Electricity capacity reserve: the European Commission again investigates in Germany

The beginning of this month once again saw electricity capacity mechanisms catch the attention of the European Commission. The Commission opened an in-depth investigation into a German project in this matter. The planned measure seeks to force network operators to produce two gigawatts of capacity (and maintain it outside the market) in order to ensure the security of electricity supply in case of manifest necessity, partly due to the current changes in the network.

At the moment, the network in Germany is moving towards a low carbon and environmentally sustainable energy supply, and the Commission has doubts as to whether the measure (as it would constitute an electricity strategic reserve) complies with European State aid rules (in particular, the Commission’s 2014 Guidelines on State aid for environmental protection and energy). In fact, payments in return for electricity generation capacity availability constitute State aid if:

  • the measure is launched by the public entities and/or is urged by these authorities;
  • its purpose is to ensure the security of electricity supply; and
  • it grants to suppliers of capacity an additional payment besides the income generated by the sale of electricity.

To be approved by the Commission, these measures should be necessary, appropriate for their purpose and open to all capacity providers, which is apparently not the case here. Indeed, strategic reserves are intended to be used in exceptional circumstances when the electricity market does not manage to deliver enough power to meet all demand. At this stage, the need for such measure  cannot be verified. Furthermore, the measure would not be phased out once the market has been reformed. Finally, the last condition would not be met. The criteria for capacity providers to participate in the reserve would not be sufficiently open, which would for example not permit foreign capacity providers to participate in it.

When publishing its final report on a sector inquiry into capacity mechanisms (November 2016), the Commission announced a close following-up on the capacity mechanisms development. It had already ruled (in October and December 2016) on other types of measures, approving these temporarily. Indeed, the Commission considers that strategic reserves may be appropriate interventions where Member States identify temporary risks, and implemented in the form of transitional measures. They should therefore only be deployed in emergency situations, and to minimize distortions of the market.

During the in-depth investigation, Germany has the opportunity to respond to the Commission’s position in its decision to initiate the formal investigation procedure. This formal decision will be published in the Official Journal of the European Union. On this occasion, the Commission will also invite third parties and the beneficiaries of the measure to submit their observations.

Once it has a complete file at its disposal, the Commission will adopt a final decision on the project measure and send it to Germany, which will have to comply with it.

Marguerite Soete, Junior Associate, marguerite.soete@cms-db.com