EUROPEAN COMMISSION Brussels, 27.9.2016 C(2016) 6326 final PUBLIC VERSION This document is made available for information purposes only. Subject: State Aid SA.44626 (2016/N) Denmark Pilot tender for aid to solar PV Sir, 1. PROCEDURE (1) By electronic notification of 4 August 2016, complemented on 15 August 2016, Denmark notified, pursuant to Article 108(3) of the Treaty on the Functioning of the European Union (TFEU), a tender for solar photovoltaics (PV). 2. DESCRIPTION OF THE MEASURE 2.1. Background and objectives of the notified project (2) In order to incentivise investments in solar PV generation with the least possible aid, Denmark notified a measure for the design and construction of 20 MW solar PV capacity in Denmark, out of which 2.4 MW will be open also to projects in other EEA States. (3) By 2020, Denmark is aiming to supply 30% of final energy consumption with energy from renewable sources, and by 2050, Denmark aims to be independent of fossil fuel. (4) Investments in energy produced from solar PV can make an important contribution to increasing the share of renewable energy in the Danish energy system. Currently, energy from solar PV covers only 2 percent of the electricity Udenrigsminister Kristian Jensen Udenrigsministeriet Asiatisk Plads 2 DK-1448 København K Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111
consumption in Denmark, but in the longer term solar PV may contribute significantly to the decarbonisation of Danish electricity production. 2.2. National legal basis (5) The national legal basis for the notified measure is the Act on a pilot auction for price premiums for electricity produced at solar photovoltaic installations ("Lov nr. 261 af 16. Marts 2016 om pilotudbud af pristillæg for elektricitet fremstillet på solcelleanlæg") authorizing the pilot tender and cooperation agreements with EEA States with direct electrical interconnectors to Denmark, and the individual contracts to be concluded with RES producers. 2.3. Beneficiaries and tendering procedure (6) The aid will be awarded on the basis of a tendering procedure where the bid(s) offering the lowest price will be selected. Bidders are responsible for finding locations for the installations and obtain relevant approvals. (7) Each bid will have a maximum size of 2.4 MW and can concern the construction of one or more solar PV installation(s). In view of the maximum size of each bid it will take a minimum of 9 winning bids to provide 20 MW 1. However, the exact number of winning bids will first be known when all contracts have been awarded. (8) The bidder must state a price in DKK/MWh for electricity generated during the first 20 years following connection to the grid, a specification of the number of kw the bidder wants to establish and in which location. The price offer shall be a fixed amount given in DKK (constant in current prices), and will not be indexed. The contracts will be awarded to the bidder(s) that offer the lowest price. (9) The beneficiaries can be all types of undertakings (e.g. SMEs and large undertakings) as well as natural persons. (10) The deadline for submitting offers will be set in the second half of 2016 with the aim to conclude contracts before the end of 2016. 2.4. Opening of the scheme to producers in other EEA States (11) The pilot tender will be open to producers established in Germany up to 2.4 MW, which exceeds 6% of the 20 MW 2 to be tendered out. Denmark considers this opening of the scheme to be in line with the commitment given by the Danish authorities in cases SA.36204, SA.37122 and SA.40305, according to which the RES pilot tenders to be organised in 2015 and 2016 should be partly opened up for producers in other EEA States which have a cooperation agreement 3 with 1 2 3 Winning bids will also include the first bid which causes the total sum of winning bids to exceed 20 MW. Hence, the total sum of winning bids may reach a maximum of 22.399 MW. The 20 MW corresponds to 5% of the expected cumulative new Danish RES capacity in 2015 and 2016. As foreseen in point 122 EEAG, cf. articles 5 to 8 and 11 of the Renewable Energy Directive. 2
Denmark. Currently, Germany is the only EEA State which has entered into such cooperation agreement with Denmark 4. (12) If a bid from Germany causes the sum of winning bids from Germany to exceed 2.4 MW, then that bid will also be accepted. If sufficient bids from Germany offer lower prices than bidders from Danish installations, the sum of winning bids from Germany will thus be minimum 2.4 MW and maximum 4.799 MW. (13) The participation in the tendering procedure is subject to evidence that the electricity from renewable sources will be delivered to the electricity grid in a country from which electricity is directly imported to Denmark. This condition is considered fulfilled for all installations connected to the electricity grid in Germany. (14) The cooperation agreement also includes that electricity produced in Germany but supported by Denmark will entirely be statistically transferred to Denmark for target compliance purposes under Directive 2009/28/EC (or succeeding legislation) 5. 2.5. Tender conditions related to the opening of the scheme to producers in other EEA countries (15) In order to take account of spatial planning, the cooperation agreement with Germany includes spatial planning and technical limitations reflecting limitations which have already been implemented in the national support schemes in Germany. The limitations are set out in the cooperation agreement and the tender conditions. Hence, the following conditions apply to installations located in Germany: (a) Payment of price premiums for electricity generated at a solar PV installation in Germany may only be made provided the relevant solar PV installation has not been installed at, or integrated into, a building or some other construction, which was originally constructed for another purpose than the generation of electricity from solar energy and provided the relevant solar PV installation meets the location requirements pursuant to paragraph 1 no. 2 lit. a of Clause 22 of the German Ordinance for Crossborder Renewable Energy Auctions (GEEV) 6. (b) The maximum rated capacity of the PV installation must not exceed 10 MW, in accordance with no.3 of Clause 3 and paragraph 5 of Clause 22 of the GEEV 7. 4 5 6 7 The cooperation agreement is reciprocal and Germany also opened its pilot support scheme for solar PV projects to producers located in Denmark. The cooperation agreement also allows electricity produced in Denmark but supported by Germany to be entirely statistically transferred to Germany for target compliance purposes under Directive 2009/28/EC (or succeeding legislation). Verordnung zur grenzüberschreitenden Ausschreibung der Förderung für Strom aus erneuerbaren Energien sowie zur Änderung weiterer Verordnungen zur Förderung der erneuerbaren Energien - GEEV Ibid. 3
(c) (d) The solar PV installation must be equipped with remote control that allows for remotely controlling the feed-in of the electricity produced as well as providing information on the real-time feed-in, as required pursuant to Clause 36 of the German Renewable Sources Act 2014 8 The tenderer is not in receipt of other State aid, or aid under a German subsidy scheme for renewable energy, and does not claim compensation for distributed feed-in of electricity under Clause 18 of the German Ordinance on Grid Tariffs 9 or any succeeding German legislation. 2.6. Form of aid and duration (16) The aid will be paid as a premium on top of the electricity price for the electricity production. The aid will be granted on the basis of the initial bid submitted by the bidder. Payments shall be made every month on the basis of production for the previous month. (17) No premium will be paid for production during hours when the spot price 10 is negative, and the contractor will not be eligible for other State aid. (18) The future contractor is responsible for selling the produced electricity on the electricity market and paying costs in this regard. No compensation is paid for balancing costs. (19) The premium granted in 2016 will be paid for a maximum of 20 years 11 from the time of the connection of the solar PV installation to the electricity grid provided that all conditions for receiving the aid are fulfilled. (20) The contractor shall connect the PV installation(s) to the electricity grid no later than 2 years after the contract was signed. 12 It may however be entitled to an extension of the time limit in the event of e.g. circumstances relating to the Danish Energy Agency, or circumstances over which the contractor has no control. (21) The contractor is subject to a contractual penalty (an agreed penalty) if the contractor announces not to construct the PV installation(s) or does not connect the PV installation(s) to the grid. The contractor must provide security for payment of the penalty through a guarantee. 8 9 10 11 Gesetz für den Ausbau erneuerbaren Energien EEG 2014 Verordnung über die Entgelte für den Zugang zu Elektrizitätsversorgungsnetzen (Stromnetzentgeltverordnung StromNEV). The spot price for electricity means the price per hour per kwh on the spot market in the relevant electricity grid price area in question (DK1, DK2 or price areas in other EEA States). In this context, the spot price is the day ahead auction price. If the installation is connected to the electricity grid later than 3 years from the contract was signed, no aid will be paid later than 23 years from the contract was signed, regardless of any granted exemptions. This will effectively shorten the aid period if the project is delayed beyond 3 years. 12 It may however be entitled to an extension of the time limit in the event of e.g. circumstances relating to the Danish Energy Agency, or circumstances over which the contractor has no control. 4
2.7. Budget and financing (22) There is no fixed budget for the expenditure, as the winning price offers are not yet known. However, the expenditures for aid to solar PV installations covered by this aid scheme are estimated at 4 million DKK in 2017 increasing to 8 million DKK in each of the following years until 2038. (23) The aid scheme will, in principle, be financed through a so-called PSO (public service obligation) tariff levied on electricity consumption and paid by electricity consumers. If the PSO levy financing is not maintained after 2017, the aid under this scheme will be financed from the State budget. The premium payments for electricity produced from the winning solar PV installations will start at the earliest from 2017. 3. ASSESSMENT 3.1. Presence of State aid (24) Article 107 (1) TFEU states that 'any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, shall, in so far as it affects trade between Member States, be incompatible with the common market'. (25) The premiums paid out under the notified scheme will be financed through the PSO levy, i.e. through financial resources under the control of the State 13 or directly from the State budget. The beneficiary will receive an advantage in the form of direct grants (a premium) for generating electricity. Such support would normally not be available under market conditions. The notified measure favours producers of electricity from solar PV as compared to other electricity producers and is therefore selective. Electricity is widely traded within the European Economic Area (EEA) and therefore the notified measure is likely to distort the competition on the electricity market and affect trade across the EEA. Therefore the notified measure constitutes State aid in the meaning of Article 107 TFEU. 3.2. Legality (26) The measure has not yet been put into effect. Thus, by notifying the measure, Denmark has complied with the standstill obligation set out in Article 108(3) TFEU. 3.3. Compatibility under the Environmental and Energy Aid Guidelines (27) The notified measure falls within the scope of the Guidelines on State aid for environmental protection and energy 2014-2020 (EEAG) 14. The Commission has assessed the notified measure against the general compatibility provisions of the EEAG (EEAG Section 3.2) and against the specific compatibility criteria for operating aid granted for electricity from renewable energy sources (EEAG Sections 3.3.1 and 3.3.2.1). 13 See also conclusions in cases SA.37122 and SA.36204 14 OJ C 200 of 28.06.2014. 5
3.3.1. Objective of common interest (28) According to point 31 EEAG, a Member State needs to define the objective of common interest pursued by the measure and explain its contribution towards this objective. Denmark has explained that the measure will contribute to achieving its long term targets to decarbonise its energy sector, by displacing the production of electricity from fossil fuel, and therefore reducing CO 2 emissions. The measure will contribute to help Denmark reach its national targets in line with the EU 2020 targets. (29) The Commission considers that the notified aid measures are aimed at an objective of common interest in accordance with Article 107(3)(c) TFEU. 3.3.2. Need for State aid, incentive effect and appropriate instrument (30) In EEAG point 107 the Commission acknowledges that 'under certain conditions State aid can be an appropriate instrument to contribute to the achievement of the EU objectives and related national targets'. (31) According to point 116 EEAG, to allow Member States to achieve their targets in line with the EU 2020 objectives, the Commission presumes the appropriateness of aid provided all other conditions are met. (32) In principle, Member States need to demonstrate that State aid is necessary to remedy a market failure that otherwise would remain unaddressed (point 37 EEAG). However, the Commission presumes that such a market failure still exists in the field of renewable policy (point 115 EEAG). (33) In line with point 49 EEAG, the incentive effect occurs if the aid induces the beneficiary to change his behaviour towards reaching the objective of common interest which it would not do without the aid. (34) The Commission notes that without the aid, the solar PV projects are not likely to be financially viable. Denmark has explained that electricity generated from solar PV cannot yet compete on market terms with electricity generated by conventional electricity production, due to the difference between the investment costs and the net present value of the expected operating profits of the investment without aid. The aid is therefore necessary to bring forward investment in electricity generation from solar PV, and provides an incentive for this investment. (35) The Commission further notes that all the tenderers will be required to state that work on the project had not started at the time when the tender was submitted, thus ensuring compliance with point 50 EEAG. (36) Consequently, the Commission considers that the notified measure is necessary, provides the necessary incentive effect to address the objective of common interest, and is granted through an appropriate instrument. 3.3.3. Proportionality (37) According to point 69 EEAG, environmental aid is considered to be proportionate if the aid amount per beneficiary is limited to the minimum needed to achieve the environmental protection objective. 6
(38) The EEAG recognise in point 126 that the proportionality of the aid can be ensured if the aid is granted through a competitive bidding process. As the aid is granted before 2017, the EEAG allow the bidding process to be limited to specific technologies without further justification. (39) Therefore, the Commission has assessed the compatibility of the tender process with the definition in point 19 EEAG and the extent to which this provides a sufficient safeguard against overcompensation. (40) Denmark has explained that the tendering procedure will be open to all producers without discrimination. The further limitations applicable to Germany reflect the limitations that are applicable in Germany. The contracts are awarded solely on the basis of the award criterion "lowest price" and the aid is granted on the basis of the initial bid. (41) With regard to paragraph (124) of the EEAG, Denmark confirmed that no premium will be paid for electricity produced during hours where the spot price is negative, and the contractor must arrange for the sale of the production on the electricity market, face standard balancing responsibilities and cover the costs involved with both sale and balancing. (42) Point 129 EEAG requires that aid is only granted until the beneficiary plant has been fully depreciated according to normal accounting rules and any investment aid is deducted. (43) The Commission notes that the aid is granted for the first 20 years of operation, while Danish accounting rules allow for depreciation over the entire lifetime of the installation which in the case of solar PV is expected to be 30 years. Denmark also confirmed that no other aid will be granted to projects covered by the notified measure. The measure therefore satisfies this requirement. (44) Based on the information provided, the tendering process can be considered a competitive bidding process. Accordingly, the Commission considers that the aid granted under the notified measure is proportional. 3.3.4. Cumulation (45) The premium payment determined under the tender process will be the only subsidy available to the beneficiaries; therefore there is no cumulation of aid. 3.3.5. Distortion of competition and balancing test (46) According to point 90 EEAG, the Commission considers that although aid for environmental purposes will tend to favour environmentally friendly technologies at the expense of other more polluting ones, the effect of the aid will in principle not be viewed as an undue distortion of competition since it is inherently linked to its objective of making the economy greener. The Commission must take into account the overall environmental effect of the measure in relation to its negative impact on the market position and profits of non-aided firms. (47) The Commission notes that the measure is likely to provide an environmental benefit by displacing the production of electricity from fossil fuel, and therefore reducing CO 2 emissions. The measure will therefore help Denmark achieve its 7
targets to decarbonise the energy sector in line with the EU targets for 2020, 2030 and 2050. (48) Point 122 EEAG states that the Commission will consider positively schemes that are open to other EEA or Energy Community countries. (49) Point 116 EEAG states that, to allow Member States to achieve their targets in line with the EU 2020 objectives, the Commission presumes the limited distortive effects of the aid provided all other conditions are met. (50) The Commission therefore considers that the measure will not have undue distortive effects on competition and trade so that the overall balance is positive. 3.3.6. Transparency (51) Denmark has committed to comply with the transparency requirements in EEAG points 104-106. 3.3.7. Compliance with other Treaty provisions (52) In accordance with point 29 EEAG, as the PSO levy has the aim of financing the support for green electricity, the Commission has examined its compliance with Articles 30 and 110 TFEU. (53) According to the case-law, a charge which is imposed on domestic and imported products according to the same criteria may nevertheless be prohibited by the Treaty if the revenue from such a charge is intended to support activities which specifically benefit the taxed domestic products. If the advantages which those products enjoy wholly offset the burden imposed on them, the effects of that charge are apparent only with regard to imported products and that charge constitutes a charge having equivalent effect, contrary to Article 30 TFEU. If, on the other hand, those advantages only partly offset the burden borne by domestic products, the charge in question constitutes discriminatory taxation for the purposes of Article 110 TFEU and will be contrary to this provision as regards the proportion used to offset the burden borne by the domestic products. 15 (54) If domestic electricity production is supported by aid that is financed through a charge on all electricity consumption (including consumption of imported electricity), then the method of financing, which imposes a burden on imported electricity not benefitting from this financing, risks having a discriminatory effect on imported electricity from renewable energy sources and thereby violate Articles 30 and/or 110 TFEU 16. (55) The aid measure subject to the present notification will in principle be financed through a PSO tariff paid by electricity consumers. The tariff will be levied on 15 16 Joined Cases C-128/03 and C-129/03 AEM, EU:C:2005:224, paragraphs 44 to 47; Case C-206/06 Essent, EU:C:2008:413, paragraph 42. Case 47/69 France v Commission, EU:C:1970:60, paragraph 20. See also Case SA.38632 (2014/N) Germany EEG 2014 Reform of the Renewable Energy Law (not yet published in the OJ). 8
electricity consumption, which may therefore also cover electricity imported from other EEA States. (56) In order to remedy any potential discrimination, Denmark committed to open the pilot tender for other EEA States, subject to certain conditions (in particular a cooperation agreement). The notified support measure will be partially open also to producers established in Germany as this is the only other EEA States with a cooperation agreement with Denmark, up to a share of 2.4 MW. The 2.4 MW reflects the minimum capacity that Denmark confirmed to open in order to ensure compliance with Articles 30 and 110 TFEU. (57) As mentioned in paragraph (11) above, the opening of the tenders to producers in other EEA States is subject to the conclusion of cooperation agreements. This condition is in line with point 122 EEAG and the Renewable Energy Directive 17 which envisages that Member States can set up cooperation mechanisms (Articles 6 to 11). (58) The participation in the tenders is further subject to evidence that the electricity from renewable sources will be delivered to the electricity grid in a country from which electricity is directly imported to Denmark. This condition is in line with Articles 30 and 110 TFEU as without imports, no discrimination in the sense of Articles 30 and 110 TFEU would occur in the first place. In addition, Denmark needs to ensure that the electricity is indeed delivered to Denmark. (59) As the opening of the tenders remedies the risk of discrimination against producers of green electricity in other Member States, the financing of the notified support measure through the PSO tariff is compliant with Articles 30 and 110 TFEU. 3.3.8. Conclusion with regard to the compatibility of the measure (60) In light of the above, the Commission considers that the notified aid measure is compatible with the internal market. 4. CONCLUSION The Commission has accordingly decided not to raise objections to the aid on the grounds that it is compatible with the internal market pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/competition/elojade/isef/index.cfm. 17 Directive 2009/28/EC of 23 April 2009. 9
Your request should be sent electronically to the following address: European Commission, Directorate-General Competition State Aid Greffe B-1049 Brussels Stateaidgreffe@ec.europa.eu Yours faithfully For the Commission Margrethe VESTAGER Member of the Commission 10