Consultation on a draft General Block Exemption Regulation (the GBER) on State aid measures: An EDF response.

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1 Réf : DAE/FGZ/2013/06/24/1 Date : 28/06/2013 Version : 31 Pages : 9 Electricité de France, av de Wagram Paris CEDEX 08 To the European Commission Answer to a consultation as a registered organization Consultation on a draft General Block Exemption Regulation (the GBER) on State aid measures: An response. June 2013 Ref.: HT.3365 SAM GBER review Register ID number: Executive summary thanks the European Commission for the invitation to submit comments on the draft General Block Exemption Regulation. The present document details proposals, consistent with the response to the Consultation on Energy and Environmental Aid Guidelines, and based on our experience in Research, Development & Innovation. The main issues addressed are the following: 1. welcomes the EC s willingness to introduce competition into RES support schemes, through the possibility to use a technology neutral bidding process (article 34 8). proposes that : - This scheme should be favoured over technology-specific aid notification, for example by alleviating the notification threshold for this process. - As there are currently very few experiences of cooperation mechanisms and therefore little feedback on their possible consequences, caution is necessary when promoting them. - Feed-in Premium is currently the only form suggested. This may appear as too restrictive. 2. believes that technology specific aid, when necessary to foster the emergence of a promising technology, should be granted to a limited number of installations, or address identified technology/sector specific market failures. 3. strongly believes that there is no reason why, under a strict control, large enterprises should be excluded from the Regulation. As mentioned in other consultations, public sector and SMEs are considering that large enterprises can bring unique and leveraging features to the table (investment capacity, critical size, employment, visibility...). 4. When aid is granted to SMEs, all should be done to encourage a leverage effect, allowing combining public and private funding. The current definition of autonomous enterprises unfortunately restrains this leverage effect. proposes to consider as autonomous an enterprise not controlled by one or more undertaking within the meaning the Regulation 139/2004 on the control of concentrations between undertakings.

2 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 2/9 1. ENERGY & ENVIRONMENT AID 1.1. Technology-neutral aid strongly believes that the EU ETS should remain the key tool for driving low carbon energy deployment, because it is pan-european, market based and cost-effective. However, the credibility of the EU ETS has recently been questioned. Indeed, partly due to interferences between climate policy, based on the ETS, and support to RES and energy efficiency measures, carbon prices provide very insufficient incentives for investments in low-carbon technologies. emphasises an urgent need to ensure that support measures described in the GBER do not cement such interferences, and prepare a gradual transition period to a market-based decarbonisation process. To that purpose, recommends the following. Article 34 Investment aid for the promotion of energy from renewable sources Article 34 details two possible RES support schemes: 4-7 is technology specific, 8 technology-neutral. strongly welcomes the willingness to introduce competition into RES support schemes, through a technology neutral bidding process. - In order to encourage Member States to use 8 scheme, suggests that the notification threshold as mentioned in article 4 (l) should be alleviate for this particular scheme, and could be set at, for example, 15 M /project (based on a cost for 5MW innovative photovoltaic plant, whose investment costs can reach 3000 /KW). - Article 34 8 refers to cooperation mechanisms. believes that these tools may contribute reaching cost efficiency in the low carbon transition. However, these tools have been very rarely used and, as very little feedback is available, caution is necessary. Many different regulations exist among the different countries in the EEA (taxes, network fees, inclusion of externalities such as need for network development, authorizations...) and there is no guarantee that such mechanisms will finally foster RES investments in the most cost-effective locations. Consequently, believes that the sentence member states may require that the bidder ensures that it is able to deliver the electricity to the member state granting the aid is a pragmatic safeguard and definitely supports it. - Two options are proposed into 8. believes that option 2 is more precise especially for balancing responsibilities and avoids subsidizing self consumption of energy on the same basis as energy delivered to the network. - suggests that option 2 (vi) should allow several types of supporting mechanisms and not only feed-in premiums, for example: o Annual payment proportional to the generation capacity of the installation (which would be closer to an investment aid); o Contracts for Difference.

3 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 3/9 Proposal Article 34 Investment aid for the promotion of energy from renewable sources 8. [The aid shall be granted in a genuinely competitive, technology-neutral bidding process on the basis of clear, transparent and non-discriminatory criteria, effectively ensuring that the aid is limited to the minimum necessary for delivering newly installed renewable energy. Such a bidding process shall comply with the following requirements: (i) (ii) (iii) (iv) (v) OPTION 1 (vi) It shall provide for the participation of a sufficient number of undertakings. The budget related to the bidding process shall be a binding constraint in the sense that not all bidders can receive aid. The aid shall be granted on the basis of the initial bid submitted by the bidder, thus excluding subsequent negotiations. The bidding process shall be open to bidders from all EEA countries. Member States shall ensure that a cooperation mechanism is in place with the countries in which bidders may be located. Member States may require that the bidder ensures that it is able to deliver the electricity to the Member State granting the aid. A cap may be imposed for each stage of the auction process to ensure that the bidding process is genuinely competitive in each stage. All technologies shall be able to make bids within the established cap and at each stage of the process while ensuring the cheapest technology cannot be overcompensated. The aid shall be granted in the form of a Feed-in Premium. (vii) (vii) OPTION 2 The bidders shall be made to bear standard balancing responsibilities and be subject to standard obligations regarding network connection and network connection charges in the Member State where electricity is produced. (vi)the aid shall be granted in the form of : (vii) (a) (b) (c) a Feed-in Premium for power generated, and sold on the electricity market. a Contract for Difference for power generated, and sold on the electricity market. an Investment Aid for maximum power capacity deliverable on the electricity market. The bidders shall be made to bear the responsibility, in financial terms, for all deviations (imbalances) between their scheduled and actual generation within a given imbalance settlement period. Subject to commercial arrangements this responsibility can be outsourced to other balance responsible parties and shall be subject to standard obligations regarding network connection and network connection charges in the Member State where electricity is produced. Renewable producers shall not be exempted from obligations offering balancing services to the Transmission System Operators, where technologically possible.] (viii) By exemption to Article 4 (l), the notification threshold, within the meaning of Article 4, is increased to EUR 15 million per undertaking per investment project.

4 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 4/ Technology-specific aid understands that tailored aid can favour the emergence of new promising technologies and the improvement of existing technologies. However, wishes to point out that aid to specific projects or technologies, without any competition, has a real distortive potential, as shown by impact of RES support schemes on the electricity market, and are generally not cost-efficient. Therefore, stands that technology specific aid, when necessary to foster the emergence of promising technologies, should be granted to a limited number of installations, or should address strictly identified technology/sector specific market failures. To that purpose, recommends the following. Article 32 Investment aid for energy saving measures The main driver to promote energy efficiency is the energy price. However, in the demand side, notably in buildings, some energy efficiency measures, with very long payback periods involved, may not be driven by a price signal due to known market failures: lack of information and anticipation of residential consumers, and the situation of the building renovation sector (atomized into very small companies in most of the countries). believes that aid to energy efficiency should address in priority, or only, these identified market failures. Article 33 Investment aid for high-efficiency cogeneration Cogeneration including high efficiency cogeneration is a fully mature technology. It must be ensured that investment aid is focused on new, improved, CHPs and not to operation of existing CHPs. Like all technologies, CHP electricity shall be part of the market and fulfil the requirements on balancing and scheduling. In particular, priority access for CHP should be limited to exceptional situations: in situations where heat production creates must-run situations, believes that induced costs or reduced profitability on the electricity market should be recovered through heat supply, and not through subsidies. Article 34 Investment aid for the promotion of energy from renewable sources Article 34 details two possible RES support schemes: 4 to 7 is technology-specific, 8 technologyneutral. strongly believes that technology-neutral ( 8) scheme should be favoured over technologyspecific option ( 4-7) and that the latter should be strictly controlled.

5 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 5/9 Recital (34) 1.3. General remarks believes that aids to RES and cogeneration may be as distortive as any aid to non-renewable generation or to energy infrastructure. The main requirement ensuring that aids to some selected generation technologies do not have a significant distortive impact on the market is not the technology itself, but the strict control of the total annual budget of the scheme, as mentioned in article 1 2(a). Recital (57) welcomes the statement mentioning negative energy prices, showing that subsidies and priority dispatch to RES have effectively major consequences on the energy market. However, believes that the statement Renewable producers may continue production until the price falls below the value of the aid is not correct in many countries. Indeed, in countries where renewables are supported through feed-in tariffs with priority dispatch and, therefore, where RES revenues and volumes are not linked to the market, RES plants will continue to produce in any case, without considering the market price level. Moreover, the sentence On the one hand, such situation can force all producers to stop their production or to pay for production. On the other hand, it may incentivise the same producers to take demand response measures allowing them to react in more flexible way to falling electricity prices highlights a very strong market distortion and should not be mentioned as an positive example: producers not protected by the aid will have to pay to produce, or to pay to develop DR solutions (which is equivalent), with very few chances to recover these costs. Article 5 Transparency of the Aid In section 6, Environmental & Energy Aid, tenders are mentioned as a possible mechanism to support the development of low-carbon solutions. suggests that tenders should be mentioned in article 6 2 as a transparent aid scheme.

6 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 6/9 Proposal (34) Investments in assisted regions in favour of energy from renewable sources, co-generation and efficient district heating and cooling shall be allowed under the conditions laid down in the environmental section of this Regulation; this shall minimise their high distortive impact on the internal energy market and shall ensure an increased focus on cost efficiency. In view of their high distortive potential impact on the internal energy market, sstate aid to electricity generation from non-renewable sources and energy infrastructures shall not be exempt from the notification requirement of Article 108(3) of the Treaty. (57) Negative prices occur when there is oversupply of electricity. This may also occur due to favourable weather conditions. Renewable producers may continue production until the price falls below the value of the aid. On the one hand, s Such situation can force all producers to stop their production, or to pay for production,. On the other hand, it may incentivise the same producers or to use take demand response offers available on the market. measures allowing them to react in more flexible way to falling electricity prices. 1. This Regulation shall apply only to transparent aid. Article 5 Transparency of aid 2. In particular, the following categories of aid shall be considered to be transparent: (a) (b) (c) (d) (e) (f) (g) (h) aid comprised in grants and interest rate subsidies; aid comprised in loans, where the gross grant equivalent has been calculated on the basis of the reference rate prevailing at the time of the grant; aid comprised in guarantees: (i) (ii) where the gross grant equivalent has been calculated on the basis of safe-harbour premiums laid down in a Commission notice 1 ; or where before the implementation, the methodology to calculate the gross grant equivalent of the guarantee has been accepted following notification of that methodology to the Commission under a regulation adopted by the Commission in the State aid area, and the approved methodology explicitly addresses the type of guarantee and the type of underlying transaction at stake in the context of the application of this Regulation; aid comprised in fiscal measures, where the measure provides for a cap ensuring that the applicable threshold is not exceeded; aid comprised in risk finance measures if the conditions laid down in Article 19 are fulfilled; aid for start-ups if the conditions laid down in Article 20 are fulfilled; aid in the form of repayable advances, if the total nominal amount of the repayable advance does not exceed the thresholds applicable under this Regulation or if, before implementation of the measure, the methodology to calculate the gross grant equivalent of the repayable advance has been accepted following its notification to the Commission. aid granted through a competitive bidding process if the conditions laid down in Article 34 are fulfilled;

7 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 7/9 2. COMPANIES RECEIVING AID The Commission s goal is to ensure that state aid control is a tool promoting sound use of public resources and limiting competition distortions. There are counter-examples showing that aid to SMEs only is not cost-efficient per se: for example, the sector of energy efficiency in buildings, especially for SMEs and households, mainly relies on very small companies, whose natural market is too narrow to be really competitive, and with a very complex segmented value chain 1. Our experience in this sector showed us that, in this situation, direct support on the demand side, to households or SMEs, can finally lead to huge deadweight effects 2 as it does not encourage efficiently the providers of EE services to improve the quality of their offers or to make them cost-efficient. believes therefore that: - There is no reason why, under a strict control, large enterprises should be excluded from the Regulation. As mentioned in other consultations, public sector and SMEs are considering that large enterprises can bring unique and leveraging features to the table (investment capacity, critical size, employment, visibility...). - When aid shall only be granted to SMEs, all should be done to encourage a leverage effect, combining public and private support. Unfortunately autonomy of SMEs, as defined in annex II, do not allow such a leverage effect. Article 1 Scope, Article 6 Incentive Effect, Article 15 Regional investment aid supports the Alternative option proposed by the European Commission, under article 1 4 and article 6 3, and consistently under article 15. Annex II SME Definition, Article 3 Types of enterprise taken into consideration in calculating staff numbers and financial amounts. The current text states that, as soon as an upstream enterprise which is not a SME holds 25% or more of the capital or voting rights, a downstream enterprise cannot be considered as a SME. This approach implies that a SME cannot benefit from both public support and private funding, and decrease the possible leverage effect of aid. However, can understand the willingness of the European Commission to focus aid on competitiveness of small and medium enterprises. believes that this could be done more accurately by linking more closely antitrust and state aid regulations. To that purpose, the article 3 could be modified and simplified: an enterprise should be considered as autonomous as it is not controlled by one or more undertaking within the meaning the Regulation 139/2004 on the control of concentrations between undertakings. 1 See Energy Efficiency in Buildings, Business realities and opportunities, WBCSD See Willingness-to-Pay for Energy Conservation and Free-Ridership on Subsidization Evidence from Germany, Grösche & Vance, 2009 : around half of the subsidized households in Germany would have done an energy efficient investment, even without subsidies.

8 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 8/9 Proposal 4. This Regulation shall not apply to: (a) (b) (c) (d) Article 1 Scope aid schemes which do not explicitly exclude the payment of individual aid in favour of an undertaking which is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the internal market; ad hoc aid in favour of an undertaking as referred to in point (a); aid to undertakings in difficulty. ad hoc aid granted to large enterprises, except for ad hoc aid used to supplement aid granted on the basis of regional investment aid schemes. ALTERNATIVE OPTION: this provision deleted ad hoc aid to large enterprises is covered by the GBER, however, see stricter requirements as regards the incentive effect in Article 6] Article 6 Incentive effect 1. This Regulation shall apply only to aid which has an incentive effect. 2. Aid shall be considered to have an incentive effect if the beneficiary has submitted a written application for the aid in the form laid down in Annex IV to the Member State concerned before work on the project or activity has started. 3. SUPPLEMENTARY OPTION 1 FOR LARGE ENTERPRISES: Aid granted to large enterprises shall be considered to have an incentive effect if, in addition to fulfilling the condition laid down in paragraph 2, the Member State has verified, before granting the individual aid concerned, that documentation prepared by the beneficiary establishes one or more of the following criteria: (a) (b) (c) (d) (e) a material increase in the size of the project/activity due to the aid; a material increase in the scope of the project/activity due to the aid; a material increase in the total amount spent by the beneficiary on the project/activity due to the aid; a material increase in the speed of completion of the project/activity concerned; as regards regional investment aid referred to in Article 15, that the project would not have been carried out as such in the assisted region concerned in the absence of the aid.

9 Date : 28/06/2013 DAE/FGZ/2013/06/24/1 Page : 9/9 Proposal ANNEX II SME Definition Article 3 Types of enterprise taken into consideration in calculating staff numbers and financial amounts 1. An autonomous enterprise is any enterprise which : - is not classified as a partner enterprise within the meaning of paragraph 2, - or as a linked enterprise within the meaning of paragraph 3. - or which is not controlled by any persons or undertakings, within the meaning of Article 3 paragraph 2 and 3 of Regulation 139/2004 on the control of concentration between undertakings. 5. Enterprises may make a declaration of status as an autonomous enterprise, partner enterprise or linked enterprise, including the data regarding the thresholds set out in Article 2. The declaration may be made even if the capital is spread in such a way that it is not possible to determine exactly by whom it is held, in which case the enterprise may declare in good faith that it can legitimately presume that it is not owned as to 25% or more by one enterprise or jointly by enterprises linked to one another. Such declarations are made without prejudice to the checks and investigations provided for by national or Union rules. In particular, in case of a declaration as an autonomous enterprise on the basis absence of control within the meaning of Regulation 139/2004, enterprises may be asked to provide a due justification.