The support for CHP installations, storage facilities and district heating/cooling networks is financed by a surcharge imposed on electricity that is supplied to end-consumers through the public electricity grid or through a closed distribution network (‘the CHP surcharge’). It is collected by network operators as a supplement to network charges. That surcharge is designated as the KWKG-Umlage in the KWKG 2016 (see paragraph 26(1) of the KWKG 2016). Network operators have to keep separate accounts in respect of the collected CHP surcharge (paragraph 26(1) of the KWKG 2016, as notified, and paragraph 26(3) of the KWKG 2016, as amended).

The amount of the CHP surcharge is calculated each year by the transmission system operators as a uniform rate per kWh supplied to end-consumers connected to the public grid or to closed distribution networks.

Paragraph 27b of the KWKG 2016, as amended provides that electricity that is stored is subject to the CHP surcharge when it is withdrawn from the storage facility and not when it is fed into the storage facility.

Some categories of end-consumers benefit however from a reduced rate established in accordance with the KWKG 2016. For end-consumers with a yearly consumption of more than 1 GWh (‘Category B end-consumers’), the KWKG 2016, as notified, established a maximum CHP surcharge of 0,04 EUR cent/kWh. The other category of end-consumers benefitting from a reduced CHP rate are end-consumers active in the manufacturing sector consuming more than 1 GWh and for which the electricity cost represents more than 4 % of turnover (‘Category C end-consumers’). For the latter category of end-consumers, the KWKG 2016, as notified, establishes a maximum CHP surcharge of 0,03 EUR cent/kWh (paragraph 26(2) of the KWKG 2016, as notified). End-consumers paying the full CHP surcharge are called ‘Category A end-consumers’.

Reductions of the CHP surcharge were introduced by the KWKG 2002. For end-consumers with a yearly consumption of more than 100 000 kWh (‘Category B end-consumers’), the KWKG 2002 established a maximum CHP surcharge of 0,05 EUR ct/kWh. For end-consumers active in the manufacturing sector consuming more than 100 000 kWh and for which the electricity cost represents more than 4 % of turnover (‘Category C end-consumers’), the KWKG 2002 established a maximum CHP surcharge of 0,025 EUR ct/kWh.

1. (a)

   the undertaking must belong to one of the sectors listed in Annex 4 to the EEG;

2. (b)

   the electricity that is subject to the EEG surcharge and that has been used by the undertaking itself was at least 1 GWh in the last financial year at the consumption point concerned;

3. (c)

   the undertaking concerned can be classified at the consumption point concerned in one of the sectors of Annex 4 to the EEG;

4. (d)

   the electro-intensity of the undertaking reaches:

   • 14 % for undertakings of list 1 of Annex 4 to the EEG,

   • 20 % for undertakings of list 2 of Annex 4 to the EEG;

5. (e)

   the undertaking must have a certified energy or environmental management system in place. If it consumes less than 5 GWh, it can use alternative systems of improvement of the energy-efficiency.

6. (f)
   the electro-intensity of the undertaking is calculated as the ratio between the electricity costs and the arithmetic mean of the gross added value (‘the GVA’) over the 3 last closed accounting years. The relevant electricity costs correspond to the undertaking's assumed electricity consumption multiplied by the assumed electricity price. The assumed electricity consumption corresponds to the arithmetic mean over the last 3 closed accounting years14. The assumed electricity price corresponds to the average retail electricity price applying to undertakings with a similar level of electricity consumption.

1. (a)

   consumption up to 1 GWh: no cap — full CHP surcharge;

2. (b)

   for the rest of the consumption: 15 % of the full CHP surcharge.

1. (a)

   0,5 % of the GVA for undertakings reaching at least 20 % of electro-intensity;

2. (b)

   4 % of the GVA for undertakings having an electro-intensity below 20 %.

In any event, the reduction of the CHP surcharge resulting from the caps may not result in an amount that is lower than 0,03 EUR ct/kWh for the electricity above 1 GWh.

For the year 2017, the amended KWKG 2016 establishes the level of the full CHP surcharge at 0,438 EUR ct/kWh (paragraph 37 of the KWKG 2016, as amended).

The German authorities explained that the surcharge being established based on the estimated financing needs for the support and with a correction mechanism when estimates had been too high (or too low), the surcharge for Category A end-consumers has sometimes been very low, either because the estimated support was low in a given year or because of corrections for previous years in which the surcharge had been too high. This was for instance the case in 2012 where the CHP surcharge was low because of a correction due to the 2009 CHP surcharge which proved to be too high compared to real figures. By contrast the surcharge for Category C end-consumers remained fixed, representing therefore in 2012 a higher percentage of the normal surcharge.

The German authorities presented an adjustment plan for end-consumers of categories B and C. This plan aims at bringing progressively the CHP surcharges paid by the categories B and C end-consumers to a level of 100 % in the case of non-electro-intensive users and to a level of 15 % of the full CHP surcharge in the case of electro-intensive users by 2019.

The adjustment plan starts in 2011. Given that the surcharges paid by Category B or category C end-consumers represented in total for 2011 and 2012 more than 100 % of the normal surcharge, the adjustment plan applies to non-electro-intensive users only as of 2013. Category B consumers actually paid for 2013-2016 in total more than what the adjustment plan requires (21 % instead of up to 12,5 %), they will thus in practice have to be adjusted as of 2017 only. Category C consumers will be adjusted as of 2016 because for the period 2013-2015 they paid in total more than what the adjustment plan required (13 % instead of up to 12,5 %).

As for electro-intensive users, they paid in total for the period 2011 to 2016 15 % of the CHP surcharge. The adjustment plan will in practice apply to them as of 2017.

For the years 2017 and 2018 the adjustment plan is based on the rule that the surcharge represents double the surcharge of the previous year, i.e. the surcharge will amount to 0,060 EUR ct/kWh or 0,080 EUR ct/kWh in 2017, depending on the end-consumers belonging to Category B or C and 0,120 EUR ct/kWh or 0,160 EUR ct/kWh in 2018, depending on the end-consumers belonging to Category B or C. In 2019, they will pay 100 % of the surcharge. However, for electro-intensive users, the CHP surcharge will be capped at 15 % of the full CHP surcharge.

In case that the CHP surcharge paid in the past was lower than the level set in the adjustment plan, the beneficiaries will be requested to pay the difference.

The adjustment plan has been enacted as from 2016 in the Law of 22 December 2016 (paragraph 36 of the KWKG 2016, as amended).

In its Opening Decision the Commission had found that in principle the CHP surcharge is to be paid on each kWh supplied to end-consumers through the public grid or the closed distribution network operated by the respective network operators. That surcharge is a uniform surcharge by kWh. As described under Sections 2.2.1 and 2.3 above, the system for determining the surcharge remained basically unchanged under the KWKG 2016, as amended and remains based on the principle of a uniform CHP surcharge. The normal CHP surcharge amounted to 0,445 EUR ct/kWh in 2016 and amounts to 0,438 EUR ct/kWh in 2017.

The advantage is also selective. Indeed, as far as Category C is concerned, the reduction is limited to the manufacturing sector only. Within this sector, the reduction is further granted only to companies having an annual consumption of more than 1 GWh and having electricity costs that represent more than 4 % of their turnover (which excludes further manufacturing sectors as they typically do not reach those values, see recital 127 of the Opening Decision). The same observation applies to the reductions granted to electro-intensive users fulfilling the conditions set out in recital 20 above. The reductions are selective given that they are granted to undertakings active in specific sectors only and within the sector the reductions are granted only to undertakings reaching 1 GWh of consumption at a given consumption point and when they reach a certain electro-intensity threshold.

As to Category B, the advantage is limited to undertakings reaching an annual consumption level of 1 GWh. The Commission notes further that although Category B seems open to all sectors, the 1 GWh threshold de facto excludes several sectors and undertakings of the economy which typically never reach that consumption threshold.

However, in the light of the objective pursued by the surcharge (contribute to the CHP support), end-consumers of Categories B or C and electro-intensive users are in a comparable legal and factual situation. In particular, those end-consumers consume electricity injected into the public grid or closed network as the end-consumers of Category A. They benefit also similarly to end-consumers of Category A from the lower level of CO₂ emissions due to high energy efficient CHP support financed by the CHP surcharge.

The German authorities did not submit any comments on the selectivity of the measure.

BV Glas seems to argue that the fact that the reductions are limited to the manufacturing sector would be in the logic of the system because undertakings active in the manufacturing sectors are generally price takers and cannot pass on their extra costs to customers while service sectors would generally pass on surcharges to customers.

First, eligibility for reductions under the KWKG 2016, as notified does not depend on the undertakings demonstrating that they cannot pass on their extra costs to their customers. Second, no elements have been provided demonstrating that all sectors and undertakings benefitting from the Category B and C reductions de facto cannot pass on their extra costs and that those excluded from the reductions can all pass on their extra costs. Third, BV Glas's arguments that it is normal that the reductions would be limited to undertakings active in the manufacturing sector is at odds with reductions granted to Category B end-consumers: they can be active in the service sector and do not need to be electro-intensive. As to the KWKG 2016, as amended, the German authorities did not submit that the CHP surcharge was based on the ability of end-consumers to pass on costs. Also, the inability to pass on costs is not a formal eligibility condition for the reductions.

The Commission therefore concludes that the reductions cannot be viewed as within the logic of the CHP surcharge system and maintains its conclusion that the reductions under examination constitute a selective advantage for the beneficiaries of the reductions.

The German authorities have also introduced paragraph 27b in the KWKG 2016, as amended, which provides that electricity that is stored is subject to the CHP surcharge when it is withdrawn from the storage facility and not when it is fed into the storage facility. The Commission considers that that provision is in the nature and general scheme of the CHP surcharge (and thus does not constitute a selective advantage): it aims at avoiding double taxation, a principle that is generally applied in tax or levy systems. That provision is in line with the principle that the surcharge is due when electricity is taken from the grid and consumed. Germany has explained that electricity that is stored in the storage facility has however not yet been consumed. The Commission therefore considers that the exemption provided under paragraph 27b in the KWKG 2016, as amended, is not selective.

The Commission found in its Opening Decision that the reductions were imputable to the State as all reductions were granted by law (KWKG 2016) and were thus imputable to the State. In addition, the Commission observed that the BAFA (i.e. the Federal Office for Economic Affairs and Export Control, a higher federal authority subordinated to the Federal Ministry for Economic Affairs and Energy) is in charge of verifying that only eligible operators obtain the support.

The Commission further found in its Opening Decision that the reductions were financed from State resources.

Furthermore, the Commission had also found in its Opening Decision that the following elements confirmed that the CHP surcharge is under State control: the CHP surcharge has to be placed on a separate account so that the regulator can verify the absence of cross-subsidies between the various activities of the network operators. In addition, the law requires that the invoicing between transmission network operators be controlled by an auditor or a chartered accountant. Finally, the law also limits the total budget of the measure and the total amount of the surcharge. When there is a risk that the budget would be exceeded, transmission network operators have to warn the BAFA which will then calculate new but reduced support rates to ensure that the budget is not exceeded. This is a further confirmation that the CHP surcharge constitutes a resource under the control of the State.

As regards reductions of CHP surcharges, they can distort competition between undertakings within the same sector as not all undertakings are eligible (depending on their consumption level for and/or the respective importance of electricity costs compared to turnover for and/or depending on the respective importance of electricity costs compared to GVA) and are also likely to affect trade between Member States and competition with undertakings in other Member States. Indeed, the undertakings benefitting from reductions are typically active in certain manufacturing sectors where electricity costs represent a larger share of production costs (metal industry, paper and chemical sector, glass-making industry, refineries, wood industry, food and feed sector, see Opening Decision recital 127 and also Table 3 above). Companies active in sectors like the chemical sector, the paper industry, automobile manufacturing and automotive supply are in competition with undertakings located in other Member States.

The Commission therefore concludes that the reductions of the CHP surcharge granted to Categories B and C end-consumers and to electro-intensive users foreseen in KWKG 2016 involve State aid within the meaning of Article 107 of the Treaty.

The Commission observed in its Opening Decision that the CHP surcharge is dedicated to the funding of the support for high-efficiency cogeneration and therefore indirectly contributes to the achievement of the objectives pursued by those support measures, i.e. reducing the environmental impact of electricity production by increasing the energy efficiency of energy production and reducing CO₂ emissions in the electricity sector, which the Commission found to correspond to an objective of common interest.

The Commission also observed that reductions of CHP surcharges dedicated to finance support for cogeneration of heat and power can also indirectly contribute to the objective of the support measures financed from the surcharges (i.e. the increase of energy efficiency of energy production and the reduction of CO₂ emissions linked to electricity consumption) because they can help securing a sufficient financing base for the support measures themselves in a similar way to how reductions in the funding of support for renewable electricity help securing a sufficient financing base for renewable electricity support (see Section 3.7.2 of the EEAG and in particular paragraph 182 of the EEAG). Hence, if reductions are needed to secure the financing of those support measures, they would also indirectly contribute to the objectives pursued by the support measures examined under Sections 3.3.1 to 3.3.5 of the Opening Decision.

To avoid that electricity end-consumers particularly affected by the financing costs of the promotion of high-efficiency CHP (and the related promotion of energy-efficient district heating networks and heat storage facilities connected to CHP installations) could be put at a significant competitive disadvantage, Germany may need to grant partial reductions, in particular since the CHP surcharge adds up to the EEG surcharge in order to finance a set of support measures in the electricity sector to reduce CO₂ emissions and fight against climate change. Indeed, bankruptcy or delocalisation of too many undertakings particularly impacted by the EEG or the CHP surcharge might erode the financing basis: instead of paying a reduced surcharge, the relevant companies would not contribute at all to the financing implying an even higher financial effort from other end-consumers to finance the support of CHP, again reducing acceptability of the surcharge and hence of the support of CHP as such.

In its Opening Decision, the Commission had observed that while the CHP surcharge was not aimed at creating incentives to reduce energy consumption but only at financing energy efficiency measures, it should be avoided that the magnitude of the reductions induce companies to be less energy-efficient, as this would run counter to the objective of the supported energy efficiency measures.

Concerning the risk of reducing the incentives to be energy-efficient, the German authorities have submitted that the reductions do not eliminate incentives for electro-intensive users to be energy-efficient given that the CHP surcharge represents only a small portion of electricity costs. The mere electricity price in itself, given the high share of energy costs compared to total production costs, provides for an incentive to increase energy efficiency (see recitals 62 and following above). Also BV Glas submitted that electro-intensive users are constantly incentivised to improve energy-efficiency given the high share that energy prices represent in total production costs (often between 20 and 50 %).

The Commission agrees that for electro-intensive companies exposed to international trade the mere electricity price in itself can provide an incentive to increase energy efficiency given that for energy-intensive energy represents a high share of production costs. This incentive will be more important for companies facing a certain level of international trade as the competitive pressure will induce companies to be efficient. As also those companies will have to pay at least 15 % of the CHP-surcharge, this minimum contribution will actually reinforce incentives that electro-intensive companies facing international competition have to invest in energy efficiency measures. No elements were provided though to demonstrate that the reductions would not eliminate incentives for undertakings that are not electro-intensive. However, the German authorities have limited the reductions to electro-intensive users that face a certain level of international competition as of 1 January 2017 and the great part of beneficiaries in 2016 could be considered as energy-intensive users. It has also subjected the reductions to participation in an energy or environmental management system. Finally, as will be examined more in detail below, the German authorities have maintained an own contribution of 15 % of the CHP surcharge. The Commission therefore concludes that the reductions, as amended, will not remove incentives for electro-intensive users to increase their energy-efficiency. As the period 2011-2018 and as regards non-electro-intensive users, the German authorities submitted an adjustment plan which will increase incentives for energy-efficiency for non-electro-intensive users.

Based on those elements, the Commission concludes that the reduced CHP surcharges contribute to a common objective.

Under Sections 3.3.1.2, 3.3.2.2, 3.3.4.2 and 3.3.5.2 of its Opening Decision, the Commission concluded that the promotion of high-efficiency cogeneration installations, energy-efficient district heating/cooling networks and heating/cooling storage installations would not be delivered by the market alone and that the aid measures (and their financing) were needed to incentivise the investments into and/or operation of those installations and facilities.

The aid measures examined under Sections 3.3.1 to 3.3.5 of the Opening Decision are all directed at increasing energy-efficiency of energy production and at reducing the carbon footprint of electricity production and thus consumption. They are aimed at fighting against climate change.

While the CHP surcharge is not the only conceivable financing means, it is appropriate to finance aid measures for the production of high-efficiency cogenerated electricity, energy-efficient district heating networks and heat storage facilities on the basis of a surcharge on electricity consumed by end-consumers connected to the grid and withdrawn from this grid, because of the close link between the supported measures and the electricity withdrawn from the grid. Also, such a surcharge provides a relatively stable financing stream and does not impair budgetary discipline. Those are the reasons why such a financing system is often used to finance support for the production of renewable electricity. As already mentioned in recital 125 above, financing needs for energy efficiency support measures could become significant, thereby increasing the need for Member States to be able to finance the measures from electricity surcharges.

The Commission considers therefore that a reduced CHP surcharge could be deemed necessary to reach the objectives of energy efficiency and environmental protection pursued by the measures examined under Sections 3.3.1 to 3.3.5 of the Opening Decision if in the absence of reductions the CHP surcharge financing those measures and the objective pursued by those measures would be put at risk.

That could be the case if the payment of the full CHP surcharge would imply the delocalisation or bankruptcy of too many undertakings or sectors. That would in turn significantly reduce the acceptability of the CHP surcharge as well as the number of surcharge payers and would risk jeopardising the aid measures as such.

The Commission indicated in its Opening Decision (recital 274) that the criteria developed under paragraphs 185, 186 and 187 of the EEAG could serve as guidance in order to identify sectors at risk of delocalisation or bankruptcy in case of too high energy surcharges aimed at the financing of cogeneration support. That seems appropriate in particular given that, on the one hand, the measures that are financed from the CHP surcharge serve the same environmental objective as the measures that are financed from the renewable surcharges falling within the scope of Section 3.7.2 of the EEAG (fight against climate change by reducing CO₂ emissions resulting from electricity production) and given that, on the other hand, the CHP surcharge in Germany adds to the renewable surcharges (the EEG surcharge in Germany) and is structured in a similar way. As it is levied in proportion to electricity withdrawn from the grid, the CHP surcharge will impact in particular undertakings for which electricity costs represent an important share of gross added value and which cannot easily pass on their costs to end-consumers without losing important market shares given the intensity of the international trade of the sector in which they are active. Those are the undertakings that the criteria set out under paragraphs 185, 186 and 187 of the EEAG aim at identifying.

During the preliminary investigation the German authorities had explained that the reduced CHP surcharges were needed to ensure the competitiveness of the companies (energy users) concerned and that ultimately they would be needed to secure the financing for the support measures. However, the German authorities had not provided sufficient information to show that the reduced CHP surcharges were needed for all types of undertakings or sectors included within categories C and B end-consumers to secure the financing of aid measures laid down in the KWKG 2016, as notified. It had only provided information related to electro-intensive users exposed to international competition and eligible for reductions of renewable surcharges acknowledging, however, that end-consumers in Categories B and C were not all such undertakings.

During the formal investigation procedure, the German authorities did not provide any additional information allowing the Commission to verify which share of the beneficiaries would indeed correspond to undertakings eligible for reduced EEG surcharges or for reductions under Section 3.7.2 of the EEAG, nor did it provide information that would demonstrate the necessity of reductions also for companies that are neither electro-intensive nor facing international competition. Also, while BV Glas maintains that all reductions are needed, it did not submit information that would indicate that also reductions for non-electro-intensive users would be needed. In fact, the information submitted by BV Glas is limited to electro-intensive users. However as of 1 January 2017 reductions will be limited to electro-intensive users that are qualifying for reductions of the renewable surcharge (i.e. to EIU at risk of relocation or bankruptcy). Non-electro-intensive users of Category B and C will not be eligible for reductions any more. For non-electro-intensive users, the German authorities provided an adjustment plan under which reductions will be phased out totally by 2019, also the reductions granted to non-electro-intensive users starting in 2011 have been adjusted based on an adjustment plan submitted to the Commission (see also Section 6.4 below on the adjustment plan).

Based on those elements, in particular the modifications and adjustment plan provided by the German authorities ensuring that the reductions are limited to electro-intensive users exposed to international trade, the Commission concludes that the reductions are appropriate and necessary to ensure the sustainability of the financing of cogeneration support and have an incentive effect.

In its Opening Decision, the Commission observed that reductions cannot correspond to full exemptions or be so significant as to jeopardise the purpose of the support measure because they result in too heavy a burden on the other end-consumers (recital 269 of the Opening Decision). Also, too significant reductions increase the distortion of competition resulting from them. This is why under the EEAG, as far as reductions in the funding of support for energy from renewable sources are concerned, undertakings eligible for reductions should pay a minimum contribution corresponding in principle to 15 % of the normal levy (see paragraph 188 of the EEAG), with additional reductions possible when the levy represents more than a certain share of the GVA of the company (paragraph 189 of the EEAG).

In its Opening Decision (recital 282), the Commission had indicated that it would use paragraphs 188 and 189 of the EEAG as guidance to assess the proportionality of the reductions. That seems appropriate in particular given that, on the one hand, the measures that are financed from the CHP surcharge serve the same environmental objective as the measures that are financed from the renewable surcharges falling within the scope of Section 3.7.2 of the EEAG (fight against climate change by reducing CO₂ emissions resulting from electricity production) and given that, on the other hand, the reductions aim at ensuring the sustainability of the financing of those support measures by limiting the burden for undertakings or particularly affected by energy surcharges but still requiring from them a sufficient own contribution.

The Commission had observed in its Opening Decision (recital 283) that the German authorities had not shown during the preliminary investigation that the caps of 0,04 and 0,03 EUR cent/kWh were limited to the necessary minimum. The German authorities did not show that less significant reductions would not have been acceptable. It has insisted on the cumulation effect with the EEG but did not provide concrete information related to the beneficiaries of the reductions that would compare the ratio between the reduced CHP surcharge and the GVA with the ratio between slightly higher CHP surcharges (for instance 15 %) and the GVA or with the ratio between the reduced CHP surcharge cumulated to the reduced EEG surcharge and the GVA.

The German authorities did not provide any additional information during the formal investigation. BV Glas has submitted that the reductions were limited to the minimum necessary but without explaining why the reductions would be limited to the minimum.

However, Germany modified the KWKG 2016 and as a result, reductions are limited as of 1 January 2017 to electro-intensive users that are qualifying for reductions of the renewable surcharge and the surcharge will be at least 15 % of the surcharge (see recital 21 above). Non-electro-intensive users will not be eligible for reductions anymore. Also the German authorities provided an adjustment plan for previous Category B and C end-consumers under which reductions will be phased out totally by 2019 for Category B and C end-consumers who do not qualify as electro-intensive users and under which the reductions granted to non-electro-intensive users in the past were adjusted starting in 2011. The German authorities also provided an adjustment plan for previous Category B and C end-consumers who qualify as electro-intensive users starting in 2011.

Based on those elements, in particular the modifications introduced as of 1 January 2017 to the level of reductions and the adjustment plan provided by the German authorities, the Commission concludes that the reductions of the CHP surcharges are proportionate to the objective pursued.

The Commission had observed in its Opening Decision that it had during the preliminary investigation phase not obtained enough elements that would enable the Commission to assess the overall balance of the potential distortion of competition and trade between Member States. Moreover, as the necessity, appropriateness, incentive effect and the proportionality of the aid measure had not yet been demonstrated, the Commission had doubts that the aid measure ensured that the distortions of competition resulting from the relief of companies from part of their operating costs were limited and that the overall balance of the measure would be positive.

The German authorities have underlined in their comments on the Opening Decision (recital 287) that the distortions are limited given the positive impact of the measures financed from the CHP surcharge and given that with the amendments adopted on 22 December 2016 the reductions will be limited to the minimum necessary to ensure the sustainability of the CHP surcharge.

Concerning the positive impacts, the Commission had observed in its Opening Decision that the measures financed from the CHP surcharge were aimed at important reductions in terms of CO₂ emissions and were also important for improving the integration of cogenerated electricity into the electricity market. Those positive impacts are summarised under recitals 9 and 10 above.

Further, the Commission notes that with the amendments introduced on 22 December 2016 Germany limits the eligibility for reductions to undertakings eligible for reductions under the BesAR, i.e. to undertakings and sectors which are the most at risk of delocalisation and bankruptcy in case of payment of the full surcharge and hence which would constitute the largest threat to the sustainability of the surcharge. Also, beneficiaries are still required to contribute their share to the financing of the energy efficiency measures and the reductions do not undermine beneficiaries' incentives to remain energy-efficient.

Finally, the Commission notes that the reductions are granted to all undertakings active in the same sector when they are in the same situation in terms of electro-intensity.

On this basis, the Commission concludes that the overall balance of the aid measure is positive in that its positive effects outbalance the possible distortion of competition.

The objective of the support remains the same as described in recital 148 of the Opening Decision: it is directed at an increased level of environmental protection through promoting electricity from high energy-efficient cogeneration. The Commission notes in this respect that CHP installations which would become eligible to participate in the tenders would continue to be subject to the high-efficiency requirement in line with paragraph 139 of the EEAG.

The Commission therefore concludes that the amendment contributes to an objective of common interest in the same way as the original scheme did (see in this regard Section 3.3.1.1 of the Opening Decision).

CHP installations injecting electricity into a private grid correspond to the type of CHP installations referred to in the Opening Decision as ‘Kontraktor’ (see recital 23 of the Opening Decision) and for which the German authorities have provided Levelised Cost of Energy calculations and comparison with market price projections (see Table 5 above).

Member States need to demonstrate that State aid is necessary to remedy a market failure that otherwise would remain unaddressed (cf. paragraph 37 of the EEAG). In the case of cogeneration, the Commission presumes that energy efficiency measures target negative externalities by creating individual incentives to attain environmental targets for energy efficiency and for the reduction of greenhouse gas emissions (cf. paragraphs 35 and 142 of the EEAG).

According to paragraph 49 of the EEAG, the Member State must demonstrate that the aid has the effect of incentivising the beneficiaries to change their behaviour in line with the objective of common interest pursued.

The calculations provided by the German authorities (see Table 5) show that the production costs of electricity from high-efficiency CHP (LCOE) are higher than the electricity market price and that without support such activity would be unlikely to be economically viable.

CHP installations that are concerned by the amendment will obtain support only if selected in a competitive bidding process; there is thus no need to comply with the form requirement contained in paragraph 51 of the EEAG (see paragraph 52 of the EEAG).

The Commission therefore concludes that the German authorities have demonstrated that the aid for CHP installations injecting electricity into private grids is needed and that the aid scheme will have an incentive effect.

In line with paragraph 145 of the EEAG, State aid may be considered an appropriate instrument to finance energy efficiency measures, independent of the form in which it is granted. Premiums on top of market price are appropriate aid instruments to compensate CHP plants for the higher production costs of electricity from highly efficient cogeneration as they target the additional cost element that is not covered by the market price.

The notified amendment would add a new category of CHP operators who could participate to the tender in order to obtain a premium on top of the market price. It corresponds to operating aid for the production of electricity in highly energy-efficient CHP installations, thus paragraph 151 of the EEAG is applicable for the assessment of proportionality.

For the assessment of proportionality, paragraph 151 of the EEAG makes reference to the conditions applying to operating aid for electricity from renewable energy sources as established in Section 3.3.2.1 of the EEAG.

The CHP plants concerned by the amendment fall into the category defined in paragraph 151(a) of the EEAG: the electricity produced will be sold to the public (albeit a more limited number of customers than electricity sold into the public grid).

For the assessment of proportionality, paragraph 151 of the EEAG makes reference to the conditions applying to operating aid for electricity from renewable energy sources as established in Section 3.3.2.1 of the EEAG.

According to paragraph 124 of the EEAG, the aid must be granted as a premium in addition to the market price whereby the generators sell their electricity directly on the market. In addition, the beneficiaries must be subject to standard balancing responsibilities, unless no liquid intra-day balancing markets exist and finally the scheme must ensure that generators have no incentive to generate electricity when market prices are negative.

The aid scheme complies with paragraph 124(a) of the EEAG given that the aid paid to selected undertakings will be paid out as a premium on top of the market price and the operator of the CHP installation has to sell the electricity on the market (see recital 79 above). The operator is also subject to normal balancing responsibilities (see recital 79 above). Finally, the scheme does not create any incentives to produce at time of negative prices. Indeed the aid is paid out as a fixed premium and for a limited amount of full load hours. This increases the incentives to sell the electricity at times of higher demand, as this will maximise the revenues and conversely reduces incentives to produce at times of negative prices. In addition, Germany suspends the support at times of negative prices (see recital 79 above).

Paragraph 126 of the EEAG requires that, from 1 January 2017, aid is granted in a competitive bidding process.

The amendment complies with this requirement as it consists in adding a category of CHP operators eligible to take part in the tenders that will be organised as of winter 2017/2018. As for the issue of strategic bidding, the Commission notes that the German authorities conducted a study into the economics of CHP installations injecting electricity into private grids which revealed that the competitive advantage was much more limited than initially thought (if at all existing), so that the risk of strategic bidding was sufficiently low for making it possible to include this kind of CHP installations in the same tender. In addition, the German authorities indicated that they will include this element into the evaluation of tenders and further indicated that if signs of strategic bidding are detected, the German authorities would address them in the framework of the tender design and notify the amendments to the eligibility conditions and tender design to the Commission.

The amendment does not alter the commitment provided by the German authorities to implement all conditions laid down in Section 3.2.7 of the EEAG. The measures comply with the transparency provision.

Based on the reasons set out in Sections 7.3.1 to 7.3.4, the Commission concludes that the support to new highly-efficient CHP installations used in closed distribution networks is in line with the EEAG, in particular Section 3.4 thereof, and is therefore compatible with the internal market pursuant to Article 107(3)(c) TFUE,