Europe's energy dependence has been noted for years, but after the Russian military aggression in Ukraine, the problem has become even more concrete. As, the European Union is now diligently willing to end the dependence on Russian fossil fuels as soon as possible and in good time before 2030, the Commission released REPowerEU plan in May 2022. The remaining gas demand, both natural gas and LNG, shall be satisfied through diversification of suppliers, as have been done already with partners such as, among others, Norway, the United States and Egypt.
The desired change is not an easy task to put in action, and therefore the plan is packed by financial and legislative measures for building the new energy infrastructure and system that Europe needs. In this short update, we are going to review two of the most recent measures proposed by the Commission to ease the challenges faced by Member States and companies due to the energy crisis; state aid temporary crisis framework and joint purchases of gas.
After the release of REPowerEU, the Commission has published numerous new measures as a response to the energy crisis. Especially October was a month of decisions, that may have far-reaching effects. Today, energy companies are struggling with increasing costs, and especially with rising guarantee requirements, that may push energy companies to the brink of a cash crisis. As a response to this, the Commission has relaxed some of the state aid rules. The temporary crisis framework (“TCF”) was first introduced in March 2022, and further amended in July 2022 to take into account and complement the measures for winter preparedness package.
In March, the Commission authorised Member States to use the flexibility foreseen understate aid rules by virtue of SEUT article 107, as well as complemented the existing state aid instruments by a range of other options. The new framework enabled Member States to (i) grant limited amounts of aid to companies affected by the current crisis; (ii) ensure that sufficient liquidity remains available to businesses in the form of state guarantees and subsidised loans; and (iii) compensate companies, in particular intensive energy users, for the additional costs incurred due to exceptionally high gas and electricity prices.
Ultimately on 28th October 2022, the Commission decided to prolong the state aid temporary crisis framework by one year, until the end of 2023. After consulting Member States, the Commission considered necessary to also further amend the framework and provide new tools for companies to survive from the energy crisis.
First, as a result of the amendments published in 28 October 2022, the framework ceiling for state aid was increased (EUR 250 000 and EUR 300 000 for companies active in agriculture, fishery and aquaculture, and up to EUR 2 million for companies active in other sectors). Second, the solvency support for energy companies is now enhanced by allowing Member States, to provide public guarantees for loans with a coverage of more than 90%, under certain strict conditions. Third, state aid for companies suffering from the high energy prices is now more flexible, as the aid may be calculated based on either past or current energy consumption. Moreover, the amendments clarifies the criteria for the assessment of recapitalisation support measures.
Each Member State may grant state aid for the companies, provided that the aid is in line with the TCF rules and that the Commission has approved the national framework aid programme of the Member State concerned in advance. For example, the Commission has accepted Finland’s scheme to partly compensate the high costs resulting from the EU ETS for energy-intensive companies and thus reduce the risk of carbon leak of the Finnish energy industry.
As discussed above, diversifying the gas suppliers is important in ensuring the security of supply, whilst ending the energy dependence on Russia. On the other hand, in relation to the security of supply it is also important to ease the competition between the Member States on gas, which in turn, raises the prices and may jeopardise the supply of gas to certain operators. In response to this, the Commission recently published its emergency regulation proposal on joint gas purchases (COM 2022/549).
According to the proposal, all natural gas undertakings and gas-consuming undertakings established in the European Union or partners to energy communities, may participate in joint purchases under the EU Energy Platform. By combining the demand, better prices can be bid in the gas market. This may help market players to access contracts with better conditions and even more importantly, ensure the security of supply for smaller Member States and companies, that are at higher risk.
Joint purchasing is, according to the Commission’s proposal, especially important for ensuring that the gas storages are successfully filled for next year. To this end, temporary joint purchasing tool shall be developed and ready for use by spring 2023, so that it can be used for refilling next year’s gas storages. It shall be noted that in principle, participating in joint purchasing is voluntary. However, the Commission proposes the demand aggregation as mandatory for next year’s gas storage volumes, which is 15% of the storage targets.
All in all, the joint purchasing may result in more equal access to gas between Member States and lower gas prices as a result of reducing uncoordinated bidding of gas between Member States. Moreover, the same energy platform tool could later prove to be useful for example for hydrogen supplies. As this is only a proposal from the Commission at the time of writing, we remain waiting for the next moves from the European Parliament regarding the proposal. Meanwhile, the state aid rules set out by the temporary crisis framework can be vital, among other measures, for the companies challenged by the energy crisis. Most likely, we will be wiser after the upcoming winter and hopefully, with already existing and future regulation combined with inexhaustible cooperation between Member States, closer to breaking our dependence on Russian gas.