EUROPEAN COMMISSION Brussels, 22.03.2011 C (2011) 1951 PUBLIC VERSION WORKING LANGUAGE This document is made available for information purposes only. Subject: State aid SA. 32470 2011/N FI Fixed operating aid for power plants using renewable energy sources Sir, 1. PROCEDURE 1. By electronic notification of 26 January 2011, registered by the Commission on the same day (SANI 5459), the Finnish authorities, in accordance with Article 108(3) of the Treaty on the Functioning of the European Union ("TFEU"), notified 1 the aid scheme "Fixed operating aid for power plants using renewable energy sources". The Finnish authorities provided further clarifications by email of 1 March 2011. 2. The measure was notified as a prolongation and modification of a previously approved State aid measure concerning operating aid to power plants (Commission decision in N893/2006) 2. 2. DESCRIPTION 2.1. Objective 3. The main objective of the notified measure is to increase energy production from renewable sources based on wind power, hydro power, biogas and forest chips. The Finnish authorities refer in this context to the mandatory targets of Directive 2009/28/EC on the promotion of the use of energy from renewable sources (thereinafter "the Renewables directive") 3. The mandatory 2020 target for Finland was set at the level of a 38% share of the energy generated from renewable sources on gross final energy 1 2 3 The notified measure was pre-notified on 19 July 2010 (registered under PN 184/2010). OJ C 218,18.9.2007, p. 4. Directive 2009/28/EC 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, 5.6.2009, p. 16. Commission européenne, B-1049 Bruxelles Belgique, Europese Commissie, B-1049 Brussel België, Telefón: 00-32-(0)2-299.11.11.
consumption, i.e. Finland is obliged to increase this renewable share from 28.5% in 2005 to 38% by 2020. 4. The Finnish authorities confirmed that the aid is only granted for the promotion of renewable energy sources as defined in the Community Guidelines on State Aid for Environmental Protection (hereinafter referred to as "the Environmental Aid Guidelines") 4, and in particular point 70(5) of these guidelines. 2.2. Scope of the notification, legal basis, granting authority 5. The notification concerns operating aid for the generation of electricity from forest chips, wind power, biogas and hydro power. Recovered fuels will not be supported under the notified measure (contrary to the previous scheme N893/2006). The operating aid does not include support for high efficiency cogeneration. 6. The aid measure will not apply in Åland. 7. The legal basis is the Act on operating aid for electricity produced from renewable energy sources (1396/2010). 8. The Energy Market Authority (thereinafter "the EMA") is the granting authority for the notified measure. The EMA will supervise compliance with the criteria of the aid system and conditions set in the related legislation, calculate the total amount of aid payable to each installation and provide the operating aid accordingly. 9. The producers who are going to be beneficiaries of the operating aid system have to make an application for registration to the EMA. Beneficiaries could apply for payment afterwards based on electricity production during a calendar year. In the application beneficiaries have to deliver verified information about produced electricity from renewable energy sources. 10. The EMA also approves verifiers who will be licensed to verify the amount of produced renewable energy and the qualification of installations for the aid. The verifiers must be accredited in accordance with EU rules 5. 11. The Ministry of Employment and the Economy will be responsible for the general guidance, monitoring and development of the aid system. 2.3. Duration, budget 12. The aid will be granted under the notified scheme as from the Commission's approval of the measure. The duration of the scheme is until 1 February 2016. The Finnish authorities confirm that they will notify the scheme in 5 years following the approval if it becomes necessary to extend the duration of the scheme. 4 5 OJ C 82, 1.4.2008, p. 1. Regulation (EC) No 765/2008 of the European Parliament and of the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93. 2
13. The total budget for the 5 year period is estimated at EUR 21.35 million. The estimated annual budget for the year 2012 is EUR 3.35 million and for the years 2013-2016 the annual budget is estimated to be EUR 3.5-4.5 million. 2.4. Beneficiaries 14. The installations which are eligible for support are those wind power, hydropower, biogas and forest chips installations which are connected to the electricity network. The installation has to be located in Finland or its territorial waters. 15. The generator capacities of eligible hydropower plants must be less than 1 mega volt ampere (MVA). 16. The aid will be paid if the eligible electricity production of the installation is over 200 MWh per calendar year whereas in the previous aid measure (N893/2006), aid was paid if eligible electricity production of the installation was over 100 MWh per calendar year. 17. The expected number of beneficiaries will be approximately 100 installations. 2.5. Form of the aid, aid amount, aid intensity 18. The aid is granted in the form of a direct grant, calculated per MWh electricity produced, and financed through the State budget. The aid level and the aid calculation will remain the same as in the previous scheme N893/2006. The aid amounts for the different renewable energy sources supported are as follows: Generation type Wind power Power from biogas Power from forest chips Hydropower < 1 MVA Table 1: Aid amounts (Source: Finnish authorities) Aid amount 6.9 EUR/MWh 4.2 EUR/MWh 6.9 EUR/MWh 4.2 EUR/MWh 19. Specifically as regards power from biogas and forest chips, the aid is granted for cofiring of forest chips and peat as well as for co-firing of bio-gas and natural gas. In such case, the aid will be granted and paid just for electricity generated from forest chips or bio gas. According to the Act on operation aid for electricity generated from renewable energy sources, beneficiaries have to have a reliable book keeping system so that verifiers can validate the share of renewable sources from total energy production of a power plant. In this context, the Finnish authorities also provided calculation examples. 2.5.1. Wind power, hydropower and power from biogas 20. The Finnish authorities provided production costs of electricity generated by wind power, hydro-power and biogas. The calculations for wind power represent wind mills with a capacity of 0,5 MW, the calculations for biogas represent installations with a capacity of 59 kw and the calculations for hydropower represent installations with a capacity of 1 MW. 3
21. The productions costs of electricity produced from wind power and biogas are calculated according to the following formula: production costs = (costs-revenues) / electricity Where: - costs = annuity + operating costs + fuel costs - revenues = incomes from heat sale + value of heat compensating bought heat + incomes from received waste - electricity = installed capacity MWe * annual operating hours - operating costs = operating and service costs + balance management costs + tax on real estate - annuity = investment * annuity factor for capital 22. The annuity method converts the investment costs to the annual level, taking into account the required return on invested capital over the economic lifetime of the installations 6. The applied required rate of return is 6,5% for biogas and (micro) hydro power installations and 8,5% for wind power installations. 23. The production cost calculations represent the typical production costs of electricity generated from wind power, hydropower and biogas. 24. In order to calculate the aid intensity, the Finnish authorities compared the production costs with a market price of electricity of 50 EUR/MWh. In the last few years, the average market price for electricity on the Nordic Power Exchange, NordPool, has fluctuated as follows: Year Market price (EUR /MWh) 2004 27,68 2005 30,53 2006 48,57 2007 30,01 2008 51,02 2009 36,98 Table 2: Market price fluctuations (Source: Finnish authorities) 25. On the basis of the figures explained above, the Finnish authorities provided the following calculations for the aid intensity 7. Typical production costs Market price of electricity Extra production costs Capacity Subsidy Aid Technology (MW) (EUR/MWh) (EUR/MWh) (EUR/MWh) (EUR/MWh) intensity Wind power (inland) <0,5 103,86 50 53,86 6,9 13% 6 Wind power (fell area) <0,5 90,02 50 40,02 6,9 17% Wind The economic power (on-shore) lifetime of hydro <0,5power installations 84,65 is considered to 50 be 20 years, 34,65 of wind power installations 6,9 20% 15 years and of biogas installations 12 years. Bio-gas <0,1 273,56 50 223,56 4,2 2% 7 Micro The aid hydro intensity power will be below <1 50% if the extra 86,16 production costs are 50 EUR/MWh 36,16 13,8 for wind 4,2 power and 12% EUR/MWh 8,4 for bio-gas and micro hydropower, at the subsidy levels provided for (EUR/MWh 6,9 and EUR/MWh 4,2 respectively). 4
Table 3: Aid intensity (Source: Finnish authorities) 26. If the average market price of electricity is over 76.6 EUR/MWh during a calendar year, no aid will be paid for electricity generated by wind power, biogas or hydropower. Furthermore, the Finnish authorities confirmed that apart from the limitation set by this market price, a maximum aid intensity of 50% will be respected. 2.5.2. Power from forest chips 27. As regards forest chips, the Finnish authorities explain that the aid for forest chips is intended to compensate higher fuel costs of installations using forest chips compared to installations using fossil fuels and particularly fuel peat. These projects may already have started before the application of the aid. As regards specifically the aid for forest chips plants to cover the higher fuel costs, it may also include already depreciated plants. 28. The operating aid of 6.9 EUR/MWh for forest chips fired power plants is granted in order to compensate higher production costs of installations using forest chips compared to installations using fossil fuels and particularly fuel peat. According to the Finnish authorities, the founding concept is to make electricity producers choose forest chips before peat and other fossil fuels 8. 29. Considering the co-firing character of the eligible plants and the production costs comparison (as presented below in Graph 1), the operating aid for forest chips power plants compensates exclusively higher fuel costs of co-firing plants using forest chips instead of fossil fuel (peat). Cost structure of power plants Planned aid Fuel costs Other variable costs Fixed costs Forest chips fired power plant Peat fired power plant Graph 1: Cost structure of co-firing power plant (source: Finnish authorities) 8 A typical situation is that an actor has the capability to use forest chips, fossil fuels and fuel peat in a multi-fuel fired boiler. 5
30. As regards in general the level of production costs after depreciation, the Finnish authorities provided the following example of a representative installation showing that the level of fuel costs exceeds the market price of electricity. In the case of producing additional condensing power in a plant co-firing forest chips (which is not connected to specific heat load), the running fuel costs of the plant are EUR/MWh 70 (EUR/MWh 21/0,3). According to the Finnish authorities an efficiency of 30 % is a typical value for the production of additional condensing power in such plants. The running fuel costs thus are higher than the market price of EUR/MWh 50 (also when including the operating aid of 6.9 EUR/MWh). 2.5.2.1. Calculation method 31. In light of the fact that the aid to forest chips plants is granted in order to compensate for the increased fuel costs, the Finnish authorities first calculated the "needed capability to pay for forest chips" 9. This was determined at the level of 21 EUR/MWh on the basis of the modelling of all technical potential to utilise forest chips. The modelling was carried out by Pöyry Management Consulting Plc. and included the following elements: all power plants which might use forest chips as fuel (includes power plants under construction and planning as well); technical limits and potential of power plants to use forest chips, all energy sources (forests) which might be used forest chips production (including theoretical, technical and economical potential of logging wastes and stumps and small diameter wood); wood demand of forest industries. 32. Second, the Finnish authorities calculated the forest chips plants capability to pay for forest chips which depends on the costs of competing fuels. The costs of competing fuels (which is mainly peat) are the sum of the: market price of fuel; the market price of emission allowances and the tax burden of peat. The capability to pay for forest chips can thus be expressed as: Capability to pay for forest chips = market price of peat + tax burden of peat + costs of emission allowances. 33. With the aim to compensate, at most, the difference between the needed capability to pay and the actual capability to pay for forest chips, operating aid of 6.9 EUR/MWh for electricity will be applied when the EU emissions allowance price is lower or equal to 18 EUR/tCO 2 10 (see also section 2.5.2.2). The actual aid amount granted in order to cover higher fuel costs is calculated by multiplying the aid (6.9 EUR/MWh) by the average efficiency of the installation and by the typical proportion of electricity generation of such installation 11. 9 10 11 This is the price a beneficiary would need to be able to pay for forest chips in order to choose to use forest chips in its power plant. The needed capability to pay of 21 EUR/MWh, at an aid level of 6.9 EUR/MWh, will be reached under the notified measure, when the market price of emission allowances is 18 EUR/CO 2 tons. E.g. for an industrial cogeneration installation the aid amount to cover the higher fuel costs would be: 6.9 (operating aid)*0.85 (average efficiency) *0.25 (proportion of electricity) = EUR/MWh 1.466 (actual aid amount). See table 4. 6
2.5.2.2. Absence of overcompensation 34. The aid amount is set at a fixed level of 6.9 EUR/MWh and paid out until the aid together with the capability to pay of the beneficiary (without the aid) would exceed the needed capability to pay for forest chips. An overview of the calculations is presented in the tables 4-6 below. Table 4 CHP industrial (Source Finnish authorities) Table 5 CHP district heating (Source Finnish authorities) A B C D E Price of emission allowances, EUR/CO2,t Needed capability to pay for forest chips EUR/MWh,f Capability to pay for forest chips (without subsidies), EUR/MWh,f Aid level, EUR/MWh,f Capability to pay for forest chips EUR/MWh,f C+D 5 21 14,05 1,96 16,01 10 21 15,95 1,96 17,91 15 21 17,86 1,96 19,82 18 21 19,00 1,96 20,96 20 21 19,77 0,00 19,77 Table 6 Condensing power (Source Finnish authorities) 35. As can be seen from in particular table 5, the needed capability to pay of 21 EUR/MWh will be reached when the market price of emission allowances is 18 EUR/CO 2 tons, at an aid level of 6.9 EUR/MWh as under the notified measure. 7
2.6. Cumulation 36. The aid to be granted under the notified measure cannot be cumulated with other operating aid for the same eligible costs (i.a fuel) 12. The installations eligible for the operating aid under the notified scheme can also be eligible for investment aid 13. In this respect, the Finnish authorities confirmed that the combined effect of the two aid schemes will be taken into account by adjusting the amount of the investment aid granted to power plants receiving operating aid. 2.7. Other information 37. The Finnish authorities will monitor the production costs and market price of fuels on a yearly basis and adapt the aid in case it becomes necessary in order to exclude the overcompensation. The Finnish authorities confirm that modifications of the tax burden values will be taken into account the aid amount calculations. 38. The Finnish authorities will adapt the aid for forest chips fired power plants if it becomes necessary in order to exclude overcompensation. 39. Furthermore, the Finnish authorities explicitly confirm that the aid level will be adapted if it becomes necessary in order to exclude overcompensation in the light of the maximum aid intensity of 50% for biogas, wind power and hydropower plants. 40. The Finnish authorities confirm that they will comply with the annual reporting and monitoring obligations as laid down in Sections 7.1 and 7.3 of the Environmental aid guidelines. 41. Furthermore, the Finnish authorities also confirmed that in case the resulting renewable electricity generation capacity of an installation exceeds 125 MW, the aid will be notified individually to the Commission. 3. ASSESSMENT 3.1. State aid within the meaning of Article 107(1) TFEU 42. State aid is defined in Article 107(1) TFEU as any aid granted by a Member State or through State resources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods in so far as it affects trade between Member States. 43. It is recalled that the Commission came already to the conclusion that the notified measure constitutes State aid in its decision concerning State aid N893/2006 and it sees no reason to take a different view on the measure following the notified prolongation and amendment 44. For completeness, it is recalled that the notified aid measure allows the beneficiaries to be relieved, by means of State resources transferred directly from the State budget, of a 12 13 The Finnish notified two other measures for the support of renewable energy, registered under SA.31107 and SA.31204. Decision N 359/2007 - Finland Prolongation and modification of aid scheme N 75/02 for the energy sector. 8
part of the costs which they would normally have to bear themselves. Consequently, the financial aid from the State (granted by the Energy Market Authority a public body 14 ) strengthens the position of beneficiaries in relation to their competitors in the EU and therefore has potentially distorting effects on competition. The energy produced by the beneficiary companies concerned might be subject to intra-community trade therefore the aid is likely to affect trade between Member States 45. Accordingly, the Commission concludes that the notified measure constitutes State aid within the meaning of Article 107(1) TFEU. 3.2. Lawfulness of the aid 46. By notifying the aid measure before its implementation, the Finnish authorities fulfilled their obligation according to Article 107(3) of the TFEU. 3.3. Compatibility of the aid 47. The Commission has assessed the compatibility of the notified scheme according to Article 107(3)(c) TFEU and in the light of the Environmental Aid Guidelines. 48. Given the fact that the notified measure concerns operating aid for renewable energy sources, the compatibility conditions laid down in Section 3.1.6.2 (operating aid for renewable energy sources) apply. The operating aid for wind power, hydropower and biogas plants will be assessed in particular in view of point 111 (Option 3) of the Environmental Aid Guidelines and the operating aid for forest chips plants in particular in view of point 109c (Option 1) of the Environmental Aid Guidelines. 49. As a preliminary point, the Commission notes that the Finnish authorities have confirmed that the aid is only granted to renewable energy sources as defined in point 70(5) of the Environmental Aid Guidelines. 50. In accordance with point 107 of the Environmental Aid Guidelines, the aid is granted to cover the difference between the cost of producing energy from renewable energy sources and the market price of the form of energy concerned. 3.3.1. Aid for wind power, hydropower and biogas plants 51. Pursuant to point 111 of the Environmental Aid Guidelines, the aid is granted in accordance with point 100 of the Guidelines, respecting an aid intensity of 50% of the extra costs. 52. The Finnish authorities submitted figures showing that the aid intensity does not exceed 50% of the extra costs (summarised in table 3). In this respect, the Finnish authorities submitted detailed calculations determining the production costs, illustrated by several calculation examples for wind power, biogas and hydropower plants. 53. As regards respecting the aid intensity, the Finnish authorities confirmed that monitoring of the production costs and market price of fuels will be carried out at least once a year. 14 The Energy Market Authority is an expert body subordinate to the Ministry of Employment and the Economy. 9
54. The Finnish authorities confirmed that the aid is subject to a limited duration of five years. The Finnish authorities confirmed that the aid level will be adapted in order to exclude overcompensation. 55. In case of co-firing of biogas with natural gas, the Finnish authorities will continue to ensure that the aid is granted only for the electricity generated from renewable energy sources. 56. The Commission thus comes to the conclusion that the fixed aid amounts to be granted under the notified measure for biogas, wind power and hydropower plants respect the maximum 50% aid intensity of the extra production costs. 3.3.2. Aid for forest chips plants 57. The aid for forest chips plants is assessed on the basis of point 109c of the Environmental Aid Guidelines which allows aid to be granted when the aggregate costs after plant depreciation are still higher than the market price of the energy. 58. The Commission notes in this context that the aid will cover the increased fuel costs linked to use of forest chips instead of fossil fuels, in particular peat. The beneficiaries of this type of aid are co-firing plants, where the fuel costs represent the only difference between production costs of electricity from forest chips and from fossil fuel (peat) as shown in Graph 1 above. 59. As explained above in points (31) (35), the fixed aid amount of 6.9 EUR/MWh is used to compensate (part of) the increased fuel costs of forest chips plants as a result of using forest chips instead of peat. The Finnish authorities submitted a detailed calculation methodology and calculation examples (presented in tables 4-6 above) showing the beneficiary's capability to pay for forest chips and the effect of the aid on that capability. 60. The Commission notes in this context that the determination of the needed capability to pay is based on a specialised study as described in detail in point (31) above. Furthermore, the Commission notes that the aid will be granted only until the aid together with the capability to pay of the beneficiary (without the aid) exceeds the needed capability to pay for forest chips. 61. The Finnish authorities also submitted a theoretical example based on the production of additional condensing power in a plant co-firing forest chips showing that the running fuel costs (which in general form only a part of production costs after plant depreciation) are still higher than the market price of electricity. 62. Finally, in order to avoid overcompensation, the Finnish authorities confirmed that they will monitor the production costs and market price of fuels on a yearly basis and adapt the aid in case it becomes necessary in order to exclude overcompensation. In addition, the Finnish authorities confirmed that modifications of the tax burden values will be taken into account in the aid amount calculations. 63. Considering the co-firing character of the eligible plants, the Finnish authorities will continue to ensure that only the renewable energy part receives the aid and submitted a detailed methodology illustrated by a calculation example describing the determination of the amount of electricity generated from forest chips and thus eligible for aid. 10
3.3.3. General compatibility requirement of the Environmental aid guidelines 64. The Commission notes that the Finnish authorities undertook to re-notify the measure under assessment in five years following the date of the Commission approval. 65. The Finnish authorities also confirmed that, in case the resulting renewable electricity generation capacity of an installation exceeds 125 MW, the aid will be notified individually to the Commission. Furthermore, the Finnish authorities undertook to respect the annual reporting and monitoring provisions of the Environmental Aid Guidelines as laid down in sections 7.1 and 7.3. 66. As regards the incentive effect of the aid to be granted, the Commission notes that the calculations provided by the Finnish authorities show that the production costs of electricity from renewable energy sources are higher than the expected electricity market price. Hence, without the notified aid, there would be an insufficient incentive to undertake or continue the generation of electricity from renewable energy sources as such activity would be unlikely to be economically viable. 67. Taking into account that no other operating aid for the same eligible costs can be granted, and that the operating aid is taken into account when possible investment aid is granted, the Commission considers that the rules of the Environmental Aid Guidelines are complied with. 68. Accordingly, and based also on the confirmations concerning the absence of overcompensation, the Commission comes to the conclusion that the notified scheme complies with the Environmental guidelines and is therefore compatible with the common market in accordance with Article 107(3)(c) TFEU. 4. DECISION 69. The Commission finds that the aid scheme "Fixed operating aid for power plants using renewable energy sources" is compatible with the common market in accordance with Article 107(3)(c) TFEU and has therefore decided not to raise objections to the notified measure. 70. The Commission reminds the Finnish authorities that, in accordance with Article 108(3) TFEU, plans to refinance, alter or change this scheme have to be notified to the Commission pursuant to provisions of Commission Regulation (EC) No 794/2004 implementing Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 [now 108] of the EC Treaty 15. 71. If this letter contains confidential information, which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/eu_law/state_aids/state_aids_texts_en.htm 15 OJ L 140, 30.4. 2004, p.1. 11
Your request should be sent by registered letter or fax to: European Commission Directorate-General for Competition State Aid Greffe B-1049 Brussels Fax No: 32 2 296 12 42 Yours faithfully, For the Commission Joaquín ALMUNIA Vice-President 12