The new state aid guidelines on climate, environmental protection and energy regarding Infrastructure

On 7 June 2021 the Commission published for consultation the draft revised Guidelines on State aid for climate, environmental protection and energy 2014-2020. The deadline of the consultation was set to 2 August 2021. Multilateral meetings with the Member States and the Commission started in July 2021 and was regularly held during that autumn. The College of Commissioners endorsed the Guidelines (hereafter referred to as the CEEAG) on 21 December 2021 and the formal adoption was on 27 January 2022.

The EFTAs Surveillance Authority (ESA) has been very effective and CEEAG with its Annexes was adopted by ESA Decision No 029/22/COL of 9 February 2022. In accordance with the ESA Decision, ESA will apply these guidelines to assess the compatibility of all notifiable aid for climate, environmental protection and energy awarded or intended to be awarded from 9 February 2022. Unlawful aid will be assessed in accordance with the rules applicable at the date on which the aid was awarded.

It is also to note that it is stated in the preamble to the ESA Decision that CEEAG may refer to certain European Union policy instruments and to certain European Union legal acts that have not been incorporated into the EEA Agreement. With a view to ensuring uniform application of state aid provisions and equal conditions of competition throughout the EEA, ESA will generally apply the same points of reference as the Commission when assessing the compatibility of aid with the functioning of the EEA Agreement. We raise concern with such a statement since the two-pillar structure provides for that ESA as a general legal principle only have the mandate to regulate acts which are incorporated into the EEA Agreement and has entered into force in accordance with Article 103 of the EEA Agreement if constitutional requirements have been raised of one of more of the EEA Member States.

In the Fit-for-55 package the different Norwegian ministries have set national consultation deadlines to gather stakeholders' views before their own consultation reply would be elaborated and sent to the Commission. This is very much appreciated and creates engagement and democratic processes. However, concerning the consultation process of the CEEAG, not any national consultation was held and there was not any transparency with the process. A lack of engagement and transparency is even more concerning since state aid guidelines as a main rule will not be incorporated into the EEA Agreement, but by ESA's decisions will be made directly applicable for the EEA Member States. Moreover, regarding the multilateral meetings with the Commission several Norwegian ministries were invited to participate as observers with due regard to Article 100 of the EEA Agreement. One of the authors of this newsletter has participated in such meetings and is aware of that revised sections of the different revised state aid guidelines are discussed at every meeting. To promote more engagement and democratic processes it is therefore proposed that a public platform could be created where the relevant ministries could gather feed-back from interested parties. If the draft as such would be seen as too confidential, it is always possible to ask specific questions on such a platform regarding the on-going discussions.

The main driver for the revision of the CEEAG was to deliver the Green Deal, ensuring the alignment and coherence with relevant EU legislation in the environmental and energy fields at the same time facilitating the phasing out of subsidies for fossil fuels. We will in this newsletter focus on the CEEAG's application on infrastructure, but also take a wider perspective since it is of outmost importance to have an overview of the vast proposed climate and energy legislation by the Commission the recent years. We will therefore also shorty comment upon relevant proposed and adopted legal framework which could influence the building out on infrastructure and a need for public support.

Focusing on the CEEAG and infrastructure, it is section 4.9 which gives the relevant guidance. Section 4.9 has several references to projects of Common Interest which is defined in the TEN-E Regulation 347/2013. This act and its revision will be briefly discussed later in this newsletter.

First, it is to note that section 4.9 states in point 373 that in line with the Notion of State Aid (OJ C 262, 19.7.2016) support to energy structure within the framework of legal monopoly is not subject to state aid rules, in the energy sector particularly relevant where exclusively reserved by law for the TSO and DSO. Sections 374 and 375 further set the criteria for legal and natural monopolies. Shorty described the definitions of such legal and natural monopolies are for the situations where the TSO and DSO are legally or de facto entitled to make a certain type of investment or activity operating the infrastructure in question. In addition, the legal and natural monopoly excludes the competition on the market and there is not any cross-subsidization by activities and operation in other geographical or product markets. Regarding natural monopolies there is also a reference to that alternative financing in the network, in addition to the network financing, have to be insignificant in the Member State concerned.

We raise the question and the concern whether this will create clarity and an equal-level-playing field on development regarding infrastructure amongst others on offshore wind. There could be foreseen different ownership structures with private capital. The Clean Energy Package and the Third Gas Liberalisation Package set forth different ownership unbundling structures. We ask whether CEEAG sets forth a regulatory framework which creates a preferential regulatory regime of legal and natural monopolies to not have to notify since such projects are not defined as state aid. On the other hand, different ownership structure might then be found to be state aid and will then have the regulatory insecurity and the admin of notifying which does not create an equal-level-playing field. With reference to the different unbundling systems, we have the transmission system operator with ownership unbundling (TSO) often in Europe designated to be the state TSO. One can also choose and independent system operator (ISO) or an independent transmission operator (ITO). All these unbundling possibilities were introduced with the Third Package both for the power and the gas sector now incorporated into the EEA Agreement. It is however to note that in the Hydrogen and Decarbonisation Package presented on 15 December last year by the Commission, the ITO solution is no longer possible. The point put forward is that CEEAG should not create any preferential systems that prevent different ownerships models to emerge. The green transition is in need for flexibility due to the enormous investment required to reach the climate goals by 2030 and 2050.

Regarding the requirement of minimization of distortion of competition and trade on infrastructure, the CEEAG seem to distinguish between regulated assets and partially or fully exempted infrastructure. In general, to finance the infrastructure user tariffs is in general the financial instrument. By setting a tariff and socializing the cost, it is the end-consumers who will pay the bill. A regulated infrastructure will also in addition to tariffs have third-party access rules and other requirements. Regarding the power market, the Norwegian interconnectors are regulated infrastructure where tariffs have been the way of financing these assets. The CEEAG points to the situations where the granting of State aid is a way to overcome market failures which cannot be fully addressed by means of compulsory user tariffs. For fully regulated infrastructure the CEEAG states that the Commission considers that for projects of common interest as defined in Article 2, point (4), of Regulation (EU) No 347/2013, the market failures in terms of coordination problems are such that financing by means of tariffs may not be sufficient and State aid may be granted. For infrastructure which are partial or fully exempted the Commission will perform a case-to-case assessment with criteria imbedded in the CEEAG.

It is also important to note that the General Block Exemption Regulation (GBER) is also under revision. The consultation period was set by the Commission from 6 October 2021 to 8 December 2021. We refer to the following Commission proposal: “Aid for energy infrastructure that is partly or fully exempted from third party access or tariff regulation in accordance with internal energy market legislation shall not be exempted under this Article from the notification requirement of Article 108(3) of the Treaty". Moreover, it is also of interest the following suggestion from the Commission: "Aid for gas infrastructure shall only be exempted from the notification requirement of Article 108(3) of the Treaty where the infrastructure in question is dedicated to the use for hydrogen and/or for renewable gases, or mainly used for the transport of hydrogen and renewable gases. The eligible costs shall be the [total] investment costs. The aid intensity may reach up to 100 % of the funding gap". We raise the concern that if projects can be fully exempted from notification in the future revised GBER, but due to the timing of the adoption of this act, the consequence might lead to delays for important projects in the green transition.

Looking at the proposed legislation that will interact with CEEAG, particularly the different proposals for Fit-for-55, one important act is the proposed revision of RED II. The European binding target of 40 % will push for the renewable sector to develop, and so will the sub targets amongst others for transport and industry. The proposed Article 4 is of high importance: "By 31 December 2025, each Member State shall agree to establish at least one joint project with one or more other Member States for the production of renewable energy. The Commission shall be notified of such an agreement, including the date on which the project is expected to become operational. Projects financed by national contributions under the Union renewable energy financing mechanism established by Commission Implementing Regulation (EU) 2020/129425 shall be deemed to satisfy this obligation for the Member States involved". Noteworthy is that not any joint projects have been developed between Member States until today. The only joint support scheme is the certification system between Norway and Sweden which Norway has decided to leave. It is therefore expected that this might be a too ambitious proposal, but it gives a signal of how the EU will work facilitating that member states to cooperate. It is also to note that for offshore energy that the Commission has put forward the following proposal: "Member States bordering a sea basin shall cooperate to jointly define the amount of offshore renewable energy they plan to produce in that sea basin by 2050, with intermediate steps in 2030 and 2040. They shall take into account the specificities and development in each region, the offshore renewable potential of the sea basin and the integrated national energy and climate plans submitted pursuant to Article 14 of Regulation (EU) 2018/1999.’; importance of ensuring the associated integrated grid planning. Member States shall notify that amount in the updated". We see here that the Commission is of the opinion that the only way forward is with cooperation and coordination.

Finally, a few words will be said on the revision of TEN-E Regulation 347/3013. Concrete infrastructure projects can regarding this Regulation be defined as Projects of European Common Interest. If classified a such a project, companies concerned can come on a list called the PCI list. Norwegian companies have enjoyed such status. By beeing listed here, the project in question will enjoy faster concesssion procedures, simplified regulatory processes and possibly financial support through Connecting Europe facility (CEF). One of the authors of this newsletter was part of the drafting team in the Commission for CEF. The revision of the TEN-E Regulation was impacted by 3 EU strategies: The Offshore Renewable Energy Strategy, the Strategy of Sector Integration and the Hydrogen Strategy. The revision of TEN-E Regulation was launched by the end of 2019 by the Commission. The European Parliament and the Council have discussed this act and reached a political compromise in December 2021. This political compromise is much related to the development of the hydrogen and the offshore wind market.

With regard to offshore grid planning, Member States will plan their offshore grids based on national policies and plans, agreement under this chapter will be voluntary and non-binding. National competent authorities will decide to jointly designate a unique point of contact per project of common interest for project promoters. It also to be pointed out that also radial connections will be able to apply for PCI status and financing, however, only if the project will be designed to transfer electricity from offshore generation sites with capacity of at least 500 MW. Regarding hydrogen, electrolysers with the threshold of 50 MW, provided by a single electrolyser or by a set of electrolysers that form a single, coordinated project cam apply for a PCI status. Electrolyser projects will not be eligible for grant for works.

Looking at the TEN-E Regulation, this has never been part of the EEA Agreement. The Trans-European Infrastructure for transport, energy and telecom was first mentioned in the Maastricht Treaty. TEN-E and Connecting Europe Facility (for energy) were not considered EEA relevant. However, several Norwegian companies have still enjoyed a PCI status. It is also to underline that TEN-T was incorporated into Protocol 31 of the EEA-Agreement.

The Green transition is a great opportunity for Norway and Norwegian undertakings to lean-in. As for TEN-T, the revised TEN-E Regulation could be also incorporated into Protocol 31 of the EEA-Agreement as a climate agreement between Norway and the EU and as such not EEA-relevant. We could use the discretion in CEEAG to give state aid for the projects under the territory of Norway without incorporating the Connecting Europe Facility into the EEA Agreement. If the Norwegian government does not give Norwegian companies this possibility, the project in question could only be seen as a Project of Mutual Interest which probably was set due to Brexit and the failed energy negotiations between the EU and Switzerland. The criteria to fall under this concept was in fact much stricture proposed by the Commission for instance the project in question had to a have a positive benefit for at least to two Member States and not funding was proposed allowed for a third country. In the political compromise the criteria for projects of mutual interest will need to demonstrate that they bring significant benefits either directly or indirectly (via interconnection with a third country) at the Union level. The third country or countries involved will also need to demonstrate legal enforcement mechanisms to support the overall policy objectives of the Union. Limited Union financing for third countries will be possible in accordance with the provisions of the CEF regulation.

Finally, it is also to take duly note of that the CEEAG refers to Taxonomy. The Commission and ESA will therefore be obliged in all their decision to "pay particular attention to Article 3 of Regulation (EU) 2020/852". Not only will the private capital be turned in accordance with the Taxonomy, but also all public support will be assessed in accordance with this financial legal tool.

As addressed in CEEAG: The 2030 policy targets require EUR 390 billion in additional annual investment. We say: let us utilize all the legal tools we could have available in Norway in order to be properly prepared and to attract sufficient investments to build the Green Norwegian House.