State aid: Commission approves German support for cogenerated electricity

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The European Commission has approved, under EU State aid rules, the prolongation and modification of an existing German scheme to support the production of electricity from new, modernised and retrofitted highly efficient cogeneration (‘CHP’) plants (except coal and lignite-fired CHP). The scheme (‘Kraft-Wärme-Kopplungsgesetz’ – ‘KWKG 2020′), which is approved until 2026, will further promote energy efficiency, lead to a better integration of cogenerated power into the German electricity market and lower CO2 emissions, without unduly distorting competition.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The German scheme will promote energy efficiency and contribute to further reductions in CO2 emissions, in line with the objectives of the European Green Deal. Compared to the existing German scheme to support cogenerated electricity, the new scheme introduces new features which aim at further ensuring the competitiveness of the tenders through which the support will be granted, as well as at keeping electricity prices low for consumers and incentivising cogeneration plants to operate at times of higher electricity demand, that is when it’s needed the most.”

The German measure

Germany notified the Commission of its intention to prolong and modify, under the German Combined Heat and Power Generation Act 2020 (‘Kraft-Wärme-Kopplungsgesetz’ – ‘KWKG 2020′, an existing aid scheme to support new and modernised highly efficient CHP plants, as well as the construction and expansion of energy-efficient district heating/cooling networks and the construction and retrofitting of heating/cooling storage facilities. The Commission had approved the original scheme under State aid rules as part of its 2016 decision on the KWKG 2016 (SA.42393).

Under the scheme, as in the existing scheme, operators of CHP installations will have to offer their electricity on the market and will receive their support in the form of a fixed premium on top of the market price, except for very small installations, which will be eligible to receive feed-in tariffs.

The annual budget for support to CHP installations, storage facilities and district heating/cooling networks amounts to €1.8 billion.

Compared to the existing scheme, under the KWKG 2020 :

• The threshold for operators to participate in a competitive bidding process to receive support was lowered from 1 megawatt (MW) to 500 kilowatt (kW) installed capacity. This is expected to increase the pool of potential bidders and increase the competitiveness of auctions.
• In light of the low participation rate reported in the latest tenders, an automatic rule to adjust tendered quantities in case of undersubscription was introduced to safeguard competitiveness of auctions and keeping costs to a minimum for consumers and taxpayers.
• The number of operating hours eligible for support was reduced to further incentivise the beneficiaries to produce electricity in highly efficient cogeneration when it is needed the most i.e. at times of higher electricity demand.

The Commission’s assessment

The Commission assessed the measure under EU State aid rules, in particular the 2014 Guidelines on State aid for environmental protection and energy.

The Commission found that the support is necessary to help Germany meet its targets for energy efficiency and for reduction of greenhouse gas emissions.

It also found that the aid is proportionate and limited to the minimum necessary, in particular since the level of the aid will mostly be set through competitive tenders. In the cases in which remuneration is set administratively, the aid is limited to the production cost, which cannot be recuperated through market revenue.

Finally, the Commission found that the positive effects of the measure, in particular its positive environmental effects, outweigh its negative effects in terms of possible distortions of competition.

Furthermore, Germany has developed a detailed plan for the evaluation of the KWKG 2020 by an independent economic expert, and has committed to improve the data gathering and the use of empirical methodologies in this respect. Germany will assess the new features of the scheme and the efficiency of the measure in achieving greenhouse gas emissions reductions.

On this basis, the Commission concluded that the scheme is in line with EU State aid rules, as it supports projects promoting the energy efficiency and reducing greenhouse gas emissions, in line with the European Green Deal, without unduly distorting competition.

Background

The Commission’s 2014 Guidelines on State Aid for Environmental Protection and Energy allow Member States to support energy efficiency measures, including cogeneration and district heating and cooling, subject to certain conditions. These rules aim at helping Member States meet the EU’s ambitious energy and climate targets, while limiting the possible cost for taxpayers and possible distortions of competition in the Single Market to the minimum.

The Energy Efficiency Directive of 2018 established an EU-wide binding energy efficiency target of at least 32.5% by 2030. With the European Green Deal Communication in 2019, the Commission reinforced its climate ambitions, setting an objective of no net emissions of greenhouse gases in 2050. In April 2021, the European Council and the Parliament reached a provisional agreement on the net 55% target for 2030, which sets the ground for the ‘fit for 55′ legislative proposals scheduled for July 2021.

The non-confidential version of the decision will be published in the State aid register on the competition website under the case number SA.56826. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

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