On 20 July, the European Commission (“Commission“) amended its state aid Temporary Crisis Framework (TCF), which was initially adopted on 23 March 2022, to make it easier and quicker for member states to support companies affected by the consequences of the war in Ukraine, including companies affected by rising energy prices, in compliance with EU state aid rules.
The amended TCF clarifies certain aspects of the initial TCF and increases the ceilings for small amounts of aid that can be swiftly approved by the Commission.
It now also applies to member states’ support measures for the accelerated deployment of renewable energy and for the decarbonization of industrial processes granted until 30 June 2023 in line with the objectives of the REPowerEU.
In addition, it complements the Winter Preparedness Package1 by including guidance on aid to companies affected by mandatory gas curtailment and on support for voluntary demand reduction and for the filling of gas storage.
- The amended TCF increases the limited amounts of aid that the Commission will approve for companies affected by the crisis in Ukraine and clarifies certain aspects of the TCF.
- The amended TCF now also includes aid granted before 30 June 2023 for the following:
- Accelerated renewable energy deployment
- Aid for the decarbonization of industrial production processes that lead either to a reduction in greenhouse gas emissions or to a reduction in the energy consumption of the installation concerned
- Finally, the TCF also provides guidance on the conditions under which the Commission will quickly approve the following additional types of aid contributing to the Winter Preparedness Package:
- Support to incentivize voluntary gas demand reductions
- Support for companies affected by mandatory gas curtailmentSupport for the filling of gas storages
- Transitory and time-limited support for fuel switching to more polluting fossil fuels subject to energy efficiency efforts, avoiding lock-in effects
In more detail
On 20 July, the Commission amended the state aid TCF adopted on 23 March 2022 to support the economy in the context of Russia’s invasion of Ukraine.2
The Commission thus revised the rules under which member states may support businesses affected by the consequences of the invasion of Ukraine (section 1).
It also introduced dedicated frameworks to swiftly approve the support measures contributing to the objectives of the REPowerEU3 and the Winter Preparedness Package:4
- Support measures to accelerate the deployment of renewable energy (section 2)
- Support measures to encourage the decarbonization of industrial processes using electricity from renewable energy sources or hydrogen (section 3)
- Support measures to encourage the reduction of gas demand and the storage of gas, and support measures to compensate companies affected by an obligation to reduce their gas consumption (section 4)
1. Amendment of the existing TCF
The amendment increased the maximum aid amounts that the Commission will approve under the TCF for companies affected by the consequences of the invasion of Ukraine from EUR 35,000 to EUR 62,000 in the agriculture sector and EUR 75,000 in the fisheries and aquaculture sectors. Companies active in all other sectors can now receive aid of up to EUR 500,000 (increased from EUR 400,000).
The amendment explains that aid to companies affected by soaring energy prices should be reconciled with the objective of gradually reducing gas consumption in the EU. To this effect, the conditions under which the Commission will approve such now provide that, from 1 September 2022, the amount of energy consumed by a company in 2022 that can be supported (i.e., the eligible costs) cannot be more than 70% of the energy consumed by the company in 2021. This new limitation of available maximum support is intended to incentivize these companies to reduce their gas consumption.
2. Support measures to accelerate the deployment of renewable energy
The Commission will swiftly approve, on the basis of the TCF and Article 107(3)(c) TFEU, aid for the promotion of electricity from renewable sources, renewable hydrogen, biogas and biomethane from waste and residues,5 electricity and thermal energy storage and renewable heat under the following conditions:
- The aid is granted in the form of a direct grant, repayable advances, loans, guarantees or tax benefits.
- The aid is granted on the basis of a scheme with an estimated volume and budget.
- The aid is granted by 30 June 2023 at the latest and the installation is completed and in operation within 24 months after the date of granting (30 months for aid to offshore wind and renewable hydrogen installations).6
- Where the aid is granted in the form of ongoing payments, those cannot last for more than 15 years.
- Aid to projects exceeding a certain size should be granted following a competitive bidding process.7 If not, the aid amount must be limited to 45% of the total investment cost, 55% if the beneficiary is a medium-size company or 65% if the beneficiary is a small company.
The amended TCF thus provides for more simple requirements than those provided for in the CEEAG8 and allows member states to obtain faster approval from the Commission. In particular, the TCF will allow member states to set up aid schemes without necessarily resorting to competitive procedures; they will be able to set up the scheme for a duration of 15 years (rather than 10 years under the CEEAG) and will not be bound by certain public consultation requirements and periodic review obligations.
3. Aid for the decarbonization of industrial production processes through electrification and/or the use of renewable and electricity-based hydrogen
The TCF also introduces a clear set of rules to swiftly assess aid for the decarbonization of industrial processes, while in the CEEAG such support measures do not have a dedicated framework and are to be assessed as an “aid to decarbonization,” i.e., like the aid to renewable energy deployment.
On the basis of the TCF and Article 107(3)(c) TFEU, the Commission will swiftly approve support measures for investments that reduce the direct greenhouse gas emissions of an industrial facility by 40%, or its energy consumption by at least 20%, provided that these support measures meet the following conditions:
- The aid is granted on the basis of a scheme with an estimated budget, and the maximum individual aid amount that may be granted to a company does not to exceed 10% of the total budget available.
- It is granted in the form of direct grants, repayable advances, loans, guarantees or tax advantages.
- It is not used to finance an increase of the overall production capacity of the beneficiary.
- It is granted for investments for which works started as of 20 July 2022.
- Where the aid is granted for an industrial decarbonization investment involving the use of renewable hydrogen, the member state ensures that the hydrogen used is produced from renewable energy sources in accordance with the methodologies set out in the Renewable Energy Directive.
- If the industrial production process is covered by the EU ETS, the supported investment leads to a reduction in the beneficiary installation’s greenhouse gas emissions going below a certain threshold.9
- The eligible costs are limited to the difference between the costs of the aided project and the cost savings or additional revenues, compared to the situation in the absence of the aid, over the lifetime of the investment.
- The aid intensity does not exceed 40 % of the eligible costs. The aid intensity may be increased by 10 percentage points for aid granted to medium-sized companies and by 20 percentage points for aid granted to small companies. The aid intensity may also be increased by 15 percentage points for investments delivering a reduction of direct greenhouse gas emissions of at least 55% or of energy consumption of at least 25% compared to the situation prior to the investment. Instead of applying those maximum intensities, the investment aid may be granted in a competitive bidding process that is open, clear, transparent and non-discriminatory.
- 4. Support measures for voluntary or mandatory gas demand reduction
On 26 July, the European Council reached agreement on a proposed regulation establishing gas reduction targets on member states.10In this context, the TCF now also offers swift state aid approval for member states’ measures compensating companies for damages directly caused by mandatory reductions in natural gas consumption, provided there is no overcompensation.11The TCF also offers swift state aid approval for member states’ measures incentivizing companies to reduce their gas consumption voluntarily. These measures will be assessed on a case-by-case basis by the Commission, which will take into account whether the aid is granted on the basis of a competitive bidding procedure, whether it leads to restrictions on cross-border flows, whether it has an incentive effect, and whether it leads to an immediate and effective reduction in gas consumption.
Member states may also consider measures to encourage gas storage, which will be assessed on a case-by-case basis by the Commission, taking into account whether they are granted on the basis of a competitive procedure, if they do not lead to restrictions on cross-border trade and if they are in line with the provisions relating to the filling targets of natural gas storage facilities.12The Commission will consider on a case-by-case basis support measures for the refurbishment of facilities that will contribute to replacing gas, before the next winter and for a limited period of time, with another more polluting carbon fuel. The Commission lays down the following conditions:
- The alternative carbon fuel must have the lowest possible emissions content.
- The aid must be subject to energy efficiency efforts.
- It must avoid lock-in effects beyond the crisis.
- The aid can be granted to respond to a mandatory curtailment in natural gas demand, unless these restrictions are otherwise compensated.
1. See Winter Preparedness Package (available here), which aims to ensure a coordinated approach on gas demand reduction throughout the EU in order to prepare for a possible disruption of natural gas supplies from Russia.
2. See First Amendment of the Temporary Crisis Framework, available here. The Temporary Crisis Framework as adopted on 23 March 2022 is available here, and our analysis thereof is available here.
3. The REPowerEU package was presented by the Commission on 18 May 2022 and is available here.
4. See Winter Preparedness Package (available here), which aims to ensure a coordinated approach on the gas demand reduction throughout the EU in order to prepare for a possible disruption of natural gas supplies from Russia.
5. This only covers production of biogas and biomethane from waste and residues, compliant with the EU sustainability criteria pursuant to Article 29 to Directive (EU) 2018/2001 and with Regulation (EU) 2018/841.
6. Where this deadline is not met, 5% of the amount of aid awarded must be reimbursed or reduced each month after the first three months of delay, increasing to 10% per month of delay.
7. See point 53ter (h) of the revised TCF.
8. See the Commission Guidelines on state aid for climate, environmental protection and energy 2022 C/2022/481, available here.
9. I.e., the aid must lead to a reduction in the beneficiary installation’s greenhouse gas emissions going below the relevant benchmarks for free allocation set out in Commission Implementing Regulation (EU) 2021/447.
10. See the political agreement on the Council Regulation on coordinated demand reduction measures for gas, available here.
11. It is not clear whether this provision covers only the mandatory reduction envisaged in the Proposal for a Council Regulation on coordinated demand reduction measures for gas, or if it covers any mandatory restriction that would be imposed by a member state.
12. See Regulation (EU) 2022/1032 of 29 June 2022, OJ L 173, 30.6.2022, p. 17.