state aid

Legal comment: Does compensation for closing coal-fired power plants count as state aid?

The General Court of the European Union recently found that, before authorising state compensation for the early closure of a coal plant, the European Commission should have first examined whether it was state aid. The Commission must now examine if such compensation merely offsets a damage or constitutes state aid, the implementation of which requires prior approval.

The Netherlands had enacted a law prohibiting the use of coal to produce electricity. The prohibition is progressive, depending on the efficiency of a plant and its use of renewable sources. Under the law, coal-fired power plants that would be disproportionately affected by this prohibition compared to other plants are entitled to compensation. This was the case for the Hemweg coal-fired power plant owned by Vattenfall that had to close in the very short term because it did not produce any electricity from renewable energy sources. On 20 December 2019, the Netherlands paid €52.5m to compensate Vattenfall for early closure.

Hemweg-8 power plant. Image: Vattenfall/Jorrit Lousberg

Absent any state aid notification by the Netherlands, the Commission started to investigate the draft law under state aid law. The Commission decided on 20 May 2020 that, although a judge would probably decide that the state must compensate such early closure, it was not sure that Vattenfall had a right to compensation of €52.5m and hence, that the compensation was not state aid. However, it declared the compensation compatible with the internal market, and authorised it.

Decision challenged

The Netherlands challenged this decision before the Court because the Commission failed to examine the presence of state aid.

The Netherlands claimed that the Commission can only authorise a measure if it qualifies as a state aid pursuant to the Treaty and the regulation on the procedural rules in State aid control (procedural regulation). The Commission answered that

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