State Aid: Commission authorises transitional free allocation of greenhouse gas emission allowances for modernisation of Czech and Hungarian electricity sector

Brussels, 26-12-2012 — /europawire.eu/ — The European Commission has concluded that provisions of Hungary’s and the Czech Republic’s plans for the modernisation of their electricity sector, which involve the allocation of carbon emission trading allowances free of charge, are in line with EU state aid rules. The Commission found that the funds thus granted, amounting to €1.878 million for the Czech Republic and €56 million for Hungary, will be used to modernise production infrastructure, diversify the energy mix or construct new installations. This will contribute to liberalising energy markets, reducing greenhouse gas emissions and increasing the security of supply, in line with EU objectives.

Joaquín Almunia, Commission Vice-President in charge of competition policy said: “The investments foreseen in the Czech and Hungarian plans will allow both Member States to diversify their sources for the production of electricity and to contribute to the expansion of national energy markets. At the same time the schemes contribute to reaching Europe’s 2020 objectives by reducing greenhouse gas emissions.”

Background

The Czech Republic

The market value of the free emission allowances under the Czech plan is €1.878 million. The projects to be supported with the free allowances were chosen in an open, transparent and non-discriminatory tender. They include several new gas-fuelled and biomass plants, waste-to-energy installations and cogeneration units. The 2011 market share of the electricity incumbent ČEZ is around 70% and is not expected to grow as a result of the plan. In fact it is forecasted to decrease to 67% by 2020, allowing new participants to enter the market, mainly in the field of renewables. Moreover, a conservative estimate values the allowances to be granted to ČEZ at €0.687 billion, i.e. only around 30% of the total value of free allowances to be allocated. All installations receiving free allocations are obliged to shut down existing capacities of an amount corresponding to any newly installed capacity as a result of an investment in the plan. The implementation of the plan is therefore not expected to lead to further market concentration.

Hungary

The market value of the free emission allowances under the Hungarian plan is €56 million which will be used to develop economically efficient and sustainable power systems in a smart grid pilot project and to diversify the energy mix with the construction of a gas-interconnector between Hungary and Slovakia. The implementation of the projects may take until 2015, but free allowances will be granted only in 2013. Both projects concern investments in the transmission and distribution system and therefore raise no competition concerns on the market for electricity generation. In fact, the results of the smart grid project will be published for all competitors on the electricity market. The interconnector will grant adequate access to gas supply competitors and foster the integration of EU gas markets.

Article 10c of the EU Emission Trading Directive (Directive 2003/87/EC as amended by Directive 2009/29/EC) allows certain Member States to allocate carbon emission allowances free of charge, provided that they use the funds to modernise their energy system, for example by upgrading the infrastructure, introducing clean technologies and diversifying their energy mix.

The Czech Republic and Hungary presented their national investment plan in September 2011. In July and November 2012, the Commission had already found that carbon allowances granted by the Czech Republic and Hungary were in line with the requirements of the EU Emission Trading System (ETS) Directive (see decisions C(2012) 4576 final and C(2012) 8675 final). Today’s decisions complement these by finding that the public financing measures included in the plans do not distort competition in the Internal Market.

In June 2012, the Commission had already approved similar measures for Cyprus (case SA.34250) and Estonia (case SA.33449) and earlier in December for Romania (case SA.34753).

More information is available under the case numbers SA.33537 and SA.34086 in the State Aid Register on the competition website. New publications of state aid decisions are listed in the State Aid Weekly e-News.