Important State Aid Decision: European Court of Justice Upheld Germany`s Renewable Energy Law - Case Comment C-405/16 P Germany v Commission

The Court of Justice today annulled earlier decisions of the European Commission and of the General Court, which ruled that the German Renewable Energy Law (EEG) constitutes state aid. Today´s ruling exonerates Germany from all charges of wrongful practices under EU state aid rules. The case reaches beyond energy law and opens the door towards a new definition of state aid. The ruling allows for more flexibility of Member States when designing energy law frameworks.

The case revolved around the German EEG in its form of 2012. According to the decision, the Court of Justice is of the view that the German EEG of 2012, which featured considerable subsidies for producers of renewable energy and effectively distributed the costs of these subsidies amongst electricity consumers via the renewable energy surcharge on their electricity bill, did not conflict with EU law. This appeals-ruling is remarkable, given that both the European Commission in its decision of 25 November 2014 and the General Court in its ruling of 10 May 2016 came to a different conclusion.

The case was concerned with the mechanism of the EEG 2012 to ensure that producers of renewable electricity receive a higher price than the market price. To finance the higher price a renewable energy surcharge was imposed on electricity suppliers that supply final consumers. In practice, the supply companies passed this surcharge on to the final customers, which led to increases in electricity bills and at its highest point, the surcharge made up 20-25 per cent of the total electricity bill of a final electricity customer in Germany.

The crux of the case was that the renewable energy surcharge of the EEG 2012 was not equally applicable to all final customers. ` Energy intense´-industries in the manufacturing sector were eligible for a cap on that surcharge. The idea was to maintain international competitiveness of energy-intense industries, but in practice it created perverse incentives, leading to cases where meat-processing companies were granted this benefit by the German minister of economics, whereas initially the cap was thought for producers of steel and aluminium as well as the chemical industry. The practice was only stopped in 2014.

While approving the EEG 2012 to a large extent in November 2014, the Commission found that the payments above market price constituted state aid (albeit licit) and that the same goes for the exemption from the surcharge for energy intense manufacturers. Although the Commission took the view that the exemption, for its better part, was compatible with EU law, it ordered recovery of a limited part of the reductions. In the following German companies complied with the decision of the Commission and paid the renewable surcharge ex post.

The German government, however, challenged the decision of the Commission in front of the General Court, but in 2016 the General Court decided to dismiss Germany`s action and decided in favour of the Commission. Germany appealed this decision and the result is today`s judgement of the Court of Justice in which it says that the General Court was wrong to find that the funds generated by the renewable energy surcharge constituted state resources. As a consequence of this finding, a crucial factor for the qualification of advantages resulting from the EEG 2012 mechanisms as `aid´ in the legal sense of EU state aid rules is missing.

The Court of Justice bases this assessment on two observations:
 1) the surcharge was payable by suppliers, not final customers. That the suppliers `de facto´ handed the surcharge to their final customers was not sufficient to qualify it as a levy.
2) The State held no disposal over the funds, as they were payable to the Transmission System Operator (TSO), who was legally obliged to sell the EEG-supported electricity. The state also did not exercise public control over the TSOs who were responsible for managing the funds.

The Court argued that, in particular, the latter point was crucial: the EEG 2012 stipulated that the surcharge funds are allocated exclusively to the financing of the support and compensation schemes. The state was not entitled to allocate these funds and also was not able to re-allocate them. The General Court argued in the initial judgement that the state at least had to monitor these funds, but according to the Court of Justice, this does not automatically mean that there is public control over these funds.

The judgement will have repercussions for the general definition of ´state aid´. In the current case Germany succeeded with its argument that no public resources were involved, but that the state only established the ´rules of the game´ under the EEG. The construction of the EEG 2012 meant the surcharge as well as the exemption from it could not be classified as state resources. The ruling will, thus, have broader repercussions beyond renewable energy legislation and allows Member States more flexibility in the design of legal frameworks that avoid the issues and pitfalls of a classification of a surcharge as ´state aid´.


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