Commission approves €3.1 billion Spanish State aid support for cogenerated electricity

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The European Commission has approved, under EU State aid rules, a €3.1 billion Spanish scheme to support the production of electricity from new or substantially refurbished highly efficient combined heat and power (‘CHP’) plants. The measure will contribute to the implementation of Spain’s National Energy and Climate Plan, the Clean Industrial Deal and the EU’s energy efficiency targets.

The Spanish scheme

Spain notified to the Commission its intention to support the production of electricity in highly efficient CHP plants. The scheme has a budget of €3.1 billion and will run for 10 years.

The beneficiaries are operators of new or substantially refurbished CHP installations that meet the definition of high-efficiency cogeneration as set out in the Energy Efficiency Directive and are located in Spain. The scheme will support technologies and projects that enable the production of electricity from high-efficiency CHP installations powered by natural gas, bioliquids, biogas and solid biomass. Projects involving natural gas will be required to include the necessary elements and equipment that enable them to use at least 10% renewable hydrogen in volume, to avoid the lock-in of natural gas.

Under the scheme, the aid will take the form of a remuneration premium that consists of two components: (i) compensation for investments, which is determined through competitive auctions; and (ii) compensation for operations, which is calculated and updated quarterly based on market variables (electricity prices, fuel costs, CO₂ prices) according to a transparent methodology.

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. Under the Guidelines, Member States can support energy efficiency through production of electricity in high-efficiency cogeneration, subject to certain conditions.

The Commission found that:

• The scheme facilitates the development of certain economic activities, namely the production of electricity;
• The scheme has an ‘incentive effect’, as the beneficiaries would not carry out the investments in production of electricity in high-efficient CHP to the same extent without the public support;
• The scheme is necessary and appropriate to increase energy efficiency and accelerate the green transition. In addition, the aid is proportionate as it is limited to the minimum necessary. The aid for investments will be granted through open and transparent competitive tenders, while the aid for operations, which is set administratively, will be monitored and adjusted on a quarterly basis;
• The positive effects of the aid outweigh any potential negative effects on competition and trade between Member States. The scheme will support decarbonisation in Spain, in particular by increasing energy efficiency through the production of electricity in high-efficiency CHP, in line with the Clean Industrial Deal, without unduly distorting competition in the EU.

On this basis, the Commission approved the Spanish 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 Guidelines 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.

The Guidelines allow Member States to support the production of electricity from cogeneration plants, 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.

The revised Energy Efficiency Directive of 2023 significantly raised the EU’s ambitions on energy efficiency. It established an EU-wide binding energy efficiency target of reducing EU final energy consumption by 11.7% by 2030, compared to the projected energy use for 2030. 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, set the ground for the ‘Fit for 55‘ legislative proposals presented by the Commission on 14 July 2021. As a result of these proposals, the Commission revised also the Renewable Energy Directive with more ambitious binding annual targets to increase the production of energy from renewable sources at EU level.

For More Information

The non-confidential version of the decision will be made available under the case number SA.114058 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.