State aid: the Commission launches an in-depth investigation into the regulation mechanism for natural gas storage in France

This article is brought to you in association with the European Commission.

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The European Commission has launched an in-depth investigation in order to determine whether the regulation mechanism for the storage of natural gas implemented by France complies with EU rules on State aid. Ms Margrethe Vestager, Executive Vice-President in charge of competition policy, stated: ‘France has a legitimate interest in ensuring the security of energy supplies to its citizens and businesses. In this respect, our role is to make sure that the measures taken are cost-effective and safeguard competition, so that consumers pay a fair price for natural gas.’ In December 2017, France introduced a regulation mechanism for the storage of natural gas which is intended to keep in operation the storage capacity deemed necessary to ensure the security of the country’s natural gas supply. The mechanism involves auctioning all the storage capacity in France and covering the storage operators’ costs. To this end, where the operators’ revenue is below the revenue threshold set by the French independent energy regulatory authority (the ‘CRE’ – Energy Regulatory Commission), storage operators receive compensation. The compensation is financed by means of the tariffs for use of the transmission network that are collected by the network operators from gas shippers under conditions set by the CRE. There are currently three storage operators in France (Storengy, Géométhane and Teréga). The amount of compensation paid to these three operators was €540 million for 2019. The Commission’s investigation The Commission takes the preliminary view that the regulation mechanism constitutes State aid. At this stage, the Commission has doubts, in particular, as to whether there is sufficient justification for the method used to value the regulated assets. This element is essential in order to determine whether the amount of the aid is limited to the minimum necessary to guarantee the security of supply. France did not carry out an independent economic evaluation of the market value of the assets at the time when the regulation mechanism was implemented. Moreover, the mechanism remunerates investments made before the revenue of the storage operators is regulated. France has not assessed whether this revenue has allowed the storage operators to cover their initial investment cost. Furthermore, the Commission has doubts whether the potential positive impact of the aid outweighs the potential negative impact on competition and trade between Member States. In particular, the introduction of the measure might artificially reduce the incentives to use LNG terminals and interconnections, and might lead gas suppliers to store gas in France rather than in the neighbouring Member States. The Commission will now carry out an in-depth investigation to determine whether its initial concerns are borne out. The launching of an in-depth investigation provides France and any interested third parties with the opportunity of submitting their observations. It does not prejudge the outcome of the investigation. Background The underground storage of natural gas is used as a means of ensuring the network’s capacity to respond to demand in the event of a cold snap or congestion in the network. However, in the past few years, due to unfavourable economic conditions, the take‑up rate for storage capacity in France has dropped considerably, falling from 100% in 2009 to 63% in 2017. Guaranteeing the security of natural gas supply is an important objective of the European Union. It falls to the Commission to check that the measures implemented by the Member States do not lead to unwarranted distortions of competition or, in the event of overcompensation to storage operators, to an excessive increase of the sale price of natural gas to the detriment of consumers.

For more information The non-confidential version of the decision will be published under reference SA.49414 in the State aid register – which can be found on the Commission website dedicated to competition – as soon as any potential confidentiality issues have been resolved. The State Aid Weekly e-News newsletter provides the list of the latest decisions relating to State aid published in the Official Journal and online.