State aid: Commission approves €401 million Czech scheme to promote green district heating

The European Commission has approved, under EU State aid rules, a €401 million Czech scheme to promote green district heating based on renewable energy and waste heat. The measure will contribute to the implementation of Czechia‘s National Energy and Climate Plan and to the EU’s strategic objectives relating to the European Green Deal.

The Czech scheme

Czechia notified the Commission of its intention to introduce a €401 million scheme to promote the decarbonisation of heat generation units connected to district heating systems. The scheme will run until 31 December 2025.*

The scheme will support the installation of new renewable heat generation units based on biomass and waste with a capacity above 500 kW. The scheme will be open to owners of heat generation installations holding a heat energy production licence and producing heat from (i) biomass, or (ii) waste that is considered a renewable energy source within the meaning of the Renewable Energy Directive. In the case of heat generation based on waste, projects are required to respect the waste hierarchy principle in order to be eligible. Under the scheme, the aid will take the form of a green bonus to heat generators for each gigajoule of heat supplied to the heat distribution system.*

The scheme is expected to support the installation of approximately 345 MWt of renewable heat generation capacity.

The Commission’s assessment

The Commission assessed the scheme under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the EU (‘TFEU’), which enables Member States to support the development of certain economic activities subject to certain conditions, as well as under the 2022 Guidelines on State aid for climate, environmental protection and energy.

The Commission found that:

• The aid is necessary and appropriate for the decarbonisation of the district heating sector in Czechia and that it has an ‘incentive effect’. As fossil fuels have a cost advantage over renewable heat, in the absence of aid, investments in new heat generation facilities would be based on natural gas, potentially without the combined production of electricity, resulting in lower levels of energy efficiency.
• The aid is proportionate and limited to the minimum necessary. The level of aid is based on the funding gap quantification for a reference project. In addition, the support for heat generation will be subject to annual monitoring by the authorities and adjusted to ensure that the funding gap is not exceeded.
• The positive effects of the aid on the decarbonisation of district heating systems in Czechia outweigh any potential negative effects on competition and trade between Member States. The scheme will support the decarbonisation of the district heating sector in Czechia, in particular increasing the use of renewable energy in the heating and cooling sector, in line with the European Green Deal, without unduly distorting competition in the Single Market.

On this basis, the Commission approved the Czech scheme under EU State aid rules.

Background

The Commission’s 2022 Guidelines on State aid for climate, environmental protection and energy provide guidance on how the Commission will assess the compatibility of environmental protection, including climate protection, and energy aid measures which are subject to the notification requirement under Article 107(3)(c) TFEU.

The new guidelines, applicable as from January 2022, create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner. The rules involve an alignment with the important EU’s objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and will cater for the increased importance of climate protection. They include sections on energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, as well as measures to ensure security of energy supply, subject to certain conditions.

The guidelines allow Member States to support the production of heat from cogeneration plants linked to district heating sector, subject to certain conditions. These rules aim to help Member States meet the EU’s ambitious energy and climate targets at the least possible cost for taxpayers and without undue distortions of competition in the Single Market.

With the European Green Deal Communication in 2019, the Commission reinforced its climate ambitions, setting an objective of net zero emissions of greenhouse gases in 2050. The European Climate Law in force since July 2021, which enshrines the 2050 climate neutrality objective and introduces the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, sets the ground for the ‘Fit for 55‘ legislative proposals presented by the Commission on 14 July 2021. Among these proposals, the Commission has presented amendments of the Renewable Energy Directive and the Energy Efficiency Directive with more ambitious binding annual targets to increase the production of energy from renewable sources and reduce energy use at EU level.

The waste hierarchy principle is a guiding principle of waste management in the EU. It was established in the Waste Framework Directive which defines the waste hierarchy as the priority order of operations to be followed in the management of waste: prevention, preparing for reuse, recycling, other recovery (including energy recovery), and disposal.*

The non-confidential version of the decision will be made available under the case number SA.104685 in the State aid register on the Commission’s Competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.