The European Commission has approved, under EU State aid rules, a strategic electricity reserve of €300 million for Sweden to ensure the security of electricity supply in emergency situations.
The strategic reserve is a type of capacity mechanism that compensates resources held outside the market and used in emergencies when electricity demand exceeds available supply, which occurs in Sweden during the winter months.
The strategic reserve, which will be in place until 2035, will be open to all projects that can contribute to the security of supply objective, including electricity generation, demand-side response, and storage. Electricity generation and storage units will offer their availability to supply electricity. Demand response units (typically large electricity consumers) will offer their availability to reduce electricity consumption during peak times. To be eligible under the strategic reserve, projects must comply with the CO2 emission limits set out in the EU Electricity Regulation.
The projects that will benefit from the aid will be selected through a transparent, non-discriminatory bidding process, with safeguards to ensure effective competition. Beneficiaries will compete based on the amount of aid per MW of capacity and the time required to make the capacity available during a scarcity event.
Capacity funded through this measure will not participate in electricity markets for the duration it is under reserve. This means that distortion of competition in these markets is limited.
The Commissions assessment
The Commission assessed the measure under EU State aid rules, particularly Article 107(3)(c) of the Treaty on the Functioning of the European Union (‘TFEU’), which allows Member States to support the development of certain economic activities under specific conditions, and the Guidelines on State aid for climate, environmental protection, and energy 2022 (CEEAG).
The Commission found that:
- Sweden demonstrated that the measure is necessary and appropriate, in line with the Electricity Regulation.
- The measure has an incentive effect, as the beneficiaries would not continue operating existing power units or invest in additional units to the same extent without public support.
- The aid has a limited impact on competition and trade within the EU. It is proportionate, as the level of aid corresponds to effective financing needs. Safeguards limiting the aid to a minimum will be in place, including a competitive bidding process for the aid award and verification of the funding gap for applicants deemed to have market power. Finally, distortions in energy markets are minimized as the funded capacity is held outside electricity markets.
- The measure brings about positive effects that outweigh any potential distortion of competition and trade in the EU.
- The aid complies with the relevant provisions on capacity mechanisms and strategic reserves included in the Electricity Regulation.
On this basis, the Commission approved the Swedish measure under EU State aid rules.
Background
The Commissions 2022 CEEAG provides guidance on how the Commission assesses the compatibility of environmental protection, including climate protection, and energy aid measures that are subject to the notification requirement under Article 107(3)(c) TFEU.
The Guidelines create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to achieve the European Green Deal objectives in a targeted and cost-effective manner. The rules involve alignment with important EU goals and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas, catering to the increased importance of climate protection. They include sections on energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, as well as measures to ensure security of energy supply, subject to certain conditions.
Capacity mechanisms, including strategic reserves, have the important objective of ensuring the security of electricity supply. Capacity mechanisms need to be well designed to ensure that they do not (i) lead to higher electricity prices for consumers, (ii) give undue advantages to certain energy operators, or (iii) hinder electricity flows across EU borders.
The EU Electricity Regulation establishes rules to ensure the functioning of the internal market for electricity and defines a framework for regularly assessing the forecast level of security of supply in the EU. Whenever a risk is identified, Member States need to review the functioning of the electricity market and consider removing the distortions that may cause the risk. If such an approach is insufficient to address the identified risk, Member States may introduce a capacity mechanism, subject to design requirements to ensure cost-efficient, cleaner, and proportionate measures to deliver security of electricity supply.
For More Information
The non-confidential version of the decision will be made available under the case number SA.112968 in the State aid register on the Commissions competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.