Commission approves Spanish state aid for electricity cogeneration

The European Commission has approved, in accordance with EU state aid rules, a €3.1 billion Spanish programme to support electricity production from new or substantially refurbished high-efficiency combined heat and power (CHP) plants. This measure will contribute to the implementation of Spain’s National Energy and Climate Plan, the Clean Industrial Pactand theEU’senergy efficiencytargets.

The Spanish plan

Spain notified the Commission of its intention to support electricity production in high-efficiency cogeneration plants. The programme has a budget of €3.1 billion and will run for 10 years.

The beneficiaries are operators of new or substantially renovated cogeneration facilities that meet the definition of high-efficiency cogeneration set out in theEnergy Efficiency Directiveand are located in Spain. The programme will support technologies and projects that enable electricity production from high-efficiency cogeneration facilities fuelled by natural gas, bioliquids, biogas and solid biomass. Projects using natural gas must include the necessary elements and equipment to enable them to use at least 10% renewable hydrogen by volume, in order to avoid dependence on natural gas.

According to the plan, the aid will take the form of a remuneration premium consisting of two components: (i) compensation for investments, which is determined through competitive auctions; and (ii) compensation for operations, which is calculated and updated quarterly based on market variables (electricity prices, fuel costs, CO₂ prices) in accordance with a transparent methodology.

The Commission’s assessment

The Commission assessed the programme under EU state aid rules, in particularArticle 107(3)(c)of the Treaty on the Functioning of the EU (TFEU), which allows Member States to support the development of certain economic activities subject to certain conditions, as well as in accordance with the2022 Guidelines on State aid for climate, environmental protection and energy. Under these Guidelines, Member States may support energy efficiency through the production of electricity through high-efficiency cogeneration, subject to certain conditions.

The Commission concluded that:

• The scheme facilitates the development of certain economic activities, namely electricity production;
• The scheme has an ‘incentive effect’, as the beneficiaries would not make the investments in high-efficiency cogeneration electricity production to the same extent without public support;
• The programme is necessary and appropriate to increase energy efficiency and accelerate the green transition. Furthermore, the aid is proportionate, as it is limited to the minimum necessary. Investment aid will be granted through open and transparent competitive tenders, while operating aid, which is established administratively, will be monitored and adjusted on a quarterly basis.
• The positive effects of the aid outweigh any possible negative effects on competition and trade between Member States. The programme will support decarbonisation in Spain, in particular by increasing energy efficiency through the production of electricity in high-efficiency cogeneration, in line with theClean Industrial Pact, without unduly distorting competition in the EU.

On this basis, the Commission approved the Spanish scheme in accordance with EU state aid rules.

Fund

The Commission’s 2022 Guidelineson State aid for climate, environmental protection and energyprovide guidance on how the Commission will assess the compatibility of environmental protection measures, including climate protection, and energy aid that are subject to the notification requirement under Article 107(3)(c) TFEU.

The Guidelines create a flexible and appropriate framework to help Member States provide the necessary support to achieve the objectives of the European Green Deal in a targeted and cost-effective manner. The rules are in line with the important EU objectives and targets set out in the European Green Deal and other recent regulatory changes in the energy and environmental fields, and will address the growing importance of climate protection.

The Guidelines allow Member States to support electricity production from cogeneration plants, subject to certain conditions. These rules aim to help Member States meet the EU’s ambitious energy and climate targets at the lowest possible cost to taxpayers and without unduly distorting competition in the Single Market.

Therevised Energy EfficiencyDirectiveof 2023 significantly raised the EU’s ambitions in the field of energy efficiency. It set a binding EU-wide energy efficiency target of reducing the EU’s final energy consumption by 11.7% by 2030, compared to projected energy use in 2030. With the2019European Green Deal Communication, the Commission reinforced its climate ambitions, setting a target of net-zero greenhouse gas emissions by 2050. TheEuropean Climate Law, in force since July 2021, which enshrines the goal of climate neutrality by 2050 and introduces the interim target of reducing net greenhouse gas emissions by at least 55% by 2030, laid the groundwork for the‘Fit for 55’legislative proposals ‘ legislative proposals presented by the Commission on 14 July 2021. As a result of these proposals, the Commission also revised theRenewable Energy Directivewith more ambitious binding annual targets to increase energy production from renewable sources at EU level.

More information: European Commission.