Germany’s energy plans to win EU endorsement as Commission unveils new subsidy rules

A month ago, Germany’s plans to partially foot the electricity bills of its most power-hungry firms were dismissed as not standing a chance against strict EU rules banning countries from subsidizing companies.

Soon, all EU countries will get explicit permission to do just that.

On Wednesday, EU competition chief Teresa Ribera will unveil a new rulebook on state subsidies for clean energy, laying out exactly how national governments can channel public money into companies to help them decarbonize.

A fresh clause on “temporary electricity price relief” mechanisms, which appeared in a revised draft of the Clean Industrial Deal State Aid Framework (CISAF) obtained by POLITICO on Friday, essentially validates Berlin’s plans by allowing EU governments to offset electricity costs for energy-intensive players.

It’s a stark example of the way the thinking on national subsidies — known as state aid in EU parlance — has evolved.

Article 107 of the EU treaty prohibits state subsidies by default, in order to stop countries from favoring certain companies or products and distorting competition across the bloc’s single market.

But the Commission recognizes that some of the aid is necessary to achieve greater objectives, and has built out a series of so-called frameworks over the years that spell out exemptions to help these along.

Moreover, Germany’s objectives are important for the Union’s economy. “If Germany sinks, we all go with them,” said a lobbyist for energy-intensive companies, who was granted anonymity to speak candidly ahead of CISAF’s official presentation.

CISAF’s price relief mechanisms for energy — which allow governments to grant reductions of up to 50 percent of yearly average wholesale electricity prices, which cannot be less than €50 per MWh — will benefit not only Germany but also Italy and countries that still rely heavily on fossil fuels, the lobbyist said.

In a letter dated June 19, employer organizations from 10 EU countries including Germany, Italy and Austria lamented that CISAF does not go far enough on support for energy-intensive industries.

France is set to benefit too. Changes since the Commission published the first CISAF draft in March include the introduction of several references to the Net-Zero Industry Act, which France hopes will make it easier to get the Commission’s approval to fund nuclear projects — a big priority for Paris.

French Renew lawmaker Christophe Grudler noted that the latest CISAF version covers a broad number of nuclear technologies, which is “good news for the whole value chain.” The MEP said he had sent several prompts to Ribera to flag inconsistencies in the first draft.

“It was absurd that the [initial] draft covered natural gas, which is imported and polluting, and not nuclear, which is clean and made in Europe,” he told POLITICO.

All in on industrial policy

In the tormented, post-Draghi soul-searching exercise of how to boost the bloc’s productivity, reducing hurdles for national money to flow into industrial projects is a handy — and maybe the only — viable solution.

“There are no real instruments outside of state aid” for the EU to carry out its industrial policy, Lena Hornkohl, a law professor at Vienna University, told POLITICO.

While CISAF is the latest of these frameworks, it may not be the last. The Commission can expand its state aid policy objectives virtually indefinitely as long as they serve the Union’s interest, said Adina Claici, an economist at Berkeley research Group and a former official at the competition directorate’s chief economist team. 

But the Commission’s latest framework is, as always, a careful balancing act between the desperate need for a Union-wide industrial policy and the rules that form the very basis of its single market. 

While the framework aims to simplify and accelerate the approval of support for clean tech and decarbonization projects, “it still maintains key safeguards that apply to all state aid measures — such as the need for an incentive effect and ensuring that support is proportionate and necessary,” said Katarzyna Berestecka, an antitrust lawyer at Norton Rose Fulbright.

Safeguards include capping the amount that EU countries can spend on their industry and adding conditionality clauses. On electricity prices, for example, the conditionality clause requires that companies receiving energy bill relief invest 50 percent of the aid in decarbonization projects. 

The next test will be how CISAF works in practice when funding proposals land on the desks of competition officials, especially regarding larger projects. “There is a risk for the Commission of losing court appeals [from rivals that did not receive state aid] after its decision, so the stakes are high,” Claici said.

Nicolas Camut contributed to this report.