Brussels, 25 July 2001
Commission adopts document on "Methodology for analysing state aid linked to stranded costs" in the electricity sector
The European Commission has adopted a document setting out the principles on which it will assess the compatibility with the Treaty of state aid designed to compensate for long-term investments or commitments that were made by electricity companies when the electricity market was a closed market and have become non-economical as a result of the liberalisation of the sector.
When the electricity market was a closed market, the State fixed prices so as to guarantee the profitability of all investments made by electricity companies.
A large number of these companies, often encouraged by the State, therefore invested in electricity generators or relatively expensive long-term purchase or supply contracts.
The fall in electricity prices to consumers brought about by the liberalisation of the sector could jeopardise the economic viability of these investments or contracts by generating what are generally known as stranded costs. Some companies could be tempted to pass these on in full to their captive customers. Others could find their viability under threat if they provide essential services for individuals or the economy as a whole.
The Commission believes that, in certain cases, this problem, which is peculiar to the electricity sector, justifies the granting of aid to offset losses caused by investments or contracts that have been made non-economic by liberalisation.
Therefore the Commission has adopted an analysis paper setting out the criteria it will use to analyse state aid offsetting stranded costs.
These criteria are intended to ensure that the aid compensates for costs genuinely incurred by the recipient companies and directly linked to the liberalisation of the sector. The aid must be limited in time and take account of developments on the electricity market, particularly market prices. It must help the companies in the sector make the transition to a competitive market.
Aid schemes satisfying the criteria set out in the document on "Methodology for analysing state aid linked to stranded costs" will be approved under Article 87(3)(c) as long as it they comply with all the other relevant Treaty provisions.