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European Commission - Press release

State aid: Commission clears German Network Reserve for ensuring security of electricity supply

Brussels, 20 December 2016

The European Commission has approved under EU state aid rules German plans to put in place for four years a reserve to ensure sufficient electricity capacity in Southern Germany (the Network Reserve).The measure maintains security of supply without unduly distorting competition in the Single Market.

In July 2016, Germany notified to the Commission plans for paying power plants in order to establish a Network Reserve to the Commission, to assess their compliance with EU state aid rules. Under the scheme, German transmission system operators pay operators of power plants that have notified their intention to close down but that are relevant to keep the electricity system in balance, for remaining available to the network. In addition, foreign power plants located for instance in Austria and Italy can also be contracted and subsequently required to increase or decrease production to keep the grid in balance if so instructed by the transmission system operator.

The domestic power plants are granted a cost-based remuneration, whereas the foreign plants are selected on the basis of a call for interest. The German energy regulator Bundesnetzagentur has estimated the costs of the Network Reserve to amount to € 126 million in 2016. The transmission system operators can pass these costs on to network users via the network tariffs.

The Commission considers that the Network Reserve constitutes a type of strategic reserve and hence a capacity mechanism. The Commission's 2014 Energy and Environmental Aid Guidelines allow Member States to put in place such measures under certain conditions. The Commission has found that in the case of Germany, State intervention is necessary in view of severe internal congestion in the German electricity grid that prevents sufficient power flows from Northern to Southern Germany. As Germany has committed to undertake substantial investment in its grid infrastructure to relieve the congestion and ultimately make the Network Reserve redundant, the Commission has approved the scheme as a temporary measure until June 2020.

In order to remove the necessity for the Network Reserve in the future, Germany will also implement a number of additional measures to improve congestion management by the transmission system operators. Most notably, Germany has committed to support the review of bidding zones undertaken by the European Network of Transmission System Operators for Electricity (ENTSO-E) and to take into account its outcome, including the possibility of different bidding zones within one Member State.

 

Background

Capacity mechanisms are measures designed to ensure electricity security of supply. Typically, capacity mechanisms offer additional remuneration to electricity capacity providers, on top of income obtained by selling electricity on the market, in return for maintaining existing capacity or investing in new capacity required to guarantee the security of electricity supplies. This additional remuneration may have an impact on competition in the internal electricity market and has to be assessed under EU state aid rules.

The Commission concluded a state aid sector inquiry into capacity mechanisms on 30 November 2016. The final report highlighted that capacity mechanisms must target a genuine adequacy need and must be designed in such a way as to deliver security of supply at least cost to consumers. In particular, the sector inquiry found that inefficiently defined bidding zones create distortions both within a country and across borders, and concluded that an appropriate definition of bidding zones is likely to be the most efficient way to avoid the need for costly re-dispatching.[1]

The non-confidential version of the decision will be published in the State aid Register on the Commission's competition website once any confidentiality issues have been resolved. It will be available under case number SA.42955.

 

[1] SWD (2016) 385 final, paragraphs 83 and 109-114.

IP/16/4472

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