Brussels, 25 July 2001
Commission gives green light to "stranded costs" compensation by Spain, Austria and The Netherlands
The European Commission has decided not to raise objections to measures in Austria, the Netherlands and Spain aiming at compensating power companies for non recoverable costs ("stranded costs") arising from investments or commitments taken prior to the liberalisation of the Community electricity market. The Commission decision also covers measures aiming at ensuring the security of energy supply in Austria and Spain.
The planned compensations for stranded costs in Austria relate to investments in three hydropower projects and a lignite-fired plant: The Freudenau, Mittlere Salzach and Obere Drau hydropower plants and the lignite-fired plant of Voitsberg.
Austria plans to pay compensations of up to 6,27 billion ATS (€ 456 million) for the three hydropower projects and of 1,82 billion ATS (€ 132 million) for the lignite-fired plant. The investments were rendered unprofitable due to the introduction of competition, as foreseen by Directive 96/92/EC of the European Parliament and of the Council concerning the common rules for the internal market for electricity, into the formerly closed Austrian electricity market. The compensations will be paid yearly for the preceding business year. They are financed by contributions of the regional network operators and other customers who historically consumed the electricity produced in the plants which became stranded costs. The longest possible duration of the compensation system is until 31 December 2009.
The Commission concluded that even if the Austrian system of stranded costs compensation included elements of a State aid in the meaning of Article 87(1) of the EC Treaty, the aid would nevertheless be compatible with the EC rules: The notified compensations for certain hydropower plants would comply with its Methodology for analysing State aid linked to stranded costs and might therefore be authorised under Article 87(3)(c) of the EC Treaty, whereas the notified compensations for the Voitsberg lignite plant might benefit from an authorisation as a compensation for a service of general economic interest as regards security of supply according to Article 86(2) EC-Treaty, in the light of Articles 3(2) and 8(4) of the above-mentioned electricity liberalisation Directive.
The planned compensations for stranded costs in the Netherlands relate to long term city heating contracts and the coal gasification plant Demkolec. The stranded costs on city heating will be calculated annually by a fuel price risk analysis. The stranded costs of the Demkolec project will be calculated by an auction of the plant. The duration of the compensation is 10 years and the budget is estimated by the Dutch authorities at around € 600 million in total.
To finance the stranded costs the Dutch authorities originally proposed a surcharge as a percentage of the costs for transport and system services charged on consumers of electricity. However, in June this year the Dutch authorities decided to withdraw this financing mechanism from the notification. The approval is therefore limited to the compensation for these stranded costs by the State and not on any related surcharge.
The Commission concluded that the Dutch system of stranded costs compensation includes elements of a State aid in the meaning of Article 87(1) and that these elements of State aid comply with its Methodology for analysing State aid linked to stranded costs and can therefore be authorised under Article 87(3)(c) of the EC Treaty
The planned compensations for stranded costs in Spain (know as "Costes de Transición a la Competencia" or CTC) relate to past investments in costly electricity production plants on the one hand and a premium for the generation of electricity out of indigenous coal on the other hand.
CTCs have been put in place by the Spanish electrical sector law (Law 54/1997) that transposes directive 96/92/EC. The total amount of CTCs, as was originally foreseen, was € 11951 million. This amount has been since reduced by the Spanish law to € 10438 million. It is spread between a premium for the production of electricity out of indigenous coal (€ 1774 million) and two allocations the sum of which amounts to € 8 664 million, known together as "technological CTCs".
Beneficiaries of technological CTCs are the electricity companies that were covered as of 31 December 1997 by the State tariff fixing mechanism ("Marco Legal Estable") that was in place before the liberalisation of the electricity sector in Spain. These undertakings had invested in electricity production assets in the framework of a non-liberalised electricity sector. Following the liberalisation of the sector, these investments have become non-economic, and have generated stranded costs.
The Spanish law provides for the compensation of these stranded costs. The compensation is linked to the evolution of the market : if the market price for electricity is over the 6 PTAs/kWh price target, the compensations are reduced accordingly.
The stranded costs compensations are financed through a levy on electricity consumption. The scheme ends on 31 December 2010.
On December 1998, the Spanish authorities had modified the law in order to enable the "titulación" of part of the CTCs, that is: the possibility for beneficiaries of the scheme to sell the right to receive the revenues of the CTC levy to third parties. The beneficiaries would have been sure in that case to receive the totality of that part of the CTCs in any circumstance. This possibility, which has never been implemented by the Spanish Government, has been cancelled following the adoption of the 2 February 2001 Real Decreto-Ley 2/2001.
The Commission concluded that even if the Spanish system of stranded costs compensations included elements of a State aid in the meaning of Article 87(1) of the EC Treaty, the aid would nevertheless be compatible with the latter.
Indeed, the technological CTCs are conform with the Commission's Methodology for analysing State aid linked to stranded costs. In particular, the Spanish authorities have provided the Commission with an evaluation of the difference between investment costs and foreseeable future revenues in the case of a 6 PTAs/kWh electricity market price for each of the concerned assets. The hypothesis made for these computations and the computation method have been validated by an independent expert.
As for the premium for the generation of electricity out of indigenous coal, the Commission has deemed that it did not comply with the requirements of its Methodology for analysing State aid linked to stranded costs, but that it might benefit from an authorisation as a compensation for a service of general economic interest as regards security of supply according to Article 86(2) EC-Treaty, in the light of Articles 3(2) and 8(4) of Directive 96/92/EC.