Posts Tagged Electricity

Ach no! CJEU distinguishes rather than extinguishes its Preussen Elektra case-law in Germany v EC. State aid for renewable energy.

The rather long judgment in T-47/15 Germany v Commission is neatly summarised by the CJEU here. I have reported before on both the State Aid and the free movement implications of the Court’s seminal findings in Preussen Elektra. In current case, the Court essentially upholds the EC’s finding of the more recent German regime amounting to illegal State aid and incompatibility with the Internal Market – in contrast with its earlier findings in Preussen Elektra.

Disappointingly, Preussen Elektra was distinguished rather than its merits called into question. Rather like Advocate-General Bot I stubbornly insist that Preussen Elektra is bad case-law and I continue to call upon the Court to scrap its findings in same.

Geert.

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‘We did not like it. Not one little bit!’ Bot AG reads Dr Seuss in Essent 2.0.

Perhaps because it so reflected our children’s character [all ‘Duracell‘ kids] there is one part of Dr Seuss’ Cat in the Hat which has always stuck with me:

so all we could do was to

sit!

   sit!

      sit!

         sit!

and we did not like it.

not one little bit.

I was reminded of the line, reading Bot AG’s Opinion in Case C-492/14, ‘Essent 2.0’ (not yet available in English at the time of writing). In order to promote the generation of renewable energy, Flanders law makes transmission of electricity generated from renewable sources, free of charge. However this courtesy is limited to electricity generated in installations directly connected to the grid. Essent imports (a considerable part of) its green electricity from The Netherlands. It does not therefore enjoy free transmission.

Bot’s disapproval of trade restrictions like these is well established and has often been reported on this blog. The CJEU disagrees with its AG on many of the issues. I am in general of the same view as the AG. Mr Bot continues to find the Court’s case-law unconvincing and makes no attempt to hide it. He repeatedly mentions that he is duty-bound to apply Essent /Vindkraft without believing they are good law. It is with obvious regret that he Opines that given the Court’s stand in Essent /Vindkraft, he has no option but to propose that the Court find the Flemish regime acceptable.

The AG does however leave open a future window for change: in particular, if and when the secondary law regime on renewable energy specifically, and energy as a whole, is amended, one may be able to distinguish Essent /Vindkraft.

Bot also reminds us of the unclear position of environmental exceptions under Article 36 TFEU and the Rule of Reason. He calls upon the Court formally to acknowledge that the Cassis de Dijon distinction between the Rule of Reason and Article 36 (the former does not allow ‘distinctly applicable’ national measures (read’ discrimination) while the latter does) no longer exists.

I do not like judgment in Preussen Elektra. Or in Essent. Not one little bit. It discourages the creation of a true European energy market. Perhaps the Court will surprise us all in Essent 2.0 and will correct some of the damage it has done with its standing case-law on the matter.

Geert.

 

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Your call, sir: The ECJ leaves it to the national court in Essent to deliver ultimate sentence on support scheme for renewables.

Current post is best read in conjunction with my post on Vindkraft . The essence of the questions put to the Court was whether the Treaty’s rules on the free movement of goods, preclude a national support scheme, such as that at issue in the main proceedings, which provides for the issuance, by the competent regional regulatory authority, of tradable certificates in respect of green electricity produced on the territory of the region concerned and which places electricity suppliers under an obligation, subject to an administrative fine, to surrender annually to that authority a certain number of those certificates corresponding to a proportion of the total volume of the electricity that they have supplied in that region, without those suppliers being allowed to fulfil that obligation by using guarantees of origin originating from other Member States of the European Union or non-member States which are parties to the EEA Agreement.

The ECJ, like in Vindkraft, first of all does not rule on the qualification of certificates of origin as being ‘goods’ or not: the legislation at any rate hinders the free movement of the electricity underlying the certificates.

It subsequently basically confirms the main findings of Vindkraft, including the absence of express reversal of the non-applicability of the Rule of Reason  to discriminatory measures (please refer again to my Vindkraft posting should the previous sentence make you scratch your heads). Yes, the Flemish regime restricts trade. Yes, this can be justified for environmental reasons. However, the Court does emphasise the proportionality test. In Vindkraft, the ECJ itself held the scheme to be compatible with the Treaty by virtue essentially of its highly transparent and market-driven character. In Essent, however, this final call is left to the national judge. For the Flemish scheme to meet the proportionality test, it is important that mechanisms be established which ensure the creation of a genuine market for certificates in which supply can match demand, reaching some kind of balance, so that it is actually possible for the relevant suppliers to obtain certificates under fair terms (at 112).

Furthermore, the fine in the absence of quota fulfilment must not impose excessive penalties imposed on the traders concerned (at 114). It is for the national court to verify this.

I had flagged the much less market-oriented character of the Flemish scheme as a distinguishing factor viz Vindkraft. It is now up to the Brussels court of first instance (and others beyond it, one imagines) to deliver the ultimate verdict.

Geert.

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Renewable energy and trade: Now it’s all clear, Essent it? The ECJ in Vindkraft.

Post-script 28 August 2014: The ECJ will hold in Essent C-204/12 on 11 September

Updated 11 September: see here for review of judgment in Essent.

As reported, the ECJ last week held in Vindkraft. It did not follow the lead of Bot AG who had suggested inter alia that Directive 2009/28 itself  (which the ECJ has now found is not exhaustive on the issue of territorial restrictions of support schemes, hence requiring assessment under primary EU law) is contrary to EU primary law in allowing Member States to discriminate against foreign produced renewable electricity by limiting access to their national support scheme to electricity generated on their territory; and that such illegality is not backed by the environmental exceptions to the Treaty. I had suggested at the time of the AG issuing his Opinion in the related case of Essent, that there is in my view merit in the argument that the relevant Union laws require Member States to roll-out their own, national renewable energy capabilities, and that systems such as the Flemish one (in Essent) or Swedish one (Vindkraft) may be required to support industry to work towards that goal.

The ECJ agrees. Member States can continue to restrict access to their support schemes (in the strict sense of not rolling out financing to renewable energy of foreign origin): this constitutes an infringement to the free movement of goods but one which can be justified. In Preussen Elektra the ECJ had allowed the German scheme despite it being discriminatory. This might have been an implicit reversal of the case-law that infringements of the free movement of goods may only be based on the court-invented ‘mandatory requirements’ (of which environmental protection is one; as opposed to those societal interests which are included in the explicit list of exceptions of Article 36 TFEU) where they do not discriminate. (Not, such as is the case here, where they undoubtedly discriminate). That it might have been such reversal  had led the AG to suggest, finding support in the integration principle, that the Court in Essent should make that reversal explicit. In the end the Court decided Vindkraft before Essent (which is still pending) and simply refers (at 80) to its Preussen Elektra case law: no explicit reversal.

That is unfortunate for we are now left to ponder whether Preussen Elektra /Vindkraft (probably also Essent?) needs distinguishing (making reneable energy /Kyoto /UNFCCC commitments stand out from other environmental requirements)?

The Court instead focusses on proportionality. In that assessment, as pointed out by Catherine Banet, the ECJ emphasises the market-based elements of the Swedish scheme (the certificates can be sold separately from the underlying electricity and the market is operated in a transparent and liquid fashion): a less market-oriented approach may not have survived ECJ scrutiny.

Deciding Vindkraft together with Essent would have been helpful. Instead, Essent still contains another angle: namely certificates of origin (as opposed to only green certificates. Green certificates are used by a Member State to show its meeting its obligations to produce a minimum amount of electricity from renewable sources. Certificates of origin allow an electricity distributor to prove that x amount of its electricity distributed, originates from renewable energy). The Flemish support scheme for renewable energy at issue in Essent, grants renewable energy certificates to producers of such energy only if they are located in the Flemish Region, and obliges electricity distributors to surrender a minimum amount of such certificates without being able to offer such certificates obtained in other EU Member States. Taking the lead of the Court in Vindkraft, the Flemish scheme looks more vulnerable to me.

In conclusion: no, it Essent yet clear.

Geert.

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Essent, Vindkraft: Bot AG turns on the heat in suggesting secondary EU law infringes primary law

After his Opinion in Essent, Bot AG has turned on the heat on the ECJ in a case with many similarities, Case C-573/12 Vindkraft. Catherine Banet, a former student of mine, has excellent analysis linking the two cases here. Vindkraft concerns the successor to Directive 2001/77 (at stake in Essent), i.e. Directive 2009/28. The Advocate General essentially argues that the new Directive itself is contrary to EU primary law in allowing Member States to discriminate against foreign produced renewable electricity by limiting access to their national support scheme to electricity generated on their territory; and that such illegality is not backed by the environmental exceptions to the Treaty.

The ECJ has not yet held in Essent. As I have noted, it is far from guaranteed that it will follow all of the AG’s lead. (The Opinion at the time of posting was not yet available in English).

Geert.

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Preussen Elektra confirmed? Bot AG in Essent

Bot AG in Essent, Cases C-204/12 through to C-208/12 Essent v VREG (at the time of writing the English version of the Opinion was not yet available, however it will be soon) summarised the questions referred as whether the Flemish support scheme for renewable energy, which grants renewable energy certificates to producers of such energy only if they are located in the Flemish Region, and which obliges electricity distributors to surrender a minimum amount of such certificates without being able to offer such certificates obtained in other EU Member States, is compatible with the free movement of goods and with the EU’s non-discrimination principle. Directive 2001/77 regulates both renewable energy (or ‘green’) certificates – which are used by a Member State to show its meeting its obligations to produce a minimum amount of electricity from renewable sources – and certificates of origin, which allow an electricity distributors to prove that x amount of its electricity distributed, originates from renewable energy.

The Advocate General did not entertain at length the issue of whether renewable certificates in themselves qualify as ‘goods’ under the Treaty. The Flemish system may definitely have an impact on the import of ‘green’ electricity, with the latter undeniably having been held to be a ‘good’ under the protection of the free movement of goods. If the certificates scheme unjustifiably restricts the free movement of goods, it would at any rate be illegal and in need of proper justification.

Unlike in Preussen Elektra, distributors of electricity could still purchase renewable energy abroad – however such electricity is often more expensive (for it does not receive Flemish government support), and even if distributors were to purchase abroad, they would still have to surrender, after purchase, the necessary Flemish certificates.

The AG notes that the Court in Preussen Elektra allowed the German scheme despite it being discriminatory. This might have been an implicit reversal of the case-law that infringements of the free movement of goods may only be based on the court-invented ‘mandatory requirements’ (of which environmental protection is one; as opposed to those societal interests which are included in the explicit list of exceptions of Article 36 TFEU) where they do not discriminate. That it might have been such reversal  leads the AG to suggest, finding support in the integration principle, that the Court in Essent should make that reversal explicit. However an alternative reading of Preussen Elektra suggests that the judgment was simply poor precedent, especially given that the court did not only ignore the discriminatory nature of the German measure, but omitted at the same time to assess its proportionality. The poor judgment in Preussen Elektra may be explained by the series of harmonising measures in the Internal Market for electricity, which were being prepared at the time of the judgment and which have since entered the statute books.

Despite the AG suggesting such a rare explicit reversal of the Court’s case-law on the free movement of goods, he does not suggest that in the case at issue, the infringement is justified. Among his arguments for rejecting the measure (which also features the argument that the Flemish Region violated a promise made at the time the relevant scheme was approved by the European Commission under State aid rules), the one dismissing the ‘local production’ requirement is probably the least forceful. There is in my view merit in the argument that the relevant Union laws require Member States to roll-out their own, national renewable energy capabilities, and that systems such as the Flemish one may be required to support industry to work towards that goal (see the similar arguments at the WTO level).

The AG’s opinion contains a wealth of suggestions for the ECJ. It is likely that the Court will not take too much of that bait.

Geert.

Questions referred
'Is a national rule, such as that embodied in the Flemish Decreet van 17 juli 2000 houdende 
de organisatie van de elektriciteitsmarkt (Decree of 17 July 2000 on the organisation of 
the market in electricity), as implemented by the Besluit (Decision) of the Flemish Government
of 5 March 2004, as amended by the Besluit of the Flemish Government of 25 February 2005
on the promotion of the generation of electricity from renewable energy sources, where an
obligation is imposed on the suppliers of electricity to final customers connected to the
distribution network or the transmission network, to submit a certain number of green 
certificates annually to the Regulatory Authority (Article 23 of the aforementioned Decreet);
an administrative fine is imposed by the Vlaamse Reguleringsinstantie voor de Elektriciteits-
en Gasmarkt (VREG) on the suppliers of electricity to final customers connected to the 
distribution network or the transmission network when the supplier has not submitted a sufficient
number of green certificates to fulfil a quota obligation which has been imposed in respect of
green certificates (Article 37(2) of the aforementioned Decreet);
the Regulatory Authority cannot or will not take into account any guarantees of origin originating
from Norway and the Netherlands, and that being in the absence of implementing measures on the part
of the Flemish Government, which has acknowledged the equality or equivalence of those certificates
(Article 25 of the aforementioned Decreet and Article 15(1) of the Besluit of 5 March 2004), 
without that equality or equivalence being investigated by the Regulatory Authority 
in concrete terms;
in fact, during the whole time that the Decreet of 17 July 2000 was in force, only certificates for
the production of green energy generated in the Flemish Region were taken into account when
ascertaining whether the quota obligation had been fulfilled, whereas for the suppliers of electricity
to final customers connected to the distribution network or transmission network there was no 
possibility whatsoever of demonstrating that the guarantees of origin submitted met the condition of
the existence of equal or equivalent guarantees regarding the granting of such certificates, 
compatible with Article 34 of the Treaty on the Functioning of the European Union and Article 11 of
the EEA Agreement and/or Article 36 of that Treaty and Article 13 of the EEA Agreement?'
Is a national rule as referred to in subquestion 1 above compatible with Article 5 of the then
Directive 2001/77/EC 2 of the European Parliament and of the Council of 27 September 2001
on the promotion of electricity produced from renewable energy sources in the internal electricity market?
Is a national rule as referred to in subquestion 1 above compatible with the principle of equal
treatment and the prohibition of discrimination as embodied inter alia in Article 18 of 
the Treaty on the Functioning of the European Union and Article 3 of the then Directive
2003/54/EC  of the European Parliament and of the Council of 26 June 2003 concerning common
rules for the internal market in electricity and repealing Directive 96/92/EC?'

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