Judgment summary
The European Commission appealed against the judgment of the General Court of 24 January 2024 (T-409/21), which had annulled Commission Decision C(2021) 3918 final of 3 June 2021 concerning German State aid measures SA.56826 (2020/N) and SA.53308 (2019/N) relating to the 2020 reform of support for cogeneration (KWKG 2020) (1).
The Commission's single ground of appeal alleged that the General Court had erred in law in its interpretation of the concept of 'State resources' within the meaning of Article 107(1) TFEU and in its legal characterisation of the facts (37). This ground had two parts: an alleged error concerning the assessment of the financial burden of the CHP support measures, and an alleged disregard of the case-law resulting from the judgment of 13 March 2001, PreussenElektra (C-379/98) (38).
The Court of Justice rejected both parts of the ground of appeal and dismissed the appeal in its entirety (90), ordering the Commission to bear its own costs and to pay those of the Federal Republic of Germany (93).
Background
The German authorities notified the Commission on 28 January 2019 and 23 September 2020 of measures amending the KWKG 2016, together forming the KWKG 2020, which entered into force on 1 January 2021, with a further amendment concerning the reduction of the surcharge for hydrogen producers under Paragraph 27 of the KWKG 2020 (3).
The KWKG 2020 aimed to improve energy efficiency and protect the climate and environment by increasing net electricity production from CHP installations by 2025 (4). It provided support for newly built, modernised and retrofitted high-efficiency CHP installations, energy-efficient district heating and cooling networks, heating and cooling storage facilities, existing highly efficient gas-fired CHP installations in the district heating sector, and a measure for the hydrogen-producing industrial gas sector (5).
Support was granted through invitations to tender organised by the Bundesnetzagentur (BNetzA), or directly under the KWKG 2020 subject to verification by the Bundesamt für Wirtschaft und Ausfuhrkontrolle (BAFA) (7). Distribution and transmission network operators were legally obliged to pay the KWKG support to eligible beneficiaries (9-11), with the burden spread between network operators through a compensation mechanism and reflected in a KWKG surcharge calculated per kilowatt hour (12-16). Network operators were entitled, but not legally required, to pass on the KWKG surcharge to their customers, save for a reduced rate for large energy consumers such as hydrogen producers (17). The KWKG 2020 set an annual budgetary limit of EUR 1.8 billion for financing the measures (18).
On 3 June 2021 the Commission adopted the decision at issue, classifying the measures as State aid under Article 107(1) TFEU, finding they were financed through State resources including a de jure compulsory levy (recitals 220 and 221 of that decision), but declaring the aid compatible with the internal market under Article 107(3)(c) TFEU and deciding not to raise objections (19-21).
Core dispute
The Federal Republic of Germany brought an action before the General Court on 9 July 2021 for annulment of the decision at issue, in so far as it found that the measures at issue constituted State aid, raising a single plea alleging an incorrect interpretation and application of Article 107(1) TFEU (22).
The General Court, applying the two alternative criteria for identifying 'State resources' derived from the judgment of 12 January 2023, DOBELES HES (C-702/20 and C-17/21), namely (i) funds financed by a compulsory levy or surcharge managed and apportioned in accordance with national legislation, and (ii) sums remaining under constant public control (23), examined whether the CHP support measures and the hydrogen producer surcharge reduction satisfied either criterion.
The General Court found that neither criterion was satisfied, holding among other things that network operators were not legally obliged to pass on the KWKG surcharge to end customers, that the Commission had not shown how funds were managed under the legislation, and that the Commission had wrongly excluded application of the case-law from PreussenElektra (25-33). It annulled the decision at issue on this basis (34).
The Commission appealed, contending that a compulsory surcharge existed regardless of any 'triangular relationship' between payer, aid-granting body and beneficiary, that no additional 'management and apportionment' criterion was required, and that the General Court had misapplied PreussenElektra by treating it as limited to 'mere price regulation' cases (39-48, 75-78).
Court findings
The Court of Justice recalled that classification as State aid requires intervention by the State or 'through State resources', which may be shown by two alternative criteria: funds financed by a compulsory charge or surcharge managed and apportioned under national legislation, or sums remaining under constant public control (50-56).
On the first part of the ground of appeal, the Court found that the General Court had not, in fact, imposed a 'triangular relationship' requirement, so that complaint had no factual basis (58). It held that the General Court was correct to find that the mere legal obligation on network operators to pay the KWKG support to beneficiaries did not, by itself, establish a compulsory surcharge, since network operators were not legally obliged to pass on the corresponding KWKG surcharge to end customers, only entitled to do so (60-66). The Court confirmed that, absent a compulsory pass-on of the financial burden to end customers, the funds could not be regarded as coming from a levy or other compulsory surcharge constituting State resources (65).
The Court held the Commission's complaint regarding the 'management and apportionment' criterion was ineffective, since that criterion is additional to, not a substitute for, the requirement of a compulsory surcharge, and since no compulsory surcharge had been established, any error on this point would not affect the outcome (68-72). The complaint regarding the possibility of passing on costs was also rejected, as the Commission had misread the judgment of 28 March 2019, Germany v Commission (C-405/16 P) (73).
On the second part, concerning PreussenElektra, the Court held that the General Court correctly found that the case-law from PreussenElektra was not limited to situations of 'mere price regulation', but turned on whether the advantage was financed through the network operators' own resources rather than State resources (80-84). The Court also rejected the Commission's reliance on the judgments in Dubois and Général cargo services (C-16/94), Germany v Commission (C-405/16 P) and Fallimento Esperia and GSE (C-558/22), finding none supported the Commission's narrower reading (87-89).
Outcome
The Court of Justice dismissed the appeal in its entirety (90).
The Court ordered the European Commission to bear its own costs and to pay those incurred by the Federal Republic of Germany in the appeal proceedings (93).
Major issues / areas of contention
- Whether the CHP support measures under the KWKG 2020 were financed 'through State resources' within the meaning of Article 107(1) TFEU (50-56).
- Whether a legal obligation on network operators to pay support to beneficiaries, without a corresponding legal obligation to pass on the associated surcharge to end customers, constitutes a compulsory levy or surcharge (60-66).
- Whether the criterion that funds be 'managed and apportioned' in accordance with national legislation is an additional requirement to, or a substitute for, the existence of a compulsory surcharge (68-72).
- Whether the mere possibility (as opposed to a legal obligation) of passing on additional costs to third parties is relevant to establishing the commitment of State resources (73).
- Whether the case-law from the judgment of 13 March 2001, PreussenElektra (C-379/98), applies only to measures involving 'mere price regulation' or more broadly to situations where private undertakings use their own financial resources (80-89).
- Whether the reduction of the KWKG surcharge for hydrogen producers amounted to a renouncement of State resources, given the finding on the CHP support measures (33).