STATE AID IN THE BULGARIAN ENERGY SECTOR IN THE LIGHT OF EU LAW

Author

Alexander Galendinov[1]

Dimitar Iliev[2]

 

            Energy issues continue to be among the leading headlines and attract attention in all European countries including Bulgaria. Some of those issues prove to be particularly sensitive especially those relating to utility prices consumers are required to pay. That issue is also related to the necessity of a better compliance with EU law and in particular with EU State aid rules. The price of electricity in Bulgaria includes a number of pricing components such as costs related to renewable energy support schemes as well as costs arising from long-term power purchase agreements (PPAs) concluded between the Bulgarian state-owned National Electricity Company and some private power generators.

            As to the costs related to the renewable energy support schemes, it should be recalled that Directive 2009/28 /EC of 23 April 2009 on the promotion of the use of energy from renewable sources[3] set legally binding targets to achieve in relation to the share of the energy from renewable sources which is to be 20% of the total energy mix in the EU by 2020. It should be noted that the 20% “green energy” target refers to the energy mix in the EU as a whole, which does not mean that the individual share of each Member State should necessarily reach 20%. In the case of Bulgaria, the target to be achieved has been set to 16%, which is higher than those of many other EU Member States.

             Regarding the tools necessary to the achievement of those targets, it is commonly accepted that there is a need for State intervention to support the development of renewable energy industry. However, should the State intervention constitute a State aid within the meaning of Article 107(1) TFUE, it must be notified, pursuant to Article 108(3) TFUE, to the EU Commission, which will assess its compatibility with the internal market. In this regard, a question may arise as to whether the Bulgarian renewable energy support schemes constitute State aid and therefore they should had been notified the Commission. A careful analysis of the Bulgarian support scheme may lead us to the conclusion that the latter may constitute a State aid within the meaning of Article 107(1) TFUE. In particular, this is the conclusion of the Bulgarian Energy Regulator[4], which has recently notified the EU Commission regarding the existing green energy support scheme considering that the latter constitutes a State aid giving rise to an overcompensation of the beneficiaries[5]. Thought commendable, the Bulgarian Energy Regulator’s reaction may seem to come a bit late. In particular, if the national green energy support scheme does indeed constitute a State aid, it should have been notified to the EU Commission even before its entry into force, which would have ensured that the Bulgarians consumers – whether households or industrial users, do not bear the burden of a potentially incompatible green energy support scheme.

            As to the issue of long-term PPAs concluded by state-owned companies and power generators, it should be recalled that several central and eastern European Member States have used those agreements as a tool to encourage investments in order to modernize their energy sectors. Following their accession to the EU, the European Commission raised concerns that some of the existing PPAs may not be compatible with EU State Aid rules. For instance, Poland was required to end its long-term PPAs for electricity since the Commission found that they constitute unlawful and incompatible with the internal market state aid[6]. Other member states were also required to end their PPAs. That was the case of Hungary where the EU Commission found, in particular, that the combination of long-term capacity reservation, a minimum guaranteed off-take and price-setting mechanisms covering variable, fixed and capital costs do not correspond to usual contracts on the European wholesale markets and shield generators from more risks than standard forward and spot contracts[7]. The Commission’s decision was subsequently challenged before the General Court of the EU. In its judgement, the Court upheld the Commission’s findings by stating that PPA’s provide power generators with better guarantee than that provided under standard commercial contracts and that the State-owned entity could be obliged to buy more electricity than actually needed and of suffering losses when re-selling the excess[8]. Recently, the Bulgarian Energy Regulator issued a decision in which it stated that the existing PPAs in Bulgaria may constitute a state aid within the meaning of Article 107(1) TFEU. For that reason, the Energy Regulator decided to bring the matter to the attention of the EU Commission by making reference to its previous decisional practice and the above-mentioned case law of the General Court. That decision, just as in the case of the renewable support schemes, seems to come a bit late since the EU State Aid rules are applicable in Bulgaria at least as of the date of its accession to the EU.

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[1] Case handler at the Bulgarian Competition Authority, Master in Laws from the University Paris 1 Panthéon-Sorbonne, Postgraduate diploma in EU Competition law from King’s College London

[2] Senior Expert at the Bulgarian Competition Authority, Master of Laws from the University of Luxembourg; The ideas and opinions expressed in this article are of the authors and they do not represent the official position of any public or private entity.

[3] Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC, OJ L 140, 05.06.2009, p. 16–62

[4] State Energy and Water Regulator Commission (SEWRC)

[5] SEWRC’s press release from 25.06.2014

[6] EU Commission‘s press release (IP/07/1408), from 27 September 2007, “State aid: Commission requests Poland to end long-term power purchase agreements and approves compensation scheme to replace them”

[7] EU Commission’s Decision  on the State aid awarded by Hungary through Power Purchase Agreements

C (2008) 2223 final, from 04.06.2008

[8] Judgment of the General Court  of 13 February 2012 in Joined Cases T‑80/06 and T‑182/09, Budapesti Erőmű Zrt / European Commission,  points 81 and 98

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Линк към цялата статия на български език: ДЪРЖАВНИТЕ ПОМОЩИ В БЪЛГАРСКИЯ ЕНЕРГИЕН СЕКТОР ПРЕЗ ПРИЗМАТА НА ПРАВОТО НА ЕС 

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Hristo Kirilov

Реферандер в Общия съд на Европейския съюз.