OREANDA-NEWS. November 17, 2015. The Commission has concerns that these plans to remunerate electricity capacity could, in the case of the country-wide capacity mechanism, favour certain companies over their competitors and hinder the entry of new players, and in the case of the gas-fired power plant in Brittany, support only one type of technology or solution.

Commissioner Margrethe Vestager, in charge of competition policy, said: "France has a legitimate interest to ensure the security of energy supply for its population and protect against the risk of black-outs. It's our role to ensure that this is done in a cost-effective and competitive way, so that electricity prices are kept in check."

Country-wide capacity mechanism

Capacity mechanisms are measures designed to ensure electricity security of supply. Typically, capacity mechanisms offer additional rewards to electricity capacity providers, on top of income obtained by selling electricity on the market. This is in return for maintaining existing capacity or investing in new capacity needed to guarantee the security of electricity supplies. These additional rewards may have an impact on competition in the internal electricity market and have to be assessed under EU State aid rules.

France plans to implement a national market-wide capacity mechanism where capacity obligations are traded between electricity capacity providers (e.g. power plants or demand side operators) and electricity suppliers. The aim is to ensure that there is sufficient capacity for the production of electricity and that such production meets the demand, in particular during extreme winter demand peaks.

The Commission has concerns that the capacity mechanism planned by France in its current form favours certain companies over their competitors and hinders the entry of new players. Moreover, the Commission will assess whether the objectives of the mechanism could not be reached with less costly and less distortive measures. The Commission will also examine whether the planned mechanism is indeed suitable to encourage investments into new capacity.

 

Tender for a gas-fired power plant in Brittany

In parallel to the development of a country-wide capacity mechanism, France has launched a tender to support the construction of a new gas-fired power plant (Combined Cycle Gas Turbine -CCGT) in Brittany. The aim is to increase electricity generation capacity in this region, which is not well connected with the rest of France.

The Commission in particular has concerns that support is granted to only one type of technology and is not open to other potential solutions, for example those also being implemented in Brittany (as planned in the "pacte ?lectrique Breton"), namely other types of power generation, demand side management, network extensions or storage solutions. Moreover, at this stage, the Commission considers that there is a risk of creating a subsidy dependent market, where investors will develop projects only on the basis of public tenders granting State aid. Therefore, the tender could risk exacerbating the adequacy problem in the long term.

The Commission will now investigate whether these initial concerns are justified. The opening of an in-depth investigation gives France and interested third parties an opportunity to submit comments. It does not prejudge the outcome of the investigation.

Background

Earlier this year, the Commission launched a state aid sector inquiry into capacity mechanisms.

With the sector inquiry, the first under EU state aid rules, the Commission aims to learn more from market participants about the impact on competition of the various mechanisms introduced and planned. Requests for information were sent to public authorities and stakeholders in the sector in May and meetings took place with stakeholders over the summer.

The sector inquiry encompasses a representative sample of 11 Member States that have capacity mechanisms in place or are considering them, namely: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain, and Sweden.

The inquiry will allow the Commission to assess in particular how Member States are applying the 2014 Energy and Environmental Aid Guidelines (EEAG) in this area, to identify best practices and to advise Member States in designing capacity mechanisms.

The non-confidential version of the decisions will be published in the State aid register on the competition website under the case numbers SA.39621 (country-wide capacity mechanism) and SA.40454 (tender) respectively once eventual confidentiality issues have been resolved. The State Aid Weekly e-News lists new publications of state aid decisions on the internet and in the EU Official Journal.