Second Amendment to the State Aid Temporary Crisis Framework

On October 28, 2022, the European Commission (the “Commission”) prolonged and amended for the second time the State Aid Temporary Crisis framework (the “TCF”)[1] adopted on March 23, 2022[2], after its first amendment of July 20, 2022[3].

With this new modification, the Commission aims to: (i) extend the TCF temporal scope until end of 2023; (ii) increase the ceilings set out for limited amounts of aid; (iii) introduce additional flexibility for liquidity support to energy utilities; (iv) increase flexibility and support possibilities for companies affected by rising energy costs; (v) introduce anew categoryof aid aimed at supporting electricity demand reduction ; and (vi) clarify the criteria for the assessment of recapitalisation support measures.

This amendment follows a consultation the Commission started on October 5, 2022 with the Member States to respond to unprecedent rising energy prices caused by the current energy crisis^[4].  The main idea of this amendment is to incentivise the reduction of energy consumption, in line with the Council Regulation (EU) 2022/1854 adopted on October 6, 2022, to reduce the energy bills for European citizens and businesses.[5] 

Extension of the temporal scope until December 2023.  The TCF will remain into effect until December 31, 2023 (instead of December 31, 2022) and the Commission doesn’t seem to exclude a priori further extension in the future.[6] The provisions of the new TCF will also apply to measures notified prior to October 28, 2022.  Measures granted in form of repayable instruments may be converted into other forms of aid, such as grants, by June 30, 2024 at the latest.[7]

Increased ceilings for limited amounts of aid.  The TCF now enables Member States to set up schemes granting each individual affected undertakings up to €2 million (instead of up to €500,000) in any form of aid (direct grants, tax advantages, repayable advantages, guarantees, loans or equity).  The specific caps applying to aid granted to undertakings active on the one hand in the agriculture and on the other hand, in fisheries and aquaculture sectors, are now increased to €250,000 and €300,000 per undertaking, respectively.  The aid can granted either directly to the final beneficiary or channelled through an energy supplier (in that case, with a mechanism ensuring the aid is passed on the final beneficiary while preserving competition between suppliers).[8]

Additional flexibility in liquidity support to energy utilities in the form of State guarantees and subsidized loans for their trading activities. The TCF now also enables Member States to provide subsidized State guarantees on bank loans to large enterprises that need to provide financial collaterals for trading activities on energy markets, to cover liquidity needs derived from these activities from the moment of granting for the next coming 12 months.[9]  The coverage of public guarantees provided as unfunded financial collateral can exceed 90%, under specific conditions.[10] This is in line with the Delegated Act adopted by the Commission on 18 October 2022,[11] which allows for the use of uncollateralized bank and public guarantees as eligible collateral for meeting margin calls.

Increased flexibility and support possibilities for companies affected by rising energy costs.  The maximum ceiling of State aid to affected undertakings to cover additional costs arising from exceptionally severe increases in the price of natural gas and electricity has been increased up to €4 million (instead of the initial €2 million).  The overall aid per beneficiary may not exceed 50% (instead of the initial 30%) of the eligible costs.  

The amendment clarifies the eligible costs calculation, to reflect the consumption of energy directly produced from gas and electricity.  The difference between (i) the average price per unit consumed by the beneficiary in the eligible period (in a given month or a period of several months from February 2022 to the end of December 2023) and (ii) 150% (instead of the initial 200%) of the average price per unit consumed by the beneficiary in the reference period,[12] is now multiplied by the quantity procured from external suppliers and consumed by the beneficiary as a final consumer . [13]

The new framework increases the possibilities for Member States to grant aid in excess of the abovementioned values.  The overall aid now can go up to €100 million per undertaking (or €50 million for energy-intensive businesses or €150 million for the sectors listed in Annex I), if it doesn’t exceed 40% of the eligible costs per beneficiary (or 65% for “energy-intensive businesses” under Article 17(1)(a) of the Energy Taxation Directive[14] or 80% for the sectors listed in Annex I).

In addition, the amendment introduces a requirement whenever the overall aid per undertaking exceeds €50 million: the aid beneficiary must submit to the competent authority a plan specifying how carbon footprint reduction (or other environmental protection objectives) will be achieved, within a period of one year after the granting of the aid.[15]

New measures aimed at supporting electricity demand reduction.  Under specific conditions, the TCF now enables Member States to set up schemes in order to provide, through a competitive bidding process, financial compensation for additional electricity not consumed compared to the expected consumption, i.e. for additional demand reduction.[16]  This is in line with Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices.^[17]

Recapitalisation support measures.  Finally, this amendment now allows   for recapitalisation support measures that Member States may grant under the TCF.  In particular, the support measure must be (i) necessary, appropriate and proportionate, i.e. must not go beyond restoring the capital structure of the beneficiary to the one predating the crisis ; (ii) not granted to a company belonging to or being taken over by a larger business group, except in specific circumstances where the company’s difficulties are not the result of an arbitrary allocation of costs within the group and the group itself cannot solve these difficulties; (iii) involve adequate remuneration of the State; (iv) when it takes the form of subordinated debt or other hybrid capital instruments, be accompanied by a remuneration that adequately factors in the characteristics of the instrument chosen; (v) be accompanied by appropriate competition measures to preserve effective competition, including a ban on dividend and bonus payments and acquisitions.  The Commission may also request a notification of a restructuring plan by the Member State.[18]

Aids so far approved To date, the Commission has approved more than 150 different State aids schemes under the TCF, for a total amount of approximately €375 billion.  Recently, Germany also notified an important scheme under the TCF for an amount of €49 billion to compensate natural gas, heat and electricity prices increases.^[19]

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[1] Communication from the Commission Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia, (OJ C 426, 9.11.2022, p. 1-34).

[2]Communication from the Commission Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia, (OJ C 131I , 24.3.2022, p. 1-17).  See also Cleary Gottlieb’s previous Alert Memoranda, available here.

[3] Communication from the Commission Amendment to the Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia, (OJ C 280, 21.7.2022, p. 1-13).  See also Cleary Gottlieb’s previous Alert Memoranda, available here.

[4] See Press release from the Commission of October 6, 2022, State aid: Commission consults Member States on proposal to prolong and amend Temporary Crisis Framework, available here.

[5] Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices, (OJ L 261 I, 7.10.2022, p. 1).

[6] See Press release from the Commission of October 28, 2022, available here.

[7] See Communication from the Commission of October 28, 2022, para. 57 and 66.

[8] See Communication from the Commission of October 28, 2022, para. 29.

[9] See for an example, the Press release from the Commission of December 20, 2022, State aid: Commission approves up to €34.5 billion German measure to recapitalise energy company Uniper SE in context of Russia’s war against Ukraine, available here.

[10] See Communication from the Commission of October 28, 2022, para. 61, (g).

[11] Commission Delegated Regulation 2022/2311 of 21 October 2022 amending the regulatory technical standards laid down in Delegated Regulation 153/2013 as regards temporary emergency measures on collateral requirements, OJ L 307, 28.11.2022, p. 31-33.

[12] The period from January 1, 2021 to December 31, 2021.

[13] See Communication from the Commission of October 28, 2022, para. 66.

[14] See Council Directive 2003/96/EC of October 27, 2003, OJ L 283, 31.10.2003, p. 51.

[15] See Communication from the Commission of October 28, 2022, para. 77.

[16] See Communication from the Commission of October 28, 2022, para. 75.

[17] See. Council Regulation (EU) 2022/1854 of 6 October 2022, supra.

[18] See Communication from the Commission of October 28, 2022, para. 31 and 32.

[19] SA.104606, Temporary cost containment of natural gas, heat and electricity price increases, Germany, 21 December 2022, €49 billion.