Commission adopts State Aid Temporary Crisis and Transition Framework

On March 9, 2023, the European Commission (the “Commission”) adopted the Temporary Crisis and Transition Framework (the “TCTF”), [1] which aims at broadening the possibilities for Member States to provide State aid to further support the transition to climate neutrality, in line with the Commission’s Green Deal Industrial Plan.[2]

The TCTF is applicable until December 31, 2025. It amends and prolongs in part the State Aid Temporary Crisis framework (the “TCF”) adopted on March 23, 2022 in the context of Russia’s war against Ukraine[3] and already modified in July and October 2022.[4]  The same day it adopted the TCTF, the Commission also revised the General Block Exemption Regulation (the “GBER”) to facilitate and speed up Member States’ support for the EU’s green and digital transitions.[5]

Extension of the temporal scope and TCF heritage.  The TCTF prolongs until December 31, 2025, the TCF’s deadline of December 31, 2023, except for measures relating to limited amounts of aid, liquidity support, high energy price compensation and support to reduce electricity demand, which can only be granted until December 31, 2023.[6]   However, the TCTF also relaxes the conditions for these measures : (i) it now allows calculation of maximum aid ceiling on a per Member State basis in Section 2.1 for the limited amounts of aid;[7] (ii) it adds flexibility in Section 2.2 relating to liquidity support in the form of guarantees, allowing for modulation in guarantee duration, premiums and coverage;[8] and (iii) it now allows advance payments of aid for additional costs due to increases in natural gas and electricity prices provided for in Section 2.4.[9]

New measures aimed at supporting net-zero economy investment projects.  Under the new Section 2.8 of the TCTF, Member States can now adopt aid schemes directly supporting private investments in specified strategic goods necessary for the transition towards the net-zero economy.[10]  

These good include batteries, solar panels, wind turbines, heat-pumps, electrolysers, and equipment for carbon capture usage and storage (CCUS), including their key components and related critical raw materials.[11]  The aid intensity may not exceed 15% (or 20 and 35% in specific assisted areas) of the eligible costs[12] and the overall aid amount may not exceed EUR 150 million (or EUR 200 and 350 million in specific areas) per undertaking per Member State.[13] 

Exceptionally, the TCTF introduces a clause allowing for higher individual support where there is a real risk of investments being diverted away from Europe.  In such situations, Member States may  grant the same amount of aid that the beneficiary could demonstrably receive for an equivalent investment in that alternative location outside the EEA (the so called “matching aid”), provided it does not exceed the amount needed to incentivize the company to locate the investment in the EEA (the so-called “funding gap”).  This additional support had been requested by many Member States and companies to allow the EU to compete with other locations in the race for strategic investments and in the context of the U.S. Inflation Reduction Act.  It is however subject to several safeguards aimed at allaying the fears by some Member States to be left behind by larger Member States with deeper pockets in the race for strategic investments:

• The matching aid can be granted only for (i) investments taking place in assisted areas, as defined in the applicable regional aid map;[14] or (ii) cross-border investments involving projects located in at least three Member States, with a “significant part” of the overall investment taking place in at least two assisted areas, and an “important part” of such significant investment taking place in an “a” area[15].  The TCTF does not provide any definition of the “significant part” and “important part” required in the assisted areas for such investments, which will have to be clarified by the Commission.      
• The beneficiary should use state-of-art production technology from an environmental emissions perspective.
• The aid cannot trigger relocation of investments between Member States.

In their application form, Member states granting the aid also need to provide specific information required in a new Annex II of the TCTF, including a non-relocation declaration, a short description of expected positive effects for the area concerned (e.g., contribution to the green and digital transition of the regional economy), and an explanation of the alternative investment or location decision if aid is not granted.  Just like under Section 2.4 of the TCF, Member States are invited to set requirements related to environmental protection or social security for granting aid.[16]

Broadening the scope for rollout of renewable energy and energy storage.  The TCTF broadens the scope of Section 2.5 (which covers projects in renewable energy and energy storage) to allow not only investment aid but now also operating aid relating to energy production from all types of renewables as defined in the Directive 2018/2001.[17]  In addition, this broader scope includes renewable hydrogen and hydrogen-derived fuels, but excludes electricity production from renewable hydrogen.[18] 

Concerning investment aid, State aid may be granted for (i) the production of energy from renewable sources; (ii) electricity storage and thermal storage; and (iii) investments in storage for renewable hydrogen, biofuels, bioliquids, biogas and biomass fuels.  New rules allow aid to be granted either through a competitive bidding process (covering 100% of total investment costs) or without competitive process and for an aid amount that can be administratively set (covering up to 45% of the total investment).  A competitive bidding process is mandatory for projects valued above EUR 30 million and concerning solar photovoltaic, onshore and offshore wind or hydropower installations.  

Besides investment aid, the TCTF now also allows operating aid.[19]  While investment aid may be granted in the form of direct grants, repayable advances, loans, guarantees or tax benefits, operating aid may be granted in the form of two-way contracts for difference, in relation to energy output of the installation and with a contract duration of up to 20 years.  The aid amount is either determined through a competitive bidding process or with a strike price set by the relevant energy regulator to cover expected net costs including an estimated WACC.

Clarification concerning aid for decarbonization of industrial activity.  The TCTF clarifies Section 2.6 of the TCF relating to decarbonization projects by (i) capping the allowed individual aid amount at EUR 200 million, (ii) clarifying that tax credits are an admitted form of the aid and (iii) defining the cumulative requirements fuels must comply with when aid is granted for an industrial decarbonization investment involving the use of renewable hydrogen-derived fuels.  In particular, fuels must (i) derive from renewable hydrogen, (ii) achieve lifecycle greenhouse gas emissions savings of at least 70% relative to a fossil fuel comparator of 94g CO2eq/MJ and (iii) be produced in accordance with the methodologies set out for renewable liquid and gaseous transport fuels of non-biological origin in Directive (EU) 2018/2001 and its implementing or delegated acts.[20]

Green deal GBER amendment.  To align with new State aid rules and other recent guidelines, the Commission also modified the GBER on March 9, 2023.  The GBER now offers more possibilities of block exempt aid in the area of environmental protection and energy until the end of 2026, for example investment aid for energy efficiency improvement.  New provisions are inserted on investment aid for the acquisition of clean vehicles and aid for the facilitation of energy performance contracting.  In particular, the amendment increases notification thresholds to align with new thresholds laid down in all recently revised Commission State aid Guidelines and Frameworks, to be set at EUR 100 000.[21]

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[1] Communication from the Commission Temporary Crisis and Transition Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia, not yet published in the Official Journal of the European Union; text available here.  See also Press release available here.

[2] Communication from the Commission, A Green Deal Industrial Plan for the Net-Zero Age, text available here. 

[3] See also Cleary Gottlieb’s previous Alert Memoranda, available here.

[4] See also Cleary Gottlieb’s previous Alerts Memoranda, available here and here.

[5] See Communication to the Commission, Approval of the content of a draft for a Commission Regulation amending Regulation No 651/2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty and Regulation (EU) 2022/2473 available here.  See also Press release available here.

[6] Sections 2.1, 2.2., 2.3, 2.4 and 2.7.

[7] See TCTF, para. 61.

[8] See TCTF, para. 67 (c).

[9] See TCTF, para. 74.

[10] See TCTF, para. 84.

[11] See TCTF, para. 85.

[12] The eligible costs relate to all investment costs in tangible and intangible assets required for the production or recovery of the strategic goods.  See Communication from the Commission of March 9, 2023, para. 85, (f). 

[13] Aid can either granted by (i) direct grants or (ii) tax advantages, subsidized interest rates on new loans or guarantees on new loans, and in this second case (ii), aid intensity may be increased by 5% (or by 10% for SME and 20% for small enterprises). 

[14] Regional Aid maps 2022-2027 are available here.

[15] Outermost regions or regions whose GDP per capita is below or equal to 75% of the EU average.

[16] See Communication from the Commission of March 9, 2023, para. 38.

[17] Energy from renewable non-fossil sources, not only wind, solar (solar thermal and solar photovoltaic) and geothermal energy but also ambient energy, tide, wave and other ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, and biogas.  See Article 2 (1) of Directive (EU) 2018/2001 of 11 December 2018 on the promotion of the use of energy from renewable sources (OJ L 328/82, 21.12.2018).

[18] See TCTF, para. 77.

[19] See TCTF, para. 78

[20] See TCTF, para. 81, (h).

[21] This threshold is EUR 10 000 for beneficiaries active in primary agricultural production and for beneficiaries active in the fishery and aquaculture sector, and EUR 500 000 for aid involved in financial products supported by the InvestEU fund.