The European Commission opens two in-depth state aids investigations against France: national capacity mechanism and technology specific tender procedure (gas)

The European Commission has announced on 13 November 2015 the opening of two in-depth investigations to assess the conformity of two measures adopted by the French government under EU state aid rules, namely: the forthcoming national capacity mechanism, and a specific tender procedure for the construction of a gas-fired power plant in Brittany.

Country-wide capacity mechanism (case SA.39621)

The first in-depth investigation relates to France's national capacity mechanism, which is due to start on 1 January 2017. Indeed, the Commission has concerns that the setting of the French mechanism for capacity remuneration may hinder the entry of new players on the relevant national market, and therefore limit competition. Even if the mechanism is meant to ensure security of supply, it shall not result in unjustified barriers to competition by offering a competitive advantage - possibly qualified as state aid - in the form of an additional reward on top of electricity sales to the providers of electricity capacity. The French mechanism is a market-based mechanism based on the trading of capacity obligations. 

As written earlier on this blog, the capacity mechanism is already challenged before the European Court of the EU under free movement rules after having been examined by French national administrative courts. The Council of State decided in last instance to lodge a request for a preliminary ruling before the EU Court (see previous note here). Meanwhile, in its decision, the Council of State did conclude that there was no infringement to the rules on state aids, a question which is now examined by the Commission. 

Tender rules for a gas-fired power plant (case SA.40454)

The second in-depth investigation relates to the launch of a public tender related to the construction of a new gas-fired powerplan in Brittany, so-called Combined Cycle Gas Turbine (CCGT). The region lacks connection to the rest of the network, and the tender intends to ensure better security of supply and capacity. The core issue raised by the Commission is that the tender is technology specific: the tender focuses only on one technology type, namely CCGT, and no other solutions such as storage, extension of connection, other power generation types, etc. 

The press release also stresses that there may be "a risk of creating a subsidy dependent market, where investors will develop projects only on the basis of public tenders granting State aid". Therefore, "the tender could risk exacerbating the adequacy problem in the long term", an issue which makes the link with the first in-depth investigation and the development of capacity markets."

Both France and third-parties can send input to the Commission services as to their views on the two cases during the phase of investigation.

Reference: European Commission, Press release, IP/15/6077, 13 November 2015.