Fixed utility prices not a subsidy -- EU Advocate General speaks

A long awaited judgement from the European Court of Justice is predicted to find that premium payments for green electricity made by electricity companies at the behest of the government do not constitute a state subsidy. The wind lobby is rejoicing, calling it a step toward guaranteeing the future of feed-in systems. The opinion simultaneously opens another legal quagmire in import restriction, however, a question for which could force a re-opening of oral proceedings at the court.

The wheels of European justice have come close to the end of the road in a long awaited judgement on one aspect of the legality of Germany's support system for renewable energies. Premium payments for green electricity made by electricity companies at the behest of the government do not constitute a state subsidy, according to Francis Jacobs, Advocate General of the European Court of Justice. If Jacobs' opinion receives the backing of the court, it appears that Germany did not contravene EU law when it declined to submit its former Electricity Feed-In Law to the European Commission for approval.

Jacob's assessment has been greeted as a victory by the wind lobby. "This is an important step forward for guaranteeing the future of feed-in systems," says Klaus Rave, president of the European Wind Energy Association. Germany's wind association, Bundesverband Windenergie (BWE), is of like mind. "Wind turbine operators need no longer fear reimbursement demands from utilities," says BWE president Peter Ahmels. It had been feared that utilities could demand repayment of the premiums paid for wind power if the feed-in law was ruled illegal by the court.

A precedent may also have been set by Jacob's assessment. "If the arrangements under the old electricity feed-in law are not a form of state aid, then the new renewable energy law certainly doesn't involve state aid," stresses Dörte Fouquet, a lawyer representing the BWE in Brussels. Her argument rests on the logic that if the old law did not require EU approval because it is not a subsidy, then neither does the new law.

forbidden law

Jacobs' opinion, however, simultaneously opens another legal quagmire. He concludes that while the fixed price support of renewables in Germany is not a state subsidy, it does represent a restriction on electricity imports and therefore the free trade of electricity in Europe, including wind power. As such the renewables support system should be viewed "in principle as a forbidden measure because it has the same effect as a volume related import restriction." He argues that the feed-in law's obligation on utilities to take up renewables generated electricity at a premium price is expressly restricted to electricity generated in Germany, thus favouring the sale of domestic electricity over imported electricity.

This cannot be justified for reasons of security of supply and whether the cause of "environmental protection" provides sufficient grounds for allowing the law to breach trade rules is questionable, he says. "It is not clear why renewables generated power from other countries would not make the same contribution to reducing climate gas emissions as eco-electricity generated in Germany," he stresses. Jacobs regrets that this "difficult and important question" has not been given sufficient attention in the legal submissions to the European Court of Justice, which could see the need to re-open oral proceedings as a result.

Against the treaty

The case, brought before the European Court of Justice back in 1998, involves a dispute between electricity company PreussenElektra (now E.on Energie) and its majority owned subsidiary, Schleswag, a regional electricity company in northern Germany, over the electricity feed-in law in force at the time.

An amendment to the law in 1998 introduced a new clause. It said that once a utility was buying renewables generated power that exceeded 5% of its annual sales, the additional cost of the premium payments for any further renewables electricity had to be paid for by the next utility up the chain of supply. PreussenElektra, forced to pay for renewables power taken up by Schleswag when it reached its 5% hurdle, challenged this arrangement before the Kiel regional court since it had not been authorised under the rules of the European Union treaty.

The Kiel court promptly passed the case to Luxembourg to establish whether the amendment constituted a change to a state subsidy system which should have been authorised by the Commission -- and if the system was in fact a restriction on electricity imports, as also claimed by Preussenelektra.

A final judgement on the PreussenElektra case is expected early next year. The opinions of Advocate Generals are not binding on the court, though they are usually followed.

Legal hint

A hint about what the European Commission might have in store for Germany's renewables law under the wing of environment protection was perhaps revealed in a decision published on November 22. Under state aid for the environment rules, the Commission is allowing Germany to exempt new natural gas power stations from taxes on "mineral oils," even though the exemption could distort the common market.

The Commission, however, has placed a five year limit on the exemption. Germany had asked for a ten year period of protection for natural gas, just as it has asked for ten years of grace for its renewables law.

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