary findings. Stakeholders such as electricity generators, suppliers and network operators will be invited to provide their comments and information. It is important to note that the Commission may impose fines up to a maximum of 1% of an undertaking’s total turnover where the market participants would intentionally or through gross negligence provide incorrect or misleading information and, furthermore, may impose a periodic penalty of a maximum of 5% of the average daily turnover for lack of responsiveness. It is thus necessary that undertakings fully cooperate with the Commission and carefully prepare their answers to be submitted to the Commission. A draft report is expected to be published by the end of this year while the final report is expected in summer 2016.