Regulating prices in the ‘brave’ new world of the energy transition: the role of EU State aid control

In the ‘brave’ new world of the energy transition, EU State aid control remains a key tool to regulate in the wider European interest.

Written by Adrien de Hauteclocque

Pubic intervention on energy prices is nothing new. However, its reach has undoubtedly increased since the process of liberalisation began. Member States now tend to distort prices for renewable energy, nuclear and back-up capacities (through so-called capacity mechanisms). Producers, household customers and energy-intensive users almost all benefit from some sort of preferential tariffs. Twenty years after liberalisation started, Member States are interfering with the price formation mechanism all along the energy supply and consumption chain. The free market segment of the industry indeed gets narrower and we can wonder whether energy markets still deserve the label ‘liberalised’. Given the new objectives we have, in particular climate change mitigation and affordability, we cannot but conclude that pubic intervention on energy prices at national level is here to stay.

In this context, EU State aid control remains a key tool to regulate in the wider European interest. The Union institutions have developed an important body of case law and decisions on price regulation and EU State aid law. Major difficulties nonetheless remain. Among them, we can highlight, for instance, the issue of the existence of an advantage, as it is not always easy to determine what would have been the competitive price without public intervention. Another is the issue of the involvement of state resources, which constantly re-surface in new guises. In the new context, tailor-made individual aid schemes for targeted customers (as opposed to producers) seem difficult to implement. Regimes favouring a category of users by exempting them from a component of the energy price should remain a common feature of the energy policy landscape. As renewable support schemes will progressively be rolled back while technologies are maturing, one of the key issues in the coming years will be the protection of energy-intensive users, in order to avoid carbon leakage. A careful balance will have to be reached, not only to avoid distortions in downstream markets, but also to ensure that the tariff deficit does not threaten the viability of the whole system.

The issue of energy prices will remain a sensitive one and there is no denying the fact that EU State aid law will have a role to play. Our new book on State Aid in the EU Energy Sector provides a detailed analysis of the relationship between EU State aid control, under Articles 107 and 108 of the TFEU, and the regulation of energy prices.

State Aid in the Energy Sector will be published by Hart Publishing in late February and launched in Brussels on 2 March 2018. Pre-order the publication.