State aid: Commission approves Austrian network reserve for ensuring security of electricity supply

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The European Commission has approved, under EU State aid rules, Austrian plans to establish a network reserve for the Austrian electricity market. The temporary measure will be in force until end 2025 and will contribute to safeguarding secure network operation and sufficient electricity supply in Austria, without unduly distorting competition in the Single Market.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The Austrian network reserve approved today will enable Austria to ensure security of electricity supply at all times. It will be contracted through competitive tenders. Consumers and a broad group of eligible operators, including local and foreign ones, will be able to participate in the tenders. This will allow for a cost-effective and competitive measure, to the benefit of all electricity consumers.”

In September 2020, Austria notified the Commission of its plan to establish a network reserve, as a part of its congestion management system, to ensure that there is sufficient electricity capacity at all times to resolve bottlenecks in the transmission network.

Under the scheme, the Austrian transmission system operator, the Austrian Power Grid AG (APG), will pay operators of power plants that have notified their intention to close down their plants, but which are relevant to keep the electricity system in balance, for remaining available to the network. Plants based on most polluting sources like coal, lignite or diesel are effectively excluded from the reserve, thanks to an eligibility limit in terms of CO2 per kilowatt hour emission.

In addition, foreign power plants (located for instance in Italy or Germany) and aggregators combining several generation or consumption units can also be contracted and subsequently required to increase or decrease production to keep the electricity grid in balance, if so instructed by the transmission system operator. In addition, electricity consumers can be contracted and subsequently required to decrease consumption, receiving remuneration.

The network reserve will be procured through a competitive bidding process organised by the transmission system operator. The contracted capacity will not be permitted to participate in the market for the duration of their network reserve contract. The transmission system operators will pass the cost of the reserve on to network users via the network charges.

The Commission considers that the network reserve constitutes a measure to ensure generation adequacy and security of electricity supply. The 2014 Guidelines on State aid for environmental protection and energy allow Member States to put in place such measures under certain conditions.

The Commission found that the measure is necessary in view of the structural congestion problems that the Austrian electricity grid is facing and which prevent sufficient power flows, as demonstrated by the transmission system operator’s annual system analysis, which must be coordinated with the regulatory authority.

The Commission also found that the aid is proportionate and limited to the minimum necessary, and that potential distortions of competition and trade are minimised, given that the reserve procurement through competitive tenders will be open to a broad group of eligible bidders and that the contracted capacity will be held outside of the electricity market.

Finally, in line with the Electricity Regulation, Austria set out an action plan with a concrete timetable for adopting measures to reduce the identified structural congestion problems. This includes carrying out substantial investment in the grid infrastructure to relieve the structural congestions and ultimately make the network reserve redundant, removing the necessity for the measure in the future.

On this basis, the Commission concluded that the scheme is in line with EU State aid rules and approved it as a temporary measure, aligned with the duration of the action plan i.e. until the end of 2025.

Background

Network reserves are regional measures designed to provide additional generation capacity or reduced consumption capacity to resolve bottlenecks in the transmission network and ensure electricity security of supply. Network reserves typically offer remuneration to electricity capacity providers in return for maintaining the capacity required to guarantee the security of electricity supply in a given region. This remuneration may have an impact on competition in the internal electricity market, also given that it temporarily prevents operators from closing their power plants, and therefore has to be assessed under EU State aid rules.

The Commission concluded a State aid sector inquiry into capacity mechanisms (including network reserves) on 30 November 2016. The final report highlighted that such measures must target a genuine adequacy need and must be designed in such a way as to deliver security of supply at least cost to consumers.

The non-confidential version of the decision will be published in the State aid register on the competition website under the case number SA.52263. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.