European Commission examining German renewable energy law

The European Commission has opened an investigation to examine whether the reduction granted to energy-intensive companies on a surcharge for the financing of renewable energy sources in Germany (the so-called "EEG-surcharge") is compatible with European Union state aid rules.

Germany’s Renewable Energy Law grants energy intensive industries reductions on the levy.

The Commission will also investigate the reduction on the surcharge granted when a supplier sources 50% of his electricity portfolio from domestic renewable electricity, known as the "green electricity privilege."

The opening of the inquiry also provides third parties an opportunity to comment on the measure under assessment, the EC said in statement on Wednesday.

The Commission decided to examine the German law during a preliminary investigation triggered by numerous complaints received from consumers and competitors.

In 2012, German lawmakers substantially amended the EEG-Act. The Commission argues that the amendments changed the structure of German subsidy programs for electricity from renewable sources in such a way that they now constitutes state aid in the meaning of EU rules because they are financed by a resource under the control of the state.

The law is aimed at subsidizing renewable energy, providing feed-in incentives and promoting the development of renewable energy technologies by mandating an energy surcharge from electricity consumers.

The Commission has found that the state subsidies for producers of renewable electricity granted under the law in the form of feed-in tariffs and market premia constitute aid but is in line with the Commission’s 2008 guidelines on state aid for environmental protection.

However, the Commission said two aspects of the EEG-Act may not be in line with EU state aid rules:

  • "The surcharge reduction for energy intensive companies appears to be financed from a state resource. The reduction is available only to undertakings of the manufacturing sector having a consumption of at least 1 GWh/a and with electricity costs representing 14% of their gross added value."
  • "The ‘green electricity privilege’ could possibly result in discriminatory taxation. The reduced EEG-surcharge is available to suppliers only if 50% of the electricity portfolio is sourced from domestic renewable electricity produced in plants that are not already more than 20 years in operation. This seems to discriminate between domestic and imported electricity from renewable sources produced in similar plants."

With regard to the surcharge reduction, the Commssion said the reductions seem to give beneficiaries a selective advantage "that is likely to distort competition within the EU internal market."

The Commission is inviting stakeholders to comment on possible criteria that could be included in the forthcoming state aid guidelines and said it would "carefully examine whether the reductions for energy-intensive companies can be justified and whether they are proportionate and do not unduly distort competition."

The Commission is currently in the process of revising the guidelines on state aid for environmental protection with the aim of promoting electricity from renewable sources in order to achieve the EU’s 2020 targets while also reducing distortions of competition in the electricity market stemming from the state aid granted to renewables.

Addressing the issue of the "green electricity privilege," the EC said it would "examine in more detail whether the discrimination would exist only in so far as the imported electricity has not already benefitted from support in the country of origin."

The EC stressed that Germany and third parties are allowed to comment on the measure under review. The investigation also allows third parties to bring forward information that can help better understand the impact of the surcharge on possible risks of relocation and the impact of the reductions on competition.

The Commssion confirmed in July that it had opened a preliminary investigation into Germany’s controversial renewable energy subsidy policy.

Critics of the German law say the levy exemption for energy-intensive companies — originally mandated due to the possible threat of increased international competition — is actually an unfair competitive advantage over European rivals.

In addition, the rules that determine who can benefit from the discounts are vague and have resulted in questionable practices, such as the exemption of some public transportation companies, including Berlin’s BVG and the MVG in Munich, which operate the citie’s public metro systems, that clearly do not face international competition in Germany.

Vattenfall Europe Mining, a subsidiary of Swedish giant Vattenfall – the third largest electricity producer in Germany — which operates several brown coal, or lignite, mines, has also benefitted from the surcharge exemption, prompting many to question the stated goals of the renewable energy law as lignite is largely considered one of the most polluting forms of coal.