What State aid measures are available to the State to help companies in times of energy crisis?
1. Introduction
How to tackle the energy crisis, which is likely to worsen as autumn approaches? A burning question that needs to be properly addressed before the cold days and the looming recession. As a result of increased global demand for energy, the population and businesses in the European market have been facing significant economic uncertainty since autumn 2021 and even more so since the Russian aggression against Ukraine, bottlenecks in trade flows and supply chains, and unprecedented and unexpected price rises as a consequence of increased global demand for energy. Expectations for State actions to mitigate the effects of the energy crisis are high, but State actions must also comply with, among other things, EU State aid rules, under the supervision of the European Commission, which prevent undue distortions of competition and fragmentation of the EU internal market. How can the State help companies to be confident that measures will not be subsequently changed because of late compliance with the European Commission or EU rules, or, even less favourably, that they will not be forced to pay back unauthorised aid in the future?
To help Member States cope with rising energy prices, the European Commission has adopted a set of different tools for action and support, starting in October 2021 with the Communication1, and in March this year with the REPowerEU Communication on Joint European Action for more affordable, secure and sustainable energy (“REPowerEU Communication“) and the Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (“Temporary Framework“). The Temporary Framework was further amended on 20 July 2022.
So, what are the possible and permissible tools for State actions in order to help companies with high energy costs?
2. When does a measure constitute State aid?
Surprisingly at first glance, State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (“TFEU“) is (only) State aid if a State measure is “selective” – meaning if it favours only certain undertakings (sectorally, regionally, by size, purely individually). Non-selective measures, such as general tax or duty reductions, reduced rates for the supply of natural gas, electricity or district heating, or reduced network costs, do not constitute State aid measures2. However, reductions of charges only for certain groups of beneficiaries could already constitute State aid.
Measures in favour of non-commercial energy consumers also constitute State aid only if they directly benefit a particular sector or undertaking. The regulation of retail energy prices is not necessarily State aid, as it does not (necessarily) involve the allocation of State resources to the beneficiaries. In order to constitute State aid within the meaning of Article 107(1) TFEU, there must (inter alia) also be an allocation of State resources or public funds or a waiver of State resources. Member States are also constrained by the rules of the internal energy market when regulating energy prices – Annex 1 of the REPowerEU Communication provides more detailed guidance to Member States on the regulation of energy prices.
3. If it is a State aid measure, what is the possible legal basis for the State to use?
3.1 Aid to make good the damage caused by natural disasters or exceptional occurrences under Article 107(2)(b) TFEU
The European Commission has confirmed that Member States can rely on Article 107(2)(b) TFEU to mitigate the consequences of the Russian aggression against Ukraine. This Article provides for the State aid to compensate for damage caused by exceptional occurrences to be compatible with the internal market, and has already been used by Member States in the preparation of measures to assist the economy in the wake of the COVID-19 epidemic. A State may therefore notify to the European Commission a State aid scheme intended to mitigate the damage directly caused by the Russian aggression against Ukraine, which may also cover the direct effects of economic sanctions or countermeasures imposed which adversely affect the beneficiary of the aid (by reason of the pursuit of an economic activity or of a specific and separable part of its economic activity). The amount of the financial assistance granted cannot exceed the damage caused by the exceptional occurrences in question, as overcompensation is prohibited.
Such aid measures must be notified by the Member States and will normally be assessed directly by the European Commission under Article 107(2)(b) TFEU within a relatively short period of time. According to publicly available European Commission records on 10 August 2022, there are no State aid schemes approved for the purpose of compensation for damage caused by exceptional occurrences (war in Ukraine).3
3.2 Aid to remedy a serious disturbance in the economy of a Member State under Article 107(3)(b) TFEU
Another convenient legal basis for Member States is Article 107(3)(b) TFEU, which makes aid to remedy a serious disturbance in the economy of a Member State compatible with the internal market. In this context, the Courts of the European Union have held that the disturbance must affect the economy of the Member State concerned as a whole or a significant part of it, and not only the economy of one of its regions or parts of its territory.4
It is on this basis that the European Commission adopted the Temporary Framework for more consistent State aid measures in the internal market in the wake of the events in Ukraine. The Temporary Framework thus implies that the European Commission will consider State aid compatible with the internal market if it remedies the lack of liquidity faced by undertakings directly or indirectly affected by the serious economic disruption caused by (i) the Russian military aggression against Ukraine, (ii) the sanctions imposed by the EU or its international partners, and (iii) the economic counter-measures taken, for example, by Russia5. Member States must demonstrate that the State aid measures notified to the European Commission are necessary, appropriate and proportionate to remedy the serious disturbance.6
Member States are already quite active with notifications of State aid schemes under the Temporary Framework – by 5 July 2022, the European Commission has already approved 65 Member State aid schemes (including four in Slovenia).7
- State aid grants with limited amounts
If Member States can demonstrate that the conditions set out in the previous paragraph are met, they may grant aid to undertakings in accordance with the Temporary Framework, provided that the following conditions are cumulatively met8 :
- the total aid per undertaking at any one time does not exceed EUR 500 0009 (except in the case of undertakings active in the primary production of agricultural products and in fisheries and aquaculture, where the maximum aid amounts allowed are EUR 62 000 and EUR 75 000);
- the aid is granted on the basis of a budgeted aid scheme (i.e. not only for the individual firm, but according to a budgeted scheme for the firms concerned);
- the aid is granted until 31.12.2022 at the latest;
- aid is granted to firms affected by the crisis;
- aid granted to undertakings active in the processing and marketing of agricultural products is in principle conditional on it not being passed on in whole or in part to primary producers and is not fixed on the basis of the price or quantity of the products placed on the market by the undertakings concerned or purchased from primary producers.
- Liquidity support in the form of guarantees and subsidised loans
In addition to the grants under point (a) above, countries may also assist companies with debt instruments. In order to ensure access to liquidity for companies affected by the current crisis, State guarantees for loans for a limited period and a limited loan amount and interest rate subsidies for a limited period and a limited loan amount may also be admissible under the Temporary Framework in the current circumstances.10
Slovenia has notified four State aid schemes to the European Commission by 10 August 2022. On 30 June 2022, the European Commission approved a EUR 140 million State aid scheme for companies in all sectors (excluding credit and financial institutions), which will be (or already is for some schemes11) implemented in the form of (i) loans, (ii) subsidised loans and (iii) loans for additional costs due to the sharp increase in natural gas and electricity prices. The scheme, which is effective from the moment of approval, will be administered by SID – Slovenian Export and Development Bank (in Slovene: “SID – Slovenska izvozna in razvojna banka, d.d.”).12
In addition to the above-mentioned State aid scheme for companies, the European Commission has also approved three State aid schemes relating to the agriculture and fisheries sectors, in particular State aid amounting to EUR 2.1 million to the agriculture sector due to the high price of energy used for agricultural machinery on 20 July 2022, the State aid in support of the marine commercial fishing sector due to the high prices of energy consumed to power fishing vessels on 26 July 2022 and the State aid in support of the agricultural sector amounting to EUR 15 million due to the high prices of reproductive material, which is consumed primary for agricultural production on 27 July 2022.
- Aid for additional costs due to exceptionally high increases in the prices of natural gas and electricity
The most attractive option for companies is probably State aid to reimburse the additional costs of natural gas and electricity purchases, which is a further grant aid measure allowed under the Temporary Framework. These State aid measures are also subject to prior approval by the European Commission.
In order to be compatible with the internal market on the basis of Article 107(3)(b) TFEU, State aid resulting from exceptionally high increases in the prices of natural gas and electricity must at no time exceed 30 % of the eligible costs13 and up to a maximum of EUR 2 million per undertaking.14 Member States were invited to include sustainability requirements for the granting of aid for additional energy costs linked to high gas and electricity prices and to consider setting environmental protection or security of supply requirements for the granting of aid.15
Aid for additional costs resulting from exceptionally high increases in the prices of natural gas and electricity may be cumulated with the aid described under point 3.2 a) (State aid grants of limited amounts), provided that the total amount of aid does not exceed EUR 2 million.16 The aid may be granted in the form of direct grants, tax and payment advantages or in other forms such as repayable advances, guarantees, loans and equity. If the aid has been granted in the form of repayable advances, guarantees, loans or other repayable instruments, it may be converted into other forms of aid, such as grants, provided that the conversion is carried out no later than 30 June 2023. 17
- Additional aid for energy-intensive businesses
Additional support to Member States may be admissible to allow the continuation of the activities of energy-intensive enterprises. Energy-intensive enterprises are enterprises whose purchases of energy products (including energy products other than natural gas and electricity) account for at least 3,0 % of the enterprise’s production value.18 On the basis of an appropriate justification submitted by the Member State to the European Commission for its assessment, the production value may be substituted by turnover.19
An energy-intensive enterprise is eligible for additional aid (only):
- where it has an operating loss; and
- the increase in eligible costs (as defined in footnote 20 above) must be at least 50 % of the operating loss for the same period; and
- the total aid does not exceed 50 % of the eligible costs and is limited to 80 % of the beneficiary’s operating losses; and
- the total aid per undertaking may not exceed EUR 25 million at any one time.20
For energy-intensive enterprises active in a sector or subsector listed in Annex I of the Temporary Framework, which includes, for example, the manufacture of leather clothes, manufacture of paper and paperboard, manufacture of fertilisers and nitrogen compounds, the total aid may be increased to a maximum of 70 % of the eligible costs related to the production of products in the sectors or subsectors listed in Annex I and may amount to a maximum of 80 % of the operating losses of these activities. The total aid per undertaking in this case may not exceed EUR 50 million per undertaking at any one time. 21
Additional aid for energy-intensive enterprises may also be cumulated with the general grants referred to in point 3.2(a), provided that the aid does not exceed the ceilings of EUR 25 million and EUR 50 million respectively.
3.3 Aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest under Article 107(3)(c) TFEU
The amendment of the Temporary Framework also proposes two new schemes of State aid measures to Member States, the compatibility of which will be assessed by the European Commission on the basis of Article 107(3)(c) TFEU (compatibility of State aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest). In the interests of urgency, the European Commission is allowing for certain temporary simplifications to be made to the implementation of the support measures.
These are potential State aid measures that do not alleviate the current acute problems of energy companies, but are useful, if not necessary, to contribute to ensuring energy efficiency and diversification of energy supply and to a successful green transition to clean energy in the medium term.
- Aid for accelerating the rollout of renewable energy, storage, and renewable heat relevant for REPowerEU 22
In accordance with Article 107(3)(c) TFEU, the European Commission is using such aid to promote the production of electricity from renewable sources (photovoltaic or other solar energy, wind and geothermal energy), renewable hydrogen, biogas and biomethane from waste and residues, and the storage of electricity, heat and thermal energy from renewable sources.23
The aid may be granted on the basis of an aid scheme of an indicative size and budget, in the form of direct grants, repayable advances, loans, guarantees or tax advantages.24 If the aid is to be granted in the form of contracts for the current payment of the aid, these contracts may not last longer than 15 years after the aided installation has been put into operation.25
Such aid will in principle26 be granted through a competitive tendering procedure which is open, clear, transparent and non-discriminatory and based on objective criteria which are predefined and which minimise the risk of strategic bids, at the latest by 30 June 2023. At least 70% of all selection criteria used to rank bids will have to be defined as aid per unit of environmental protection or aid per unit of energy.27
- Aid for the decarbonisation of industrial production processes through electrification and/or the use of renewable and electricity-based hydrogen fulfilling certain conditions and for energy efficiency measures
The Commission will assess the granting of aid under Article 107(3)(c) TFEU for investments which result in either (i) a significant reduction in greenhouse gas emissions from industrial activities currently dependent on fossil fuels as a source of energy or raw material, or (ii) a significant reduction in energy consumption in industrial activities and processes. 28
The aid must encourage the beneficiary to carry out an investment which, without the aid, he would not have carried out or would have carried out only to a limited extent or in a different way. In any event, the aid intensity must not exceed 40 % of the eligible costs. It may be increased by 10 percentage points for aid granted to medium-sized enterprises and by 20 percentage points for aid granted to small enterprises.29
The aid may be granted until 30 June 2023 at the latest, provided that the installations or equipment to be financed by the investment are completed and fully operational within 24 months of the date of grant, or within 30 months of the date of grant for investments involving the use of renewable hydrogen and electrolysis hydrogen. 30
4. Conclusion
In conclusion, Member States have, also under EU State aid rules, fairly diverse options to provide liquidity and access to finance for companies facing economic challenges in the current energy crisis. It makes sense for the Republic of Slovenia to take advantage of the legal options that already exist in order to help the companies in need, which have been tested and are also used by other Member States. However, it is advisable to notify the European Commission regarding the State aid measures, which are subject to prior approval, as soon as possible, so that they can be made available to businesses in time, in order to ensure that the beneficial effects on the economy as a whole can be realised.
1 Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions – Tackling rising energy prices: a toolbox for action and support (“Communication”).
2 See point 23 of the Temporary Framework.
3 Cf. ec.europa.eu. Competition. Available at: https://ec.europa.eu/competition/elojade/isef/index.cfm?fuseaction=dsp_result&policy_area_id=3 (22. 7. 2022).
4 See point 34 of the Temporary Framework.
5 See point 36 of the Temporary Framework.
6 Cf. point 37 of the Temporary Framework.
7 See ec.europa. Competition policy. Available at: https://ec.europa.eu/competition-policy/state-aid/ukraine_en (22. 7. 2022).
8 Cf. point 41 of the Temporary Framework.
9 Cf. point 41(a) of the Amendment to the Temporary Framework.
10 See point 45 of the Temporary Framework.
11 “In addition, under these programmes, with the exception of the Covid-19 Fund of Funds RRI programme, SID Bank also plans to provide soft loans to clients with state aid under the Temporary Framework for Crisis State Aid Measures in Support of the Economy following Russia’s aggression against Ukraine. The approval of applications for loans with this State aid will be possible for the UN programme without EGF guarantee as soon as we receive the Commission decision on the compatibility of the notified aid scheme with the internal market (expected to start in July 2022), and for the other programmes only after the necessary annexes have been signed with the ministries involved in the implementation of the financial engineering. The EGF guarantee under the OSN programme continues beyond 30.6.2022 and is extended until 31.12.2022, but can only be combined with a soft loan under the de minimis scheme.” Cf. sid.si. Notice. Available at: https://www.sid.si/novice/obvestilo-o-zakljucku-programov-po-zacasnem-okvirju-covid-19 (22.7.2022).
12 ec.europa. State aid: Commission approves €140 million Slovenian scheme to support companies in context of Russia’s invasion of Ukraine. Available at: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3979 (21.7.2022).
13 The eligible costs under this measure are calculated on the basis of the increase in the cost of natural gas and electricity linked to the Russian aggression against Ukraine. The maximum eligible cost is the product of the number of units of natural gas and electricity purchased by the undertaking from external suppliers as final customer during the period from 1 February 2022 and until 31 December 2022 at the latest (hereinafter referred to as the ‘eligible period’) and a certain increase in the price paid by the undertaking per unit consumed (measured for example in EUR/MWh). This price increase is calculated as the difference between the unit price paid by the undertaking in a given month during the eligible period and twice (200 %) the unit price paid by the undertaking on average for the reference period from 1 January 2021 to 31 December 2021.
14 Cf. point 52(f) of the Amendment to the Temporary Framework.
15 See point 24 of the Temporary Framework.
16 Cf. point 52(i) of the Amendment to the Temporary Framework.
17 Cf. point 52(c) of the Amendment to the Temporary Framework.
18 Cf. Article 17(1) in conjunction with Article 11(2) of Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity.
19 Cf. point 53(a) of the Amendment to the Temporary Framework.
20 Cf. point 53(d) of the Amendment to the Temporary Framework.
21 Cf. point 53(e) of the Amendment to the Temporary Framework.
22 REPowerEU aims to rapidly reduce the Union’s dependence on Russian fossil fuels by accelerating the transition to clean energy.
23 Cf. point 53b of the Amendment to the Temporary Framework.
24 Cf. point 53b(d) of the Amendment to the Temporary Framework.
25 Cf. point 53b(f) of the Amendment to the Temporary Framework.
26 The procedure is not compulsory, for example, where the aid is granted in the form of a tax advantage, in so far as it is granted equally to all eligible undertakings operating in the same sector of economic activity and in the same or similar factual situation with regard to the objectives of the aid measure. In addition, a competitive tendering procedure is not compulsory if the aid granted to a single undertaking per project does not exceed EUR 20 million and the beneficiaries of the aid are small projects.
27 Cf. point 53b(g) of the Amendment to the Temporary Framework.
28 Cf. point 53d of the Amendment to the Temporary Framework.
29 Cf. point 53d(n) of the Amendment to the Temporary Framework.
30 Cf. point 53d(i) of the Amendment to the Temporary Framework.
