EUROPEAN COMMISSIONec.europa.eu/competition/state_aid/cases1/201930/... · taken not earlier than...

1

Jego Ekscelencja

Jacek Czaputowicz

Minister Spraw Zagranicznych

Al. Szucha 23

PL-00 - 580 Warszawa

Commission européenne, B-1049 Bruxelles – Belgia, Europese Commissie, B-1049 Brussel – Belgia Telefon: +32 2 299. 11. 11.

.

EUROPEAN COMMISSION

Brussels, 15.04.2019

C(2019) 2790 final

PUBLIC VERSION

This document is made available for information purposes only.

Subject: State Aid SA.51192 (2019/N) – Poland – CHP support and State aid

SA.52530 (2019/N) – Poland – Reductions from CHP charges for

Energy Intensive Users

Sir,

1. PROCEDURE

(1) Following pre-notification contacts, by electronic notification of 6 February 2019,

Poland notified, pursuant to Article 108(3) of the Treaty of the Functioning of the

European Union (TFEU), an aid scheme concerning the promotion of electricity

production from high-efficiency combined heat and power ('CHP') installations.

(2) Following pre-notification contacts, by electronic notification of 7 February 2019,

Poland also notified, pursuant to Article 108(3) of the Treaty of the Functioning

of the European Union (TFEU), an aid scheme concerning reductions to Energy

Intensive Users (‘EIUs’) from a CHP charge.

(3) The Commission sent a request for information to Polish authorities on 18

February 2019. Polish authorities submitted a reply on 1 March 2019.

(4) On 15 February 2019, Poland waived its right under Article 342 TFEU in

conjunction with Article 3 of Regulation (EEC) No 1/1958 to have the decision

adopted in Polish and agreed that the decision be adopted and notified in English.

2

2. DESCRIPTION OF THE MEASURES

(5) The scheme notified under SA.51192 aims at providing aid to high efficient CHP

units connected to a district heating system, which supply their electricity to the

grid. The scheme should increase the efficiency of energy production.

(6) The scheme notified under SA.52530 provides for reductions of the CHP charge

for EIUs. The notified reductions should contribute to the sustainability of the

financing of the CHP support scheme and to its public acceptance. The level of

support level will vary based on the electro-intensity of the beneficiary.

2.1. National legal basis, background

(7) The national legal basis for the notified measures is the Act on the promotion of

electricity from high-efficiency cogeneration ('CHP Act')1 adopted on 14

December 2018.

(8) The CHP support measure replaces a current CHP support scheme, which the

Commission approved in a no objection decision in case SA.36518 - Certificates

of origin for high-efficient co-generation operators (“CHP certificate scheme”).2

The CHP certificate scheme expired on 31 December 2018 and no further aid is

granted under that scheme.

(9) In addition, Ministry of Energy will be responsible for the adoption of additional

rules that will implement the provisions of the CHP Act. This will concern the

following regulations:

Regulation on the reference values for new and significantly refurbished

cogeneration units;

Regulation on the methodology for the selection settlement;

Regulation on the maximum quantity and value of electricity from high-

efficiency cogeneration covered by the support and on unit amounts of the

guaranteed premium;

Regulation on the scope of data necessary to calculate the individual

guaranteed premium and individual cogeneration premium, including the

method of taking into account the value of received public aid;

Regulation on the method of calculating data provided for the purposes of

the support system and the detailed scope of the obligation to confirm data

on the amount of electricity generated in high-efficiency mode;

Regulation on the maximum values of capital expenses and operating

costs of constructing and operating a new comparable cogeneration unit;

1 Ustawa o promowaniu energii elektrycznej z wysokosprawnej kogeneracji (Dz.U. z 2019 r. poz. 42.).

2 OJ C 20, 20.01.2017.

3

Regulation on the amount of the cogeneration fee for the year "i".

(10) The authority responsible for the operation of the CHP support scheme will be the

President of the Energy Regulatory Office ('ERO').

2.2. The support system for promotion of the production of electricity from high-

efficiency cogeneration

2.2.1. Objective

(11) The proposed CHP support scheme has two main objectives. Firstly, it aims at an

improvement of the efficiency of energy production in Poland. This objective

shall be achieved by increased investment in electricity production in high

efficient CHP installations, which would result in primary energy savings.

According to the Polish authorities, the efficiency of the cogeneration process

may be up to 50% higher compared to the production of heat and electricity in the

separate mode.

(12) Secondly, the notified scheme will contribute to the improvement of air quality,

as the increased efficiency of the energy production will reduce high levels of air

pollution in the Polish municipalities. According to the Polish authorities, 36 out

of the 50 most polluted European cities are located in Poland. The notified

measure will contribute to better air quality by developing high-efficient district

heating networks supplied with heat produced in high efficient CHP installations

included in the scheme.3 Polish authorities submit in this regard that Poland has

the potential for doubling the volume of heat produced in high efficient

cogeneration. Heat produced in the supported high efficient CHP installations

would replace in particular heat produced in individual boilers.4

(13) Based on the above, the primary objective of Poland is to develop high-efficient

district heating networks in locations with less than 50,000 inhabitants.5 This

would mean that the bulk of support would concentrate on the corresponding size

of high efficient CHP installations with the resulting capacity up to 50 MW.

2.2.2. Beneficiaries

(14) The beneficiaries of the notified scheme are operators of high efficient CHP

installations that are connected to a district heating system and which supply their

electricity to the grid. These eligibility conditions do not apply to high efficient

3 According to the data provided by Poland, 85 % of the district heating systems in Poland cannot be

considered as energy-efficient, as they do not fulfil the conditions set out in the Directive 2012/27/EU

on Energy Efficiency.

4 Polish authorities submit that individual household stoves burning low quality fuels are the main

contributor to the poor air quality in smaller Polish localities. On the other hand, the pollution in big

cities is in particular caused by the transportation.

5 According to the Polish authorities, the majority of bigger cities in Poland already possesses high-

efficient district heating networks.

4

CHP installations with capacity below 1 MW6 and to existing and refurbished

methane fired units with the capacity up to 50 MW7. The supported installations

have to fulfil the high efficiency criteria set out in Directive 2012/27/EU8.

Furthermore, the supported installations have to comply with an emission limit of

450 kg/MWh CO2 of the energy produced (both electrical and thermal).

(15) Based on the level of investment, the supported CHP installations are divided into

four groups: (i) new, (ii) substantially refurbished, (iii) refurbished and (iv)

existing installations.

(16) In case of new high efficient CHP installations, the investment decision has to be

taken not earlier than after the day an auction was concluded (see Section 0) or

after the day of conclusion of selection (see Section 0). In case of substantially

refurbished and refurbished installations, the investment decision has to be taken

only as of 1 January 2019. Moreover, the equipment that is used for the

realisation of the investment has to be produced within 60 months preceding the

date of the first generation of electricity in the new or (substantially) refurbished

installation.

(17) In order to be qualified as a (substantially) refurbished installation, the investment

has to result either in a change of technical or operating parameters or in the

restoration of the initial state. The value of the investment in case of refurbished

installations has to be at least 25 % but not more than 50 % of an investment that

would be needed for a construction of a comparable new build high efficient CHP

installation. In case of substantially refurbished installations, the level of

investment has to exceed 50 % of the investment for a construction of a

comparable new build high efficient CHP installation.

(18) Aid to existing high efficient CHP installations will be limited only to gas fired

units (including methane and hydrogen) that have so far participated in the CHP

certificate scheme (see also recital (8)). Existing coal and biomass fired CHP

installations will not be eligible for aid, as they can, at least under current market

conditions, operate without any aid. In case the changes of the market conditions

would result in operational losses for existing coal or biomass-fired high efficient

CHP units, Poland signalled its intention to notify a new aid measure to the

Commission targeted at subsidising these units.

6 The exclusion of CHP installations with capacity below 1 MW from this obligation will allow the

development of cogeneration units in SMEs as well as in small settlements and public utility buildings

without a connection to a district heating network. According to the Polish authorities, small CHP

units below 1 MW can also make a significant contribution to the development of the concept of

energy clusters in rural areas.

7 Existing and refurbished methane fired CHP installations are mostly not connected to the district

heating network due to their location close to coalmines. On the other hand, there is a general need to

remove methane released from the coalmines for reasons of work safety in the mines. If methane is not

removed for the needs of electricity and heating (or cooling) cogeneration, the firedamp will be burned

in a large part in flares and pollutants will be emitted to the atmosphere.

8 Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on Energy

efficiency, amending Directive 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and

2006/32/EC (OJ L 315, 14.11.2012, p. 1).

5

2.2.3. Inclusion of coal-fired high efficient CHPs

(19) Poland observes that the Guidelines on State aid for environmental protection and

energy 2014-2020 (“EEAG”) allow supporting high efficient coal-fired CHPs. At

the same time, as already mentioned in recital (12), one of the main objectives of

the measure is to improve the very low air quality in the Polish municipalities.

The air pollution is in particular caused by individual home heating systems using

low efficiency boilers fired with low quality fuels based on coal. In line with the

environmental objective, Poland wants to focus the support in particular on the

construction of gas fired and biomass9 fired high efficient CHP installations as

well as the conversion of existing coal fired heating plants to gas and biomass

fired high efficient CHP installations.

(20) Polish authorities however submit that the construction of (or a conversion into)

gas and biomass fired high efficient CHP installations will not be always possible

due to technical or economic conditions in the specific location. Polish authorities

submit in this regard that there around 997 communes in Poland (i.e. approx. 40

%) that do not have any access to natural gas.

(21) Poland therefore intends, where justified by economic analysis demonstrating that

no other option is cost effective, to allow the construction of coal fired high

efficient CHP plants as the last resort solution. As indicated by the following

table, Polish authorities demonstrated in this regard that the construction of a coal

fired high efficient CHP installation can deliver environmental benefits compared

to the separate generation of electricity and heat using coal, or generation of heat

in individual heating sources.10

CO OGC* Dust

[mg/m3] at 10% O2

Coal-fired individual heating boilers – Class 1 (PN-EN 303-5:2002)

Manually fed 25 000 (up to 50 kW) 12 500 (50-300 kW)

2000 (up to 50 kW) 1500 (50-300 kW)

180

Automatically fed

15 000 (up to 50 kW) 12 500 (50-300 kW)

1750 (up to 50 kW) 1250 (50-300 kW)

180

Coal-fired individual heating boilers – Class 5 (PN-EN 303-5:2012)5 0 – 500 kW

Manually fed 700 30 60

Automatically fed

500 20 40

MCP (new-build CHP units up to 50 MWt)

<1401 <41 14.72

BAT (new-build CHP units, 50-100 MWt thermal input)

22 – 102.73 <41 1.5-3.7 (per year)4 2.9-11.7(per day)4

9 Poland nevertheless expects that the support granted to biomass installations under the RES auction

scheme will be more attractive than the support under the CHP scheme and a majority of the biomass

installations will thus opt for the support scheme for renewables (SA.43697).

10 This is in particular based on much tighter standards for medium and large combustion plants than for

individual boilers.

6

* Share of unburned organic substances in gaseous form expressed as total organic carbon (in dry flue gas) 1 No levels defined in the MCP Directive and the BAT Conclusions, assumed based on amounts form existing

installations

2 According to the MCP Directive: annual average 20 mg/m3 at 6% O2; value in the table converted to 10% O2 content

in flue gas

3 According to the Commission Implementing Decision (EU) 2017/1442: yearly indicative average 30 – 140 at 6% O2

4 According to the Commission Implementing Decision (EU) 2017/1442: yearly average 2-5 at 6% O2, daily average 4-

16 at 6% O2; values in the table converted to 10% O2 in flue gas

5 As of 1 July 2018, Poland allows sales and installation on its territory of only the household coal-fired heating boilers

meeting the class 5 emission requirements. This requirement superseded in 2012 the reference to the PN-EN 303-

5:2002 standard in force up to then. However, until July 2018 the sales of coal-fired heating boilers not meeting any

standards were allowed. Bearing in mind that the lifetime of home heating boilers exceeds 20 years, the majority of

household furnaces are boilers that do not meet the emission standards (exceeding even the lowest class 1 emission

factor).

Table 1. Comparison of emissions from coal fired high efficient CHP units and from coal

fired individual heating boilers. Source: Polish authorities.

(22) In order to qualify for the granting of aid, the future operators of the coal fired

high efficient CHPs will have to comply with the emission limit of 450 kg/MWh

CO2 mentioned in recital (14). Moreover, they will have to demonstrate that the

construction of such plant is the only technically and economically justifiable

solution in the specific location. To comply with this condition, their application

for aid will have to be accompanied with a study conducted by an entity

accredited by the Polish Centre for Accreditation. The study will have to show the

following elements:

the lack of possibility to supply this unit with gas due to technical11 and

economic12 conditions of connection to the gas grid;

the lack of technical or economic justification for supplying this unit with

biomass based on an analysis of costs and benefits of construction or

substantial refurbishment of a CHP unit intended to determine the most

resource efficient and profitable solution allowing meeting the requirements

on heating and cooling;

lack of possibility to implement an investment in a multi-fuel unit, where

one of the fuels is RES; and

forecast indicating that the prices of heat supplied by the coal fired unit to

the district heating network will not be higher than the average heat price

from other sources supplying this district heating network.13

11 The technical aspect refers to a complete lack of gas infrastructure in the given location or its

insufficient capacity (at least medium pressure network is required). The availability is checked in a

formal procedure by a gas TSO or DSO and the assessment has to be concluded by a formal refusal to

connect to the gas network. This refusal is subsequently verified by ERO.

12 The economic aspects refer to the costs of construction of gas connection that would make the project

unprofitable.

13 In case of new-build district heating systems, the forecast should indicate that the planned CHP

installation can offer heat in the planned location for a price not higher than the result of (i) the average

7

2.2.4. Cogeneration premium

(23) The support is paid as a premium on top of the market price for electricity

('cogeneration premium'). The cogeneration premium will be granted by Zarządca

Rozliczeń S.A. According to the information provided in the notification

Zarządca Rozliczeń S.A. is a company with 100% of shares owned by the

National Treasury and the ownership rights executed by the Minister of Energy.

(24) The cogeneration premium can be granted in form of an administratively set

guaranteed premium, individual guaranteed premium or individual cogeneration

premium or as a cogeneration premium set in a competitive auction. The form of

the cogeneration premium will depend on the capacity of the high efficient CHP

unit as well as on the stage of its lifetime (new, substantially refurbished,

refurbished, or existing unit). The cogeneration premium will be granted for each

MWh of electricity produced in the CHP mode.

(25) Furthermore, the level of the cogeneration premium will depend on the amount of

heat, which the high efficient CHP unit will supply to the district heating network.

For CHP units supplying the network with at least 70 % of its generated heat, the

support will be provided for 100 % of electricity. In case of high efficient CHP

units supplying the network with less than 70 % of the heat generated by the unit,

the support will apply to electricity in proportion corresponding to the size of this

share.

Small below 1 MW <1-50< MW From 50 MW

Existing

Guaranteed premium

Guaranteed premium Individual guaranteed premium

Refurbished

Substantially refurbished Auction for a

cogeneration premium Selection for individual cogeneration premium

New-build

Table 2. Overview of the cogeneration premiums depending on the site and type of

plants. Source: Polish authorities.

(26) The administratively set cogeneration premium will be calculated according to the

levelised costs of electricity ('LCOE'), i.e. the averaged discounted cost of

generating 1 MWh. The LCOE will be reduced by the forecasted revenues from

the sales of heat and electricity as well as the revenues from the sales of ancillary

services. The LCOE calculations will also include a rate of return of 8 %

determined on a post-tax basis. The resulting cogeneration premium will be a

sales price for heat generated in units other than CHP units fired with gas fuel, fuel oil or being RES

installations and (ii) the reference ratio published by the President of ERO.

8

value of an electricity price above the assumed wholesale market prices that

results in net present value of the project being equal to 0.

(27) The cogeneration premium will not be paid for any electricity production at times

when the market prices of electricity are negative.

(28) Poland expects that the overall capacity of high efficient CHP plants planned for

construction/significant refurbishment in the individual years will be as follows:

Installed capacity

(MW) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Total

Auctions 100 400 300 300 300 300 300 300 300 300 2900

CHP units <1 MW

50 50 50 50 50 50 50 50 50 50 500

CHP units > 50 MW

(selection) 600 600 250 150 100 0 0 0 0 0 1700

Total 750 1050 600 500 450 350 350 350 350 350 5100

Table 3. Overview of the supported high efficient CHP plants planned for

construction/significant refurbishment in the individual years. Source: Polish authorities.

9

(29) Moreover, the expected capacity of existing high efficient CHP plants to be

supported by the aid in the individual years will be as follows:

Installed electric capacity (MW)

Gas fuel Other fuels

2019 1100 60

2020 1100 60

2021 1100 60

2022 1100 60

2023 1100 60

2024 250 60

2025 240 60

2026 225 22

2027 215 22

2028 160 22

2029 145 20

2030 40 17

2031 25 4

2032 2 0

Table 4. Overview of the supported existing high efficient CHP plants in the individual

years. Source: Polish authorities.

(30) As regards the potential for refurbishment of existing high efficient CHP

installations, Poland submits that refurbishment should not concern more than 10

% of the currently installed capacity during the lifetime of the scheme.

2.2.4.1. Auctions for cogeneration premiums

(31) Auctions for cogeneration premiums will be organised at least once a year by the

President of ERO. Poland will organise a pilot auction for 100 MW in the first

year of the scheme (2019) to test the assumptions and procedures of the scheme.

(32) The auctions will be open to new and substantially refurbished installations with

the capacity between 1 MW and less than 50 MW irrespective of the fuel they

10

use. The cogeneration premium will be set based on successful participants

auction bids ('pay as bid' pricing rule).

(33) The Minister of Energy will publish annually a regulation setting both the total

volume and the total value of the cogeneration premiums that would be granted in

the auctions taking place in the given year. The President of ERO, when

announcing the auction, will define the volume and value of the given auction

based on this regulation. These volume and value caps will be introduced in order

to keep control over the total number of supported installations as well as the

overall expenditures. Once any of these two thresholds will be reached, the

auction will be terminated (see also Table 8 below).

(34) The auctions will last between 3 and 10 days. For each auction round, a minimal

participation of at least three bidders is prescribed. In addition, in case the volume

or value of the submitted bids does not exceed the volume or value earmarked for

a given auction, it will not be possible to contract more than 80% of electricity

subject to submitted bids.

(35) The aid will be granted for the duration of 15 years following the first generation,

supply to grid and sale of electricity after the completion of the construction or

significant refurbishment, but no longer than until 31 December 2048.

(a) Prequalification stage

(36) Applications for the participation in the auctions will be evaluated during a

prequalification stage. The applications will have to contain amongst other

information concerning location of the CHP plant, its capacity, fuel used,

percentage share of usable heat in cogeneration, planned cost of investment in

case of substantially refurbished plants, the CO2 emission factor and the value of

the previously received investment aid. An application shall be accompanied with

technical schematic diagram of the source assuring that support will be provided

only to the electricity produced in high-efficiency cogeneration mode. The

application shall be also accompanied with the investment implementation

schedule.

(37) In addition, in case of coal fired high efficient CHPs, the application shall be

accompanied with a necessity study conducted by an entity from the list indicated

by the Polish Centre for Accreditation as described in recital (22). The

participation in auctions will be thus open only to units, which can demonstrate a

lack of gas supplies or the impossibility to convert the unit to gas and biomass

installation (see also Section 0).

(b) Main stage

(38) Each submitted bid has to contain expected volume of energy in MWh from

cogeneration broken down into calendar years together with the value of the

cogeneration premium. In case the bidder received investment aid, the bid should

also contain the level of the cogeneration premium without the investment aid

received (or to be paid out). As already stated in recital (32), the cogeneration

premium will be determined according to the 'pay as bid' pricing rule and the aid

will be thus awarded to the bidders who submit the lowest offers for the

cogeneration premium.

11

(39) In order to take into account different LCOE for individual technologies (solid

fuels, gas, biomass and other fuels), the Minister of Energy will pre-define price

caps based on the LCOE for the given type of unit to avoid overcompensation (so

called reference premium values). Bids exceeding the reference premium value

for the given type of fuel will be rejected.

(40) The reference premium values were determined by using a dynamic economic

model which calculates the required level of aid based on different

macroeconomic and market assumptions (e.g. forecasted inflation, energy prices,

CO2 prices or fuel prices) as well as technical and operating data (e.g. unit

capacity, overall gross efficiency, utilisation time, WACC (weighted average cost

of capital) or heat prices). The model reflects the actual situation in the Polish

CHP market: it refers to operating parameters of the CHP units in weather

conditions typical for Poland, assumes actual historic values and takes into

account the market forecasts developed by an independent recognised institution.

The summary of the assumptions is as follows:

12

From 1 to 50 MWe

Up to 1 MWe

100 MWe 200 MWe 300 MWe

Item Unit Coal Gas Other

Biomas

s Gas

Other

Coal Gas Biomas

s Coal Gas

Biomas

s Coal Gas

Biomas

s

Gross electrical capacity

MWe 30 30 30 30 0.5 0.5 100 100 100 200 200 200 300 300 300

Gross overall efficiency

% 80% 82% 82% 80% 82% 82% 80% 82% 80% 80% 82% 80% 80% 82% 80%

Own consumption share in electricity generation

% 15% 5% 5% 15% 5% 5% 15% 5% 15% 15% 5% 15% 15% 5% 15%

Maximum installed capacity utilisation time

h / year 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000 4

000

Power to heat ratio MWe/MWt

0.47 1 1 0.5 1 1 0.55 1.1 0.55 0.6 1.2 0.6 0.6 1.3 0.6

Per unit capital expenses

Millions PLN/M

We 12.5 5.5 5.5 14 6.1 6.1 10.0 4.5 11.2 9.0 4.2 10.1 8.5 4 9.5

Per unit fixed operating costs excluding the depreciation cost

kPLN/MWe/yea

r 270 250 250 300 300 300 250 225 270 225 200 245 200 175 220

Per unit variable costs excluding the cost of fuel and EUAs

PLN/MWh

10 5 5 10 5 5 10 5 10 10 5 10 10 5 10

Emissions per unit of fuel

kg/GJ 94 56 56 0 0 0 94 56 0 94 56 0 94 56 0

Operating lifetime Years 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25

Duration of support Years 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15

Tax depreciation rate % 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7%

Balance sheet depreciation rate

% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%

Nominal after tax WACC

% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%

Table 5. Summary of assumptions adopted for the calculation of the initial level of the

cogeneration premium for the new-build high efficient CHP units. Source: Polish

authorities.

13

(41) The resulting LCOE levels for different fuels are as follows:

Coal Gas Biomass Other

LCOE 406 369 448 316

Average electricity selling price over the entire lifetime14

248 244 248 244

Table 6. Comparison of the electricity market prices and the LCOE for individual

types of fuels for new units 1-50 MW. Source: Polish authorities.

(42) The following two tables provide a simulation of the auction process during the

main stage, including the application of the cap prices as well as the value and

volume caps:

Submitted bids

Table 7. Source: Polish authorities.

14 Differences between the electricity prices for coal and biomass on the hand, and gas and other fuels on

the other hand, result from the longer construction time for coal and biomass fired units, which will

thus start their production only at a later stage (the electricity price forecasts for earlier years are

lower).

14

Auction winners


(43) In addition, Poland will introduce a corrective factor on the reference premium

values as defined in recitals (39)-(40) in order to reflect lower investment costs

incurred by substantially refurbished high efficient CHP plants. The level of the

reference premium value will depend on the level of investment compared to the

costs of a corresponding new build high efficient CHP plant. The corrective

factors will be as following:

Level of CAPEX

as for a new-

build CHP unit

coal gas other biomass

51% - 60% 40% 68% 60% 40%

61% -70% 55% 76% 68% 55%

71% - 80% 70% 84% 76% 70%

81% - 90% 85% 92% 88% 85%

91% - 100% 100% 100% 100% 100%

Table 9. Level of CAPEX as proportion of cost of a new-build high efficient CHP unit.

Source: Polish authorities.

2.2.4.2. Guaranteed premiums

(44) Guaranteed premium is an administratively set premium that will be granted to

existing (not depreciated) gas fired (including methane) high efficient CHP plants

and refurbished high efficient CHP plants regardless of the fuel, both with an

installed electric capacity between 1 MW and less than 50 MW.

15

(45) Moreover, a guaranteed premium will be also granted to high efficient CHP

plants with a capacity below 1 MW regardless of investment stage (new,

significantly refurbished, refurbished and existing high efficient CHP units) and

fuel15.

(46) The aid will be granted based on an application for a guaranteed premium

submitted to the President of ERO. The application has to contain the same

information as already mentioned in recital (36). In addition, the application shall

also contain the volume of energy from cogeneration defined in MWh and, with

the exception of units mentioned in recital (48), the amount of the guaranteed

premium less the previously received investment aid (the decrease will be made

pro rata to every MWh of energy to be produced).

(47) The level of the support will be based on the LCOE (see recital (26)) of the

supported installations but excluding all sunk investment costs. It will differ

depending on the type of fuel as well as the type of unit (refurbished units, units

below 1 MW (new build, substantially refurbished, refurbished) and existing

units, including existing units below 1 MW). The level of the guaranteed

premium will be determined annually in a regulation issued by the Minister of

Energy and it will be based on the following elements:

material, technical and economic operating parameters of the CHP plant;

operating expenses and additional capital expenses incurred during the period of

operation (only in case of new-build and substantially refurbished units) in which

the CHP plant is subject to support;

capital expenses incurred during the period of preparation of the project and the

construction of the CHP unit together with the necessary technical infrastructure

(only in case of new-build, substantially refurbished and refurbished units);

forecasted revenues from the sale of heat and electricity as well as revenues from

the provision of ancillary services, if these can be provided by the specific type of

the CHP unit;

CO2 emission costs (except for units below 1 MWe which are not covered by the

ETS), and any revenues under the ETS (e.g. free allowances);

assumptions concerning the technical operating conditions of the CHP unit,

including the efficiency of electricity generation, coefficients of utilisation of

available electrical capacity, coefficients of utilisation of the generated electricity

for own consumption and for covering the losses incurred before feeding the

electricity to the grid;

expected trends in fuel prices.

15 The only exception will be existing coal fired CHP plants with a capacity below 1 MW, for which no

aid can be granted.

16

(48) In case of existing high efficient CHP units (including existing units with the

capacity below 1 MW), the guaranteed premium will not cover any capital

expenses, but only the difference between operating expenses and the market

revenue. The data provided by Poland suggests that the operating costs of existing

installations are higher than for new installations (see also Table 11). Existing

plants will be eligible for aid only if they submit an application for a guaranteed

premium within 24 months following the day of announcement of this decision.

The level of aid for existing high efficient CHP units will be calculated on a

yearly basis, with updates to reflect any changes in costs and revenues. Premiums

will be set for at least the following different size and age categories:

AGE/SIZE 0- 1 MW 1 - 10 MW 11 – 25 MW 25 -50 MW

0-3 years

4-6 years

7-10 years

11-15 years


(49) This ensures that the potential for different operating subsidy requirements for

different ages and sizes of plants is taken into account (to avoid e.g. a situation

where a more efficient new plant would receive the same operating subsidy as a

less efficient older plant). Where projected market revenues are sufficient to cover

the operating costs of a plant in CHP mode and deliver an 8% profit, subsidies

will be set to zero for that year.

Coal Gas

Fixed costs

[kPLN/MWe/year]

Variable costs (less

fuel and CO2)

[PLN/MWh]

Fixed costs

[kPLN/MWe/year]

Variable costs

(less fuel and CO2)

[PLN/MWh]

Existing1 420 18 400 15

Refurbished2 420 18 400 15

Substantially

refurbished2 270 10 250 5

New-build3 270 10 250 5

1 Data in conformance with the “Principles of validation of Attachment 1 – to the form

>> Technical and economic description of the planned investment in scope of generation

of electricity in high-efficient cogeneration << - Financial analysis of conditions of

operation of the infrastructure included in the application for grant of promise of licence

17

(promise of licence amendment)” – material from the Energy Regulatory Office of 22

September 2014. 2 Data in conformance with the assumptions for the model. 3 Data based on the expert evaluation by the industry associations.


(50) The aid to existing plants will be granted for the duration of 15 years since the

first generation of electricity confirmed with a certificate of origin awarded under

the CHP certificate scheme (SA.36518).16 In case of small units below 1 MW, the

aid will be granted for 15 years (for existing small units below 1 MW, the

duration will again include the duration of aid under the CHP certificate scheme).

(51) For refurbished units, the aid will be granted as of the first generation of

electricity after refurbishment. The duration of the support will differ depending

on the level of the investment compared to the new build units, however the aid

can be granted only until 31 December 2036. The different aid periods will be as

follows:

Level of CAPEX

as for a new-

build unit

Number of

years of

support

26% - 33% 5

34% -40% 6

41% - 50% 7


2.2.4.3. Individual guaranteed premiums

(52) Individual guaranteed premiums will be granted to refurbished and existing (not

depreciated) high efficient CHP installations with an installed electric capacity of

at least 50 MW.

(53) The aid will be granted annually based on an application for an admission into the

individual guaranteed premium scheme for the coming year submitted to the

President of ERO. The application has to contain the same information as already

mentioned above in recital (36).17 In addition, the application shall also contain

the volume of energy from high-efficiency cogeneration defined in MWh to be

generated in the coming year as well as information allowing the determination of

the individual guaranteed premium18.

16 This means that the total duration of aid is counted based on length of support under both the CHP

certificate scheme and the guaranteed premium scheme.

17 The obligation to provide information concerning the investment aid received by the CHP installations

covers only refurbished installations.

18 A regulation issued by the Minister of Energy will determine the detailed scope of data that needs to

be provided in the application for the calculation of the amount of the individual guaranteed premiums.

18

(54) The President of ERO will check all the information provided by the applicant

and, if the application meets all criteria for aid, he will issue and publish a

decision certifying the eligibility of the applicant for an individual guaranteed

premium as well as the amount of aid for the given year based on the data

provided in the application. The President of ERO has the right to demand all the

data and documents from the applicant to verify the costs and revenues. For units

not meeting the eligibility criteria, the decision will be negative.

(55) The methodology for the calculation of the premium will be established by a

regulation issued by the Minister of Energy. The regulation will also establish the

cap price (which will be equal to the level of the guaranteed premium for

installations with the capacity between 1 – 50 MW in the year concerned).

(56) The annual premium will be calculated by the President of ERO based generally

on the same information that was already listed in recital (47) in relation to the

guaranteed premium. In case of refurbished high efficient CHP installations, the

calculation will also include the investment aid received by the installation.

(57) In case of refurbished installations, the individual guaranteed premium would be

granted for a period between 5 and 7 years following the first generation of

electricity after refurbishment (see also the specific rules concerning the duration

of the support in recital (51)). In case of existing plants, the aid will be granted for

a period of 15 years following the first generation of electricity confirmed with an

issued certificate of origin in case of existing high efficient CHP installations.

2.2.4.4. Individual cogeneration premium

(58) The individual cogeneration premium will be granted to substantially refurbished

and new build high efficient CHPs with the installed electric capacity of at least

50 MW. The aid will be granted on a basis of a selection process, which will be

organised at least once a year by the President of ERO.

(59) The selection process will be performed based on applications for an individual

cogeneration premium submitted to the President of ERO and it will consist of

two rounds – a prequalification round and the actual selection.

(60) In the prequalification round, the President of ERO will perform a formal

verification and evaluation of the applications. These have to contain the same

information as already mentioned in recitals (36) and (37), including the required

amount of the premium.

(61) The applicants meeting the requirements will receive a decision of the President

of ERO confirming the eligibility of the CHP installation to participate in the

selection procedure for the actual aid, which is organised as an auction. The

President of ERO sets the maximum budget and volume of energy to be

purchased in the selection.

(62) The amount of aid will be determined individually based on the actual economic

parameters submitted by each unit to the President of ERO. The methodology of

the aid calculation will be defined in a regulation issued by the Minister of Energy

and it will be the same as in case of individual guaranteed premiums.

19

(63) The actual selection process will be performed based on scoring against various

criteria. The methodology and the weight of individual points will be determined

in a regulation issued by the Minister of Energy. Mechanism of the selection will

be based on the adjustments of the calculated individual cogeneration premium by

coefficients assigned to the following parameters:

o The location of the CHP unit (regions, where (i) cogeneration is needed

the most from the heat supply security point of view and (ii) the

construction/substantial refurbishment would lead to an increase of the

number of energy-efficient district heating systems, will have a lower

value of the coefficient);

o The type(s) of fuel used in the CHP unit (lower the value of emissions,

lower the value of the coefficient).

(64) CHP installations with the lowest score will win the selection process up to the

budget and volume limits announced for the selection. The aid will be granted for

15 years following the first generation of electricity in case of new build units or

the first generation of electricity after the refurbishment in case of substantially

refurbished units. The amount of aid will be fixed subject to annual revisions with

inflation rate. The level of an individual cogeneration premium will be capped by

the maximum amount of the cogeneration premium granted to new-build high

efficient CHP installations (see also recitals (39)-(41)).

2.2.5. Cumulation of aid

(65) The cogeneration premium cannot be granted to a unit of electricity that has

already received aid from another operating aid designed to cover the LCOE of

the unit19. The cogeneration premium shall thus not be available to:

(a) producers of electricity generated in high-efficiency cogeneration for

the quantity of electricity with respect to which they exercise their

right to remuneration for providing the electric transmission system

operator with the service referred to in Article 16 paragraph 2 point 3

of the Act of 8 December 2017 on the Capacity Market20;

(b) electricity unit with respect to which the right for remuneration for

the capacity volume subject to the capacity obligation was exercised;

(c) RES installation, with respect to which the producer of electricity

from RES in this installation is benefitting from the:

– RES certificate of origin support scheme; or

– agricultural biogas certificate of origin scheme; or

19 CHP installations use, in particular in the summertime, only a small part of their capacity for

electricity generation in the cogeneration mode. This remaining part of electricity produced not

covered by the cogeneration premium will be entitled to take part in the capacity market.

20 So called ancillary services.

20

– support scheme referred to in Articles 70a - 70f of the Act of

20 February 2015 on Renewable Energy Sources; or

– RES auction support scheme.

(66) On the other hand, the cogeneration premium can be cumulated (with exception

of units mentioned in recital (48)) with investment aid. Nevertheless, the

cogeneration premium will be reduced by the amount of investment aid

earmarked for the execution of an investment in the given CHP unit granted over

the period of 10 years preceding the date of placement of an auction bid or the

submission of an application for admission to participate in the guaranteed

premiums mechanism.

(67) The cogeneration premium reduced by the investment aid will be calculated as

follows:

Cs = Co −PIcI

where:

Cs – adjusted cogeneration premium or adjusted guaranteed premium expressed

in PLN/MWh;

Co – cogeneration premium or guaranteed premium resulting from the bid

placed by the producer, expressed in PLN/MWh,

PIc – the sum of indexed investment aid

I – the electricity volume expressed in MWh, bided or submitted for premium.

(68) In case of investment aid provided to a CHP unit after the date of winning an

auction or after the date of being granted a guaranteed premium, the value of the

cogeneration premium will be reduced in line with the methodology described in

recital (67).

(69) The following support schemes will not be considered as investment aid:

the CHP certificate scheme (award of certificates causes shortening of the period

of support, see recital (50));

the certificates of origin within the meaning of the Act on Renewable Energy

Sources (the value of previously granted RES certificates is not deducted from

CHP premiums but a CHP unit continually benefiting from RES certificates is

excluded from cogeneration premiums);

the agricultural biogas certificates of origin within the meaning of the Act on

Renewable Energy Sources and the Energy Law Act (as in case of RES

certificates, a CHP unit continually benefiting from biogas certificates is excluded

from cogeneration premiums)

the energy efficiency certificates provided for in the energy efficiency

regulations;

21

granted free greenhouse gas emission allowances allocated to a CHP unit

pursuant to Article 10c of Directive 2003/87/EC - with reference to CHP units

that in a given year have the right to remuneration for the capacity volume subject

to the capacity obligation referred to in art. 57 par. 1 of the Act of 8 December

2017 on the capacity market;

funds received for the coverage of the stranded costs on power of the provisions

of the Act of 29 June 2007 on coverage of costs incurred by producers in

connection with the early termination of long-term contract for sales of power and

electricity;

the aid earmarked for the construction or operation of this cogeneration unit

installation, taking place before the commencement of work related to

refurbishment or substantial refurbishment of these units, based on which the

refurbishment or substantial refurbishment was performed – in case of

refurbishment or substantial refurbishment of a cogeneration unit or a small

cogeneration unit.

2.2.6. Cross-border participation

(70) The CHP support scheme will be open also for new-build and substantially

refurbished units located outside Poland. They can participate in the auctions for

cogeneration premiums as described in Section 0 or the individual cogeneration

premium as described in Section 0.

(71) The participation of cross-border units will be subject to:

the existence of physical electricity transmission infrastructure between Poland

and the Member State on whose territory the cogeneration unit is or will be

located.

The unit of electricity bided in the Polish support scheme that received aid under

the support mechanisms functioning outside of Poland will be subject to the same

cumulation rules as in case of domestic CHP installations (see Section 0).

Meeting the formal and procedural requirements when applying for State aid in a

procedure conducted at the ERO.

2.2.7. Duration of the scheme

(72) The CHP support scheme is implemented as of 1 January 2019 for a duration of

10 years.

2.2.8. Financing and budget

(73) Since the annual fixed payments will partly depend on the outcome of the

auctions, the budget of the scheme cannot be precisely determined. The Polish

authorities however estimate that the annual spending should amount to

approximately EUR 500 million.

(74) The support scheme will be financed via a CHP charge (Article 60 of the CHP

Act) imposed on electricity consumption. The rate of the cogeneration charge for

22

a specific year will be defined by means of a regulation by the Minister for

Energy, after consulting the opinion of the President of ERO based on the actual

costs of the scheme.

(75) The CHP charge will be included in the tariffs imposed by the electricity systems

operators and the costs of operation of the support scheme will be thus passed

onto all electricity consumers proportionally to their electricity consumption

volumes with the exemption of the reductions mentioned in Section 0. The

revenue from the CHP charge will be transferred by the operators via the TSO to

Zarządca Rozliczeń S.A., the settlement operator responsible for reconciliation of

charges and payouts of the support.

2.3. Reductions of the CHP charge for Energy Intensive Users (EIUs)

2.3.1. Objective

(76) The Polish authorities have also notified reductions of the CHP charge for EIUs.

(77) According to the Polish authorities, without the notified reductions, the financing

of the CHP support scheme would be unsustainable and the public acceptance to

put it in place would be significantly reduced. In particular, Poland explains that

bankruptcy or relocation of large electro-intensive undertakings could lead to an

erosion of the financial base for the CHP support scheme, exacerbating the

burden on other energy consumers and damaging the social acceptance for the

mechanism.

2.3.2. Beneficiaries

(78) The notified reductions are limited to undertakings active in sectors included in

Annex 3 to the EEAG. Based on the estimations provided by Poland, the number

of beneficiaries will be between 101 and 500.

(79) All undertakings active in the sectors listed in Annex 3 to the EEAG with an

electro-intensity coefficient of at least 3 % will be entitled to the reductions. The

level of the reductions will vary depending on the share of electricity costs in the

gross value added per unit of the undertaking concerned. Thus, at the level of a

single sector, the level of the reductions will depend on the electro intensity rate.

(80) The basis for calculating the CHP charge levied from an EIU with an electro-

intensity coefficient of:

not less than 3 % and not more than 20 % - is 80 % of consumed

electricity;

not less than 20 % and not more than 40 % - is 60 % of consumed

electricity; and

more than 40 % - is 15 % of consumed electricity

(81) It follows that the support level will vary based on the electro-intensity of the

beneficiary, and the aid intensity will be between 20% and 85%.

23

(82) Poland explained that the rules for calculating the electro-intensity coefficient are

laid down in the Regulation of the Minister for Energy of 9 December 2016 on

the method for calculating the electro-intensity coefficient for industrial users. As

previously confirmed by the Commission’s decisions in cases SA.37345 and

SA.43679 the rules are in line with the methodology set out in Annex 4 to the

EEAG.

2.3.3. Duration, cumulation, budget and financing

(83) The reductions to EIUs from the CHP charge have a duration of 10 years.

(84) The Polish authorities have confirmed that the aid cannot be cumulated with other

aid or de minimis support received to cover the same eligible costs.

(85) The estimated annual budget for the reductions is, on average, PLN 60.335

million. The final amount of the support will depend on the rates fixed for the

CHP charge and the quantity of electricity consumed by industrial undertaking.

(86) The Polish authorities have explained that the measure will be financed by

distributing the amount proportionally to the other consumers paying the CHP

charge.

2.4. Transparency

(87) Poland confirmed that all transparency requirements set out in paragraphs 104-

106 of the EEAG will be complied with. The information concerned by these

requirements will be published on the website of the Polish Competition

Authority (https://sudop.uokik.gov.pl/home).

2.5. Firms in difficulty

(88) The Polish authorities have committed not to grant the notified measures to an

undertaking in difficulty.

2.6. No new aid as long as past incompatible aid has not been recovered

(89) The Polish authorities committed to not grant the notified measures to an

undertaking, which has benefitted from an earlier unlawful aid that was declared

incompatible by a Commission Decision, until that undertaking has reimbursed

the total amount of unlawful and incompatible aid and the corresponding recovery

interest.

3. ASSESSMENT

3.1. Presence of State Aid

(90) Under Article 107(1) TFEU, any aid granted by a Member State or through State

resources in any form whatsoever which distorts or threatens to distort

competition by favouring certain undertakings or the production of certain goods,

in so far as it affects trade between Member States, is incompatible with the

internal market.

https://sudop.uokik.gov.pl/home

24

(91) In determining whether a measure constitutes State aid within the meaning of

Article 107(1) of the Treaty, the Commission has to apply the following criteria:

(i) the measure must confer an advantage on certain undertakings or certain

sectors (selective advantage), (ii) it must be imputable to the State and involve

State resources, (iii) it must distort or threaten to distort competition and (iv) it

must be liable to affect trade between Member States.

3.1.1. Selective advantage on certain undertakings or certain

sectors

a) Operators of high efficient CHP installations

(92) In order for a measure to fall under Article 107(1) TFEU, it must be selective, i.e.

favour certain undertakings or the production of certain sectors.

(93) Under the notified scheme, operators of high efficient CHP installations receive

an advantage because they obtain additional support in the form of a cogeneration

premium on top of the market price for electricity. Those payments guarantee

operators of high efficient CHP installations revenues higher than what they

would obtain on the electricity market. It is selective, as it is granted only to

subsector covering CHP electricity production.

(94) Furthermore, the measures are selective because they favour only operators of

high efficient CHP installations connected to a district heating network which sale

their electricity on the market.

b) EIUs

(95) Measures which, in various forms, mitigate the charges which are normally

included in the budget of an undertaking and which, without therefore being

subsidies in the strict meaning of the word, are similar in character and have the

same effect are considered to constitute aid21.

(96) The Court has also ruled that in case of exemptions from charges, in order to

prove an advantage is selective, the Commission has to prove that the measure at

stake creates differences between undertakings which, with regard to the

objective of the measure in question, are in a comparable factual and legal

situation. The concept of aid does not encompass measures creating different

treatment of undertakings in relation to charges where that difference is

attributable to the nature and general scheme of the system of charges in question.

The burden of proof for that latter part of the test is on the Member State.

(97) In the present case, the cogeneration premium in all its forms is financed through

a CHP charge imposed on electricity consumption. Therefore, electricity

consumers would have to bear the cost of financing CHP scheme by paying the

respective component included in the electricity bill.

21 Judgement in Banco Exterior de España, Case C-387/92 [1994] ECR I-877, paragraph 3; Case C-

75/97 Belgium v Commission [1999] ECR I-3671, paragraph 23.

25

(98) Pursuant to Article 62(2) of the CHP Act, EIUs are advantaged because the State

grants them a relief in form of a reduction of the basis (volume of electricity

consumed) for the calculation of the CHP charge. As a result, EIUs pay a reduced

CHP charge because, depending on their electro-intensity, the basis for the

calculation of the CHP charge will be 15 %, 60 % or 80 % of their consumed

electricity.

(99) The measure is selective because only EIUs active in sectors specified in Article

52 (6) of the Renewable Energy Sources Act of 20 February 2015, with an

electro-intensity of at least 3 % and with high international trade exposure are

eligible for the aid (see also recital 80 above).

3.1.2. Imputability


(100) The cogeneration premium for electricity from high efficient CHP installations is

imputable to the State, as it has been established by the CHP Act adopted by the

Polish Parliament (see recitals (7) - (9) above). Moreover, the CHP Act is further

implemented by the Ministry of Energy and ERO.

b) With regard to the EIUs

(101) The reduced CHP charges for EIUs are imputable to the State as it is established

in the CHP Act and in implementing regulations of the Minister of Energy.

(102) With regard to the reduced CHP charges for EIUs, the reductions to EIUs are

granted by the State (ERO), who also monitors its correct implementation.

3.1.3. Existence of State resources

(103) According to settled case-law, only advantages which are granted directly or

indirectly through State resources are to be regarded as aid within the meaning of

Article 107(1) TFEU. The distinction between aid granted by the State and aid

granted through State resources serves to bring within the definition of aid not

only aid granted directly by the State, but also aid granted by public or private

bodies designated or established by the State.22 Thus, resources do not need to

transit through the State budget to be considered as State resources. It is sufficient

that they remain under public control.23


(104) In accordance with the case-law, Article 107(1) TFEU covers all the financial

means by which public authorities may actually support undertakings, irrespective

22 To this effect, see case C-78/76 Steinike & Weinlig EU:C:1977:52, paragraph 21, joined cases C-

72/91 and C-73/91 Sloman Neptun EU:C:1993:97, paragraph 19.

23 See case C-482/99 France v Commission EU:C:2002:294, paragraph 37.

26

of whether or not those means are permanent assets of the public sector. Even if

the sums corresponding to the aid measure concerned are not permanently held by

the Treasury, the fact that they constantly remain under public control, and

therefore available to the competent national authorities, is sufficient for them to

be categorised as ‘State resources’24.

(105) The Court of Justice has, more specifically, held that funds financed through

compulsory charges imposed by the legislation of the Member State, managed

and apportioned in accordance with the provisions of that legislation, may be

regarded as State resources within the meaning of Article 107(1) TFEU even if

they are managed by entities separate from the public authorities.25 The decisive

factor, in that regard, consists of the fact that such entities are appointed by the

State to manage a State resource and are not merely bound by an obligation to

purchase by means of their own financial resources26.

(106) As mentioned in Section 0, the cogeneration premium is financed by the

compulsory CHP charge imposed by the CHP Act (see Article 60 of the CHP

Act). The TSO is obliged to levy CHP charge from the operators connected to the

grid while the DSOs are obliged to levy it from the final electricity consumers or

electricity distributors (Article 61 of the CHP Act). The calculation of CHP

charge is determined in Articles 62-65 of the CHP Act. The rates of the CHP

charge will be published in a Regulation by the Minister of Energy based on the

level of the costs of operation of the scheme.

(107) In light of the above, the Commission concludes that the CHP charge is a levy on

electricity consumption and thus the support of high efficient cogeneration is

financed through State resources.

(108) In addition, the Commission notes that the TSO and DSOs collect the CHP charge

on behalf of State owned company Zarządca Rozliczeń S.A. (see recital (23)), put

it on the special CHP charge account and informs the Zarządca Rozliczeń S.A on

the amounts collected during the reference period. In case of insufficient amount

of CHP charge collected to cover the payments of CHP premium the Zarządca

Rozliczeń S.A. is obliged to cover the difference by other means (Article 60 of

the CHP Act).

(109) The financial flows aiming at financing the CHP premium are thus constantly

under the control of the State even if they ultimately take place with the

24 See judgment of 28 March 2019, Germany v Commission (EEG 2012), C-405/16P,

ECLI:EU:C:2019:268, paragraph 57. Judgments of 16 May 2002, France v Commission, C-482/99,

EU:C:2002:294, paragraph 37; of 13 September 2017, ENEA, C-329/15, EU:C:2017:671,

paragraph 25 and the case-law cited.

25 Judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 35, and of

19 December 2013, Association Vent De Colère! and Others, C-262/12, EU:C:2013:851,

paragraph 25.

26 See, to that effect, judgments of 17 July 2008, Essent Netwerk Noord and Others, C-206/06,

EU:C:2008:413, paragraph 74; of 19 December 2013, Association Vent De Colère! and Others,

C-262/12, EU:C:2013:851, paragraphs 30 and 35; and of 13 September 2017, ENEA, C-329/15,

EU:C:2017:671, paragraphs 26 and 30.

27

participation of private parties, i.e. electricity consumers, TSO and DSOs, and

Zarządca Rozliczeń S.A. The latter is acting as intermediary entrusted by the

State to administer the funds collected through the CHP charge exclusively for the

objective of supporting CHP electricity. Accordingly, the Commission concludes

that the funds coming from CHP charge remain under the dominant control of the

public authorities and the measure is therefore financed through State resources.


(110) The reductions from CHP charge that EIUs will benefit from are financed by the

end-consumers. Pursuant to Article 63 (1) of the CHP Act, the end consumers

will ultimately have to carry the burden in their electricity bills.

(111) The Commission notes that the State via the ERO exercises control over the

reductions from CHP charge. Poland has established the rules for the calculation

of CHP charge in Articles 64 - 65 of the CHP Act. Furthermore, the eligible EIUs

submit an application to the President of ERO, which verifies the request, and

finally grants the reductions to them. The President of ERO verifies the eligibility

of companies and delivers the administrative order approving them.

(112) For all the reasons set out above, the Commission concludes that the reduction of

burdens arising from the funding of the CHP support system for EIUs involves

State resources. The Commission observes in particular that the State can control,

direct and influence the administration of the CHP reductions at stake: the State

intervenes both at the level of the advantage and its financing. The State has

defined in legally binding provisions to whom the advantage is to be granted, the

eligibility criteria and the level of support, but it has also determined the financial

resources to cover the costs of the support.

3.1.4. Threat of distortion of competition and impact of intra-community

trade


(113) The electricity market has been liberalised and electricity producers engage in

trade between Member States The electricity generated by operators of the high

efficient CHP installations is generally sold on the spot market where it enters in

competition with electricity from different sources (such as electricity from RES,

conventional and nuclear sources).

(114) Therefore, the advantage granted to the operators of the high efficient CHP

installations is likely to distort competition and affect trade between Member

States.


(115) The EIUs benefitting from the reduced CHP charge are active in sectors with high

international trade exposure (undertakings active in sectors included in Annex 3

to the EEAG), and as such, the measures at stake are likely to distort the

competition on the markets in which they are active and affect trade between

Member States.

28

3.1.5. Conclusion on the existence of State aid

(116) In the light of the above assessment, the Commission concludes that the

cogeneration premium for high efficient CHP installation operators and

reductions for EIUs from CHP charge constitute State aid within the meaning of

Article 107(1) TFEU.

3.2. Lawfulness of the aid

(117) The CHP scheme and reductions for EIUs from the CHP charge were notified to

the Commission on 6 and 7 February 2019. The CHP Act became effective on 1

January 2019, however the aid measures have not been put into effect prior to this

decision. Poland has therefore complied with its obligations under Article 108 (3)

TFEU.

3.3. Compatibility

3.3.1. Compatibility of the CHP support scheme

(118) The Commission notes that the notified CHP support scheme aims at promoting

energy efficiency. Consequently, the Commission has assessed it on the basis of

the general compatibility provisions of the EEAG (set out in section 3.2. of the

EEAG) and the specific compatibility criteria for energy efficiency measures,

including cogeneration and district heating and cooling (section 3.4. of the

EEAG). The Commission reminds that any individual aid granted on the basis of

the notified aid schemes remains subject to the notification obligation pursuant to

Article 108(3) TFEU, if the individual aid fulfils the criteria of paragraph 20 of

the EEAG.

(119) The Commission has thus verified below:

(a) The contribution to a clearly defined objective of common interest

(section 3.2.1. and paragraphs 107, 108, 117, 118, 121 of the EEAG);

(b) The need for State intervention (section 3.2.2. and paragraph 115 of

the EEAG);

(c) The appropriateness of the aid (section 3.2.3. and paragraph 116 of

the EEAG);

(d) The incentive effect of the aid (section 3.2.4 of the EEAG);

(e) The proportionality of the aid (section 3.2.5. and section 3.3.2. of the

EEAG);

(f) Avoidance of undue negative effects on competition and trade

(section 3.2.6 and paragraph 116 of the EEAG);

(g) Transparency of the aid (section 3.2.7 of the EEAG).

29

3.3.1.1. Support to the production of CHP electricity in new,

substantially refurbished and refurbished high efficient CHP

installations

(a) Objective of common interest

(120) According to paragraph 31 of the EEAG, Member States need to define precisely

the objective of common interest pursued and explain the expected contribution

of the aid scheme to that objective.

(121) The cogeneration premium aims at incentivising production of electricity in high

efficient CHP installations. High-efficiency cogeneration has been recognised by

the Energy Efficiency Directive (“EED”)27 as having significant potential for

saving primary energy and thus contributing to energy efficiency and to CO2

reduction efforts. In line with paragraph 139 of the EEAG, Poland limits the

support to CHP electricity satisfying the definition of high-efficiency

cogeneration pursuant to Annex II EED.

(122) The measure is therefore directed at the objective of common interest of

promoting the production of electricity from high efficient CHP and thus of

energy efficiency.

(123) In addition, while the Commission acknowledges this measure may help address

the severe air quality problems in Poland mentioned in recital (12), this state aid

decision would not prejudge Commission’s decisions on legal procedures

concerning the non-compliance with the obligations under EU air quality

legislation.

(b) Need for State intervention and its appropriateness

(124) According to section 3.2.2. of the EEAG, the Member State needs to demonstrate

that there is a need for State intervention and in particular that the aid is necessary

to remedy a market failure that otherwise would remain unaddressed. The

Commission notes in this regard that energy efficiency measures can be presumed

to target negative externalities by creating individual incentives to attain

environmental targets for energy efficiency and for the reduction of greenhouse

gas emissions.

(125) In the case of the production of electricity in high efficient CHP installations in

Poland, a residual market failure remains in line with paragraph 115 of the EEAG

and new, substantially refurbished and refurbished high efficient CHP

installations still require State intervention in the form of subsidies to be

financially viable in Poland. Poland has provided evidence that the LCOEs of the

individual types of high efficient CHP installations regardless of the fuels used

are still higher than the market price electricity (see Table 6 above as well as the

following Table 13).

27 Directive 2012/27/EU of the European Parliament and the Council of 25 October 2012 on energy

efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC

and 2006/32/EC, OJ L 315, 14.11.2012, p. 1.

30

Coal Gas Biomass Other

Up to 1 MW

- 1 331 1 - 1

1-50 MW 406 369 439 316

100 MW 358 343 379 - 2

200 MW 335 331 354 - 2

300 MW 315 322 331 - 2 1 Up to 1 MW: no coal-fired units of this size, gas-fired units have lower LCOE than higher capacity units

due to lack of requirement to purchase the emissions rights (units exempted from EU ETS). 2 Over 50 MW: no other fuel fired units of this size.

Table 13. LCOE of 1-50 MW capacity units and large-scale units [PLN’17/MWh].

Source: Polish authorities.

(126) The necessity of the aid is further checked individually in a formal procedure by

the ERO. The operators of high efficient CHP installations, before starting their

works, must apply to the ERO for a promise of a licence and after the verification,

they receive a formal confirmation that the planned installation is not viable

without aid. An additional verification follows during a formal prequalification

stage before the plants enter the CHP scheme.

(127) As regards appropriateness, according to paragraph 40 of the EEAG, the notified

aid scheme must be an appropriate instrument to address the policy objective

concerned. Paragraph 145 of the EEAG concludes in relation to energy efficiency

measures, including cogeneration, that State aid may be considered an appropriate

instrument to finance energy efficiency measures, independent of the form in

which it is granted.

(128) In light of the above, Poland has demonstrated that there is a need for State

intervention and the aid is appropriate.

(c) Incentive effect

(129) In line with paragraph 49 of the EEAG, the incentive effect occurs if the aid

induces the beneficiary to change its behaviour towards reaching the objective of

common interest, which it would not do without the aid.

(130) As demonstrated in Tables 6 and 13 above, high efficient CHP installations are

not cost-competitive, as the electricity generated from high efficient CHPs cannot

yet compete on market terms in Poland with electricity generated from existing

conventional electricity production due to the higher LCOE levels. The market

mechanisms alone thus do not incentivise the investments in the construction or

refurbishment of high efficient CHP installations.

(131) Moreover, Poland committed in case of new, substantially refurbished and

refurbished high efficient CHP installations to implementing specific provisions

in a Regulation to the CHP Act that would ensure granting of aid only to

installations, which did not start works on the project prior to the aid application

to ensure the compatibility with the provision of paragraph 50 of the EEAG (see

also recital (16)).

31

(132) The Commission therefore concludes that the aid has an incentive effect, as the

measures induce the beneficiaries to change their behaviour and invest in high

efficient CHP installations, which they would not undertake without the aid.

(d) Proportionality

(i) Principles

(133) Paragraph (27)(e) of the EEAG stipulates that for aid to be proportionate it should

be limited to the minimum amount necessary to achieve the objective which the

State aid pursues (i.e. in this case promotion of energy efficiency). Paragraph

(27)(f) of the EEAG requires that the negative effects of aid are sufficiently

limited, so that the overall balance of the measure is positive in accordance with

section 3.2.6. of the EEAG. According to paragraph 69 of the EEAG,

environmental aid is considered to be proportionate, if the aid amount per

beneficiary is limited to the minimum needed to achieve the environmental

protection objective aimed for.

(134) The measure consists of operating aid for the production of electricity in high

efficient new, refurbished and substantially refurbished CHP installations

connected to the public network. It is thus paragraph 151(a) together with section

3.3.2.1. of the EEAG that is applicable for the assessment of the proportionality

of that aid.

(135) Paragraph 124 of the EEAG states that it is important that beneficiaries sell their

electricity directly on the market and are subject to market obligations to

incentivise the market integration of electricity generators. The following

cumulative conditions apply:

a) aid must be granted as a premium in addition to the market price (premium)

whereby the generators sell their electricity directly on the market;

b) beneficiaries must be subject to standard balancing responsibilities, unless

no liquid intra-day balancing markets exist; and

c) measures must be put in place to ensure that generators have no incentive to

generate electricity under negative prices.

(ii) Application in this case

(136) As already demonstrated in Section 0, paragraph 124(a) of the EEAG is complied

with, as the aid is granted in form of a cogeneration premium. Moreover, recital

(14) shows that the operators of the high efficient new, refurbished and

substantially refurbished CHP installation have to sell their electricity on the

market and they are subject to standard balancing responsibilities (paragraph

124(b) of the EEAG). Finally, Poland confirmed, in line with paragraph 124(c) of

the EEAG, that the aid will not be paid for production in any periods in which

market prices are negative (see also recital (27)).

32

1. Aid granted in auctions

(137) The proportionality of the aid granted in a competitive bidding process can be

presumed in line with paragraph 87 of the EEAG.

(138) Paragraph 126 of the EEAG provides that aid has to be granted in a competitive

bidding process on the basis of clear, transparent and non-discriminatory criteria.

As already explained in Section 0, Poland will organise competitive auctions for

new and substantially refurbished high efficient CHP installations28 with the

capacity between 1 MW and 50 MW. Moreover, in order to take into account

different LCOEs for individual technologies, reference premium values will be

introduced given types of fuels to avoid overcompensation (see also recitals (39)

and (40)).

(139) In addition, in order to safeguard the competitive nature of the bidding process

and to avoid the possibility of strategic bidding, Poland introduces a minimal

participation of at least three bidders in each auction round. Moreover, it will not

be possible to contract more than 80% of electricity subject to submitted bids, if

the volume or value of the submitted bids does not exceed the volume or value

earmarked for a given auction.

(140) Moreover, Poland confirmed that it would cap the cogeneration premiums granted

to substantially refurbished plants in the auctions to reflect their lower investment

costs. The level of the cap will depend on the amount of the investment compared

to a corresponding new build high efficient CHP installation (see also recital

(43)).

(141) The cogeneration premium can be cumulated with investment aid. As already

mentioned in Section 0, Poland will nevertheless in this case reduce the

cogeneration premium by the investment aid earmarked for the execution of an

investment in the given CHP unit in line with paragraph 129 of the EEAG.

(142) Moreover, the cogeneration premium granted in the auctions can be granted only

for the duration of 15 years. The aid will thus not be paid out after the CHP

installations have been fully depreciated in accordance with normal accounting

rules in Poland. Paragraph 129 of the EEAG is thus complied with.

2. Aid granted outside of auctions

(143) In case of new, refurbished and substantially refurbished high efficient CHP

installations with the capacity below 1 MW, the aid will be granted in form of an

administratively set guaranteed premium (see also Section 0) and these

installations will therefore not participate in the auctions. This is in line with

paragraph 127 of the EEAG.

28 Substantially refurbished units are typically end of life-time installations that would have been retired

from the market without the investment. Following the substantial refurbishment, they can be

compared to a new-build unit.

33

(144) Moreover, an administratively set cogeneration premium, without the obligation

to participate in the auctions, will be also granted to new, substantially

refurbished and refurbished installations with the capacity of at least 50 MW (see

Sections 0 and 0) as well as refurbished installations with the capacity between 1

MW and 50 MW (see Section 0).

a. New and substantially refurbished installations with the

capacity of at least 50 MW

(145) In case of new and substantially refurbished high efficient CHP installations with

the capacity of at least 50 MW, Poland demonstrated that putting installations of

this size in competition with high efficient CHP installations with the capacity

between 1 MW and 50 MW would lead to suboptimal results. This would be in

particular caused by the differing LCOE levels, as the installations of at least 50

MW would have a substantial competitive advantage over smaller units in view of

economies of scale (see also Table 13 above).

(146) The cost advantage would enable them to bid strategically in the auctions by

submitting bids that would be only slightly lower than in case of 1-50 MW

installations. This would lead to overcompensation of these projects. Moreover,

given the need to address air quality issues in medium sized towns, the cost

advantage would also result in an over deployment of large units and a lack of

required development in medium-sized towns. Poland explained that in an open

competition it would be possible that the entire annual auction volume would be

consumed only by units of at least 50 MW.

(147) Furthermore, the data submitted by Poland show that the organisation of specific

auctions for installations with the capacity of at least 50 MW would lead to

suboptimal results too. These auctions would not be competitive due to the low

number of potential beneficiaries.29 The auctions would therefore likely lead to

higher support levels in view of the possibility of strategic bidding. The risk of

strategic bidding would be further emphasized by a possible overlap in the

ownership structure of the installations participating in the auctions.

(148) Based on the above, it can be concluded that the inclusion of the new and

substantially refurbished installations with the capacity of at least 50 MW in the

competitive bidding process would lead to suboptimal results and the exclusion of

these plants is therefore justified in line with paragraph 126, third indent, letters

(a) and (b) of the EEAG.

(149) Poland further committed, in line with paragraph 20(d) of the EEAG, to

complying with the notification obligation of individual aid granted to

installations with installed electricity capacity exceeding 300 MW.

29 Poland estimates that there is a maximal potential of 3 installations that could participate in the scheme

annually, as the existence of CHP installations of this size is economically justified only in cities with

more than 100,000 inhabitants. In a majority of these cities, efficient district heating system has been

already put in place in recent years.

34

b. Refurbished installations with the capacity above 1 MW

(150) In case of refurbished installations with the capacity above 1 MW, Poland

demonstrated that putting installations of this type in joint tenders with new and

significantly refurbished high efficient CHP plants would lead to suboptimal

results, as both types of units are in a different factual situation.

(151) In fact, unlike substantially refurbished units, which are mostly end of life-time

installations that would have been retired from the market, refurbished units are

existing assets that can further operate with a limited amount of investment.

Exposing these installations to competition with new and substantially

refurbished units would lead to a suboptimal result, as part of these installations

might be eliminated from aid and thus become subject to closure.30 They would

be replaced either by individual sources of heating with severe effects on

environment or by new-build CHP units, whose construction would be much

more costly from the perspective of the overall budget of the aid measure.

(152) Furthermore, Poland does not intend to organise a separate auction for refurbished

plants either, as there is only a very limited number of potential participants in the

auctions and the auctions would not be thus competitive.31

(153) Based on the above, it can be concluded that the inclusion of the refurbished

installations with the capacity above 1 MW in the competitive bidding process

would lead to suboptimal results and the exclusion of these plants is therefore

justified in line with paragraph 126, third indent, letters (a) and (b) of the EEAG.

(154) In the absence of a competitive bidding process for the two categories of high

efficient CHP installations mentioned in points (144)a and b, the proportionality

of the aid has to be assessed, in line with paragraph 128 of the EEAG, on the

basis of the conditions set out in paragraphs 124, 125 and 131 of the EEAG. The

assessment will concern aid granted in form of guaranteed premiums (see Section

0), individual guaranteed premiums (see Section 0) and individual cogeneration

premiums (see Section 0).

(155) Compatibility with paragraph 124 of the EEAG has already been examined in

recital (136). As regards paragraph 125 of the EEAG, Poland does not introduce

any specific conditions for units with an installed capacity below 500 kW.

(156) Paragraph 131(a) of the EEAG provides that the aid per unit of energy should not

exceed the difference between the total LCOE from the particular technology in

question and the market price of the form of energy concerned. Paragraph 131(b)

of the EEAG then stipulates that the total LCOE may include the plant’s normal

30 As demonstrated in Table 11 above, existing CHP units undergoing refurbishment incur higher

operating costs than new-build units in view of the technological progress increasing the effectivity of

the new and significantly refurbished units. Higher level of operating costs for refurbished CHP

installations is reflected in a longer term of support for these installations than resulting only from the

level of capital expenses (see also Table 12).

31 The Polish authorities submit that the low potential for refurbishment would not likely ensure the

participation of at least 3 valid offers in a refurbishment specific auction.

35

return on capital but any investment aid should be deducted from the total

investment.

(157) As regards the calculation of the cogeneration premiums, Poland confirmed that

the level of the cogeneration premium together with the market price of electricity

will not exceed the LCOE of the supported units. Recitals (26), (39)-(41), (47),

(55) and (62) enumerate the individual elements on which basis the LCOE will be

calculated (the calculations will i.a. include forecasted revenues from the sale of

heat and electricity as well as revenues from the provision of ancillary services).

Poland further confirmed that the LCOE will be calculated specifically for each

type of supported fuels.

(158) Moreover, in case of individual guaranteed premiums and individual cogeneration

premiums, the calculation of the cogeneration premium will be performed based

on individualised data provided by each supported high efficient CHP installation

and the calculation will be validated by an independent authority (the President of

ERO). The level of the individual cogeneration premium will be further capped

by the maximum amount of the cogeneration premium for new-build high

efficient CHP installations (see also recitals (39)-(41)).

(159) Furthermore, in case of refurbished units, the guaranteed premium will be granted

only for a limited period of time depending on the level of the investments

compared to the new build units (see also recital (50)). This reduction in support

is justified in view of the lower level of capital investments and it will ensure the

proportionality of the aid granted.

(160) The LCOE calculations further include a rate of return of 8 % determined on a

post-tax basis. This rate is equal to Poland’s estimate of the WACC in Poland (see

Table 5), and corresponds to a normal rate of return in the district heating sector

and can be thus considered reasonable.

(161) The cogeneration premium can be cumulated with investment aid. As already

mentioned in Section 0, Poland will reduce the cogeneration premium granted

under this scheme by the investment aid earmarked for the execution of an

investment in the given CHP unit in line with paragraph 151 of the EEAG, read in

conjunction with paragraphs 128 and 131(b) of the EEAG. On the other hand, no

cumulation is possible for a unit of electricity that has already received aid from

another operating aid scheme.

(162) Moreover, the granting of aid will be limited and it can be granted only for the

duration of up to 15 years (see recitals (50), (50), (57) and (62)). The aid will thus

not be granted after the CHP installations have been fully depreciated in

accordance with normal accounting rules in Poland. Paragraph 131(d) of the

EEAG is thus complied with.

(e) Distortion of competition and balancing test

(163) According to paragraph 88 of the EEAG, the Commission considers that aid is

compatible with the internal market, if the negative effects of the aid measure in

terms of distortions of competition and impact on trade between Member States

36

are limited and outweighed by the positive effects in terms of contribution to the

objective of common interest.

(164) The CHP scheme aims at increasing the production of electricity in high efficient

CHP installations in Poland. This will improve energy efficiency, achieve primary

energy savings and increase security of energy supply as established by the EED.

It will also contribute to CO2 reduction efforts and to the improvement of air

quality in the Polish municipalities. This effort is further strengthened by the

introduction of the provisions favouring other fuels than coal mentioned in

Section 0.

(165) Moreover, in line with paragraph 151 of the EEAG, the aid is granted in line with

section 3.3.2.1 of the EEAG and only in cases where the costs of producing

electricity exceed the market price.

(166) The Commission considers that aid to the high efficient CHP installations does

not have undue distortive effects, as the applicable conditions laid out in section

3.3.2.1. of the EEAG are fulfilled.

(f) Conclusion with regard to the compatibility of the support to

the production of CHP electricity in new, substantially refurbished

and refurbished CHP installations

(167) In light of the above, the Commission considers that the support to the production

of CHP electricity in new, substantially refurbished and refurbished CHP

installations is compatible with the EEAG.

3.3.1.2. Support to the production of CHP electricity in existing

high efficient CHP installations

(168) As already mentioned in paragraph (8), the proposed measure replaces the CHP

support scheme approved in a no objection decision in case SA.36518 -

Certificates of origin for high-efficient co-generation operators. The scheme

expired on 31 December 2018.

(169) The aid under the CHP certificate scheme was granted to both new and existing

installations in the period from 1 July 2007 in case of yellow32 and red33 CHP

certificates and from 11 March 2010 in case of purple34 CHP certificates. The

support was discontinued for a limited period of time from 1 January 2013 until

30 April 2014.

32 Yellow certificates were granted to units with a capacity of up to 1 MW (irrespective of the fuel used)

and units fired by natural gas (irrespective of the installed capacity).

33 Red certificates were granted to all units not covered by yellow and purple certificates, including units

fired or co-fired by hard coal, heating oil and biomass, with a capacity above 1 MW.

34 Purple certificates were granted to units fired by methane released in hard coal mines or in units fired

by biogas.

37

(170) As already explained in recital (18), Poland intends to grant aid to existing gas

fired (including methane and hydrogen) high efficient CHP installations that have

participated in the CHP certificate scheme. The aid would cover only operating

costs of non-depreciated installations and it would be limited to the maximum

duration of 15 years from the first generation of energy confirmed with the CHP

certificates of origin.35

(a) Objective of common interest

(171) As already explained in recital (121), high-efficiency cogeneration has been

recognised by the EED as having significant potential for saving primary energy

and thus for energy efficiency. Moreover, the aid in case of the existing plants is

limited to gas fired installations and the more polluting fuels are thus excluded

from the aid measure.

(172) In addition, the aid to the existing high efficient CHP plants will have a major

effect on the environment. As explained below in recitals (175)-(177), there is a

risk that some existing plants would decommission (or at least significantly

reduce their operations) due to operating losses. The reduction of the amount of

electricity and heat produced in the high efficient CHP installation would go

contrary to the ultimate goals of the scheme, which are the increase of energy

efficiency and reduction of air pollution in the Polish cities.

(173) It can be therefore concluded that the aid to existing high efficient CHP

installations is directed at the same objectives of common interest as the aid to

new and (significantly) refurbished installations.

(b) Need for State intervention

(174) According to section 3.2.2. of the EEAG, the Member State needs to demonstrate

that there is a need for State intervention and in particular that the aid is necessary

to remedy a market failure that otherwise would remain unaddressed.

(175) Poland has demonstrated that existing (non-depreciated) gas fired CHP

installations cannot operate on the market without aid covering their operating

losses (see also Tables 6 and 11 above). The termination of their operations would

lead to a significant increase of the emissions, in particular in view of the fact that

the production of the existing gas fired high efficient CHP plants would be

replaced by electricity and heat produced either in existing coal fired CHP

installations or in installations producing electricity and heat separately, including

individual household boilers outside the district heating system. The attainment

of the objective of energy efficiency of energy production in Poland would be

thus seriously endangered.

(176) Poland submitted in this regard that a similar situation occurred already between

2013 and 2014 when the CHP certificate scheme was interrupted. This resulted in

the switching of gas fired CHP installations to peaking boilers producing heat

35 The maximum duration of the aid would thus be calculated both the period of support under the CHP

certificate scheme and the duration of the support under this scheme.

38

only, which were fired predominantly by solid fuels. The main reason for this

switch was the difference in prices between gas and solid fuels.

(177) The increased costs cannot be recovered by an increase of the prices of heat, as

these are regulated based on the provisions of the Energy Law and the Tariff

Regulation for Heat.36 Moreover, Poland submits that the increase of heat prices

would cause an increase of energy poverty37 as well as a switch from the district

heating to individual heating boilers with severe consequences for the

environment (see also Table 1).

(178) In addition, the necessity of the aid will be checked annually when the level of aid

will be re-calculated reflecting the changes in costs and revenues.

(179) In light of the above, Poland has demonstrated that there is a need for State

intervention.

(c) Appropriateness

(180) According to paragraph 40 of the EEAG, the notified aid scheme must be an

appropriate instrument to address the policy objective concerned. According to

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 a market price are appropriate aid

instruments to compensate existing gas fired CHP installations for their higher

operating costs, which cannot be covered by the electricity market price. This

option represents the cheapest option from the perspective of the State budget. In

case of a closure of the existing high efficient CHP plants before their end of

lifetime due to the operating losses, these installations would have to be replaced,

at least partly, by investments in new high efficient CHP installations with a need

for a much higher subsidy.

(181) The Commission therefore considers the aid in form of the guaranteed premium

to be appropriate.

(d) Incentive effect

(182) The EEAG provide in paragraph 49 that the environmental aid can only be found

compatible with the internal market if it has an incentive effect. The paragraph

further states that an incentive effect occurs when the aid induces the beneficiary

to change its behaviour to increase the level of environmental protection, a

change in behaviour, which it would not undertake without the aid.

(183) On the other hand, paragraph 50 of the EEAG stipulates that aid does not present

an incentive effect in all cases where works on the project started prior to the aid

36 The tariffs are set based on the average price of heat produced in non-CHP installations.

37 According to the Eurostat date, around 80 % of energy consumption in households in Poland is

attributed to heating (both water and space heating). Poland submits in this regard that the heat tariffs

would have to be doubled during the interruption of the CHP in 2013 and 2014 to keep the gas fired

CHP plants profitable.

39

application. The provision further states that where the beneficiary starts

implementing a project before applying for aid, the aid will not be considered

compatible with the internal market.

(184) The Commission notes in this respect that, in case of aid to existing non-

depreciated installations, there might be a certain tension between the wording of

paragraphs 49 and 50 of the EEAG concerning the conditions of the presence of

incentive effect of aid for existing installations.

(185) As further explained below (see in particular recitals (188)-(189)), Poland has

demonstrated, in line with paragraph 49 of the EEAG, the existence of the

incentive effect of the aid by showing that existing (non-depreciated) gas fired

high efficient CHP installations cannot operate on the market without aid

covering their operating losses. On the other hand, the fact that these installations

have been already constructed means that the conditions of the paragraph 50 of

the EEAG cannot be fulfilled.

(186) The Commission notes in this regard that paragraph 50 of the EEAG was

intended to apply only to situations where aid is granted to projects, which require

certain investment for their construction or additional refurbishment and the aid is

granted to at least (partly) finance this investment. Paragraph 50 should be

interpreted as not applying to cases of aid covering only the higher operating

costs of the already constructed (but still not depreciated) project (as is the case

for existing gas fired high efficient CHP installations) where the aid can still

provide for a change of behaviour. The assessment of incentive effect of the latter

situation should be therefore conducted solely under paragraph 49 of the EEAG.

Such interpretation allows to rule out any contradiction between paragraphs 49

and 50 EEAG since they address different cases.

(187) The Commission will apply paragraphs 49 and 50 of the EEAG as set out above

to any similar cases in the future and will proceed with an appropriate

clarification of the EEAG reflecting the above interpretation at the earliest

possible occurrence.

(188) Poland has explained that existing gas fired high efficient CHP installations are

not always competitive, as in some years the costs of producing electricity and

heat in CHP mode in these installations are higher than the revenues these plants

can earn (see also recitals (175)-(177)).

(189) The aid will only be granted where – ignoring sunk investment costs – forward

revenues would be insufficient for these plants to remain on the market or to

continue operating in CHP mode. The aid for these plants is calculated taking into

account the size and age of the plants and compensates only the shortfall in future

costs and revenues necessary to ensure these plants make an 8% return and

therefore remain operational in CHP mode.

(190) The Commission therefore concludes that the aid has an incentive effect, as the

cogeneration premium induces the beneficiaries to change their behaviour by

enabling them to stay operating on the market without the need to terminate their

operations or significantly decrease the number of operating hours.

40

(e) Proportionality

(191) Paragraph (27)(e) of the EEAG stipulates that for aid to be proportionate it should

be limited to the minimum amount necessary to achieve the objective which the

State aid pursues (i.e. in this case promotion of energy efficiency). Paragraph

(27)(f) of the EEAG requires that the negative effects of aid are sufficiently

limited, so that the overall balance of the measure is positive in accordance with

section 3.2.6. of the EEAG. According to paragraph 69 of the EEAG,

environmental aid is considered to be proportionate, if the aid amount per

beneficiary is limited to the minimum needed to achieve the environmental

protection objective aimed for. In addition, the provisions of the paragraph 124 of

the EEAG need to be fulfilled (see also recital (135)).

(192) As already demonstrated in Section 0, paragraph 124(a) of the EEAG is complied

with, as the aid is granted in form of a cogeneration premium. Moreover, recital

(14) shows that the operators of the existing high efficient gas fired CHP

installations have to sell their electricity on the market and they are subject to

standard balancing responsibilities (paragraph 124(b) of the EEAG). Finally,

Poland confirmed, in line with paragraph 124(c) of the EEAG, that the aid will

not be paid for production in any periods in which market prices are negative (see

also recital (27)).

(193) In addition, the aid will be granted only for the electricity produced in the

cogeneration mode and it will be calculated to provide an incentive only to

generate in CHP mode. The aid will also:

(a) Take into account all relevant revenues as well as costs;

(b) Not include any remuneration related to sunk investment /

depreciation costs;

(c) Be set to zero in any year where projections of market revenues

indicate the beneficiaries could make an operating profit without any

additional support;

(d) Be calculated for different size and age categories as described in

recital (48) to account for variations in efficiency;

(e) Be published along with assumptions relating to the costs and

revenues for each category so aid levels can be scrutinised by

competitors;

(f) Be updated every year based on up to date cost and revenue data.

(194) Furthermore, in line with paragraph 131(a) and (c) of the EEAG, the aid per unit

of electricity will not exceed the difference between the LCOE and the market of

electricity and the production costs will be updated regularly (see recitals (48) and

(49)). In addition, the duration of the support will granted only for the duration of

15 years following the first generation of energy confirmed by a CHP certificate

in the framework of the CHP certificate scheme and, in line with paragraph

131(d) of the EEAG, aid will not be granted to depreciated plants (see recital

(170)).

41

(195) The aid will include a rate of return of 8 % determined on a post-tax basis. This

rate corresponds to a normal rate of return in the district heating sector and can be

thus considered reasonable in line with paragraph 131(b) of the EEAG.

(196) The Commission therefore concludes that the aid is proportionate.

(f) Distortion of competition and balancing test

(197) The distortion of competition on the electricity market remains limited in

comparison to the positive effects for the environment. The high efficient CHP

installations will displace in particular electricity produced from coal-fired plants

and thus significantly reduce the CO2 emission resulting from the electricity

production, which is exactly the environmental purpose pursued by the measure.

(198) The Commission considers that aid to the existing high efficient CHP installations

does not have undue distortive effects, as the applicable conditions laid out in

section 3.3.2.1 of the EEAG are fulfilled.

(g) Conclusions with regard to compatibility of support to the

production of CHP electricity in existing high efficient CHP

installations

(199) In light of the above, the Commission considers that the support to the production

of CHP electricity in existing high efficient CHP installations pursues an

objective of common interest in a necessary and proportionate way without

unduly affecting competition and trade, and that therefore the aid is compatible

with the internal market on the basis of Article 107(3)(c) TFEU.

3.3.2. Reductions for EIUs from the CHP charge

(200) In order to determine the applicable compatibility rules, the Commission

considers that, in contrast to environmental taxes, the notified CHP charge lacks

the behavioural steering effect that environmental taxes within the meaning of

paragraph 167 of the EEAG should have (see paragraphs 167 and 181 of the

EEAG), as it does not aim at changing the behaviour of the payers but at

providing funding of specific activities (energy productions from CHP

installations). Therefore, the Commission concludes that the CHP charge does not

qualify as an environmental tax as defined in the EEAG (see paragraph 19(15) of

the EEAG).

(201) Section 3.7.2 of the EEAG applies only to surcharges that do not qualify as

environmental taxes, dedicated to the funding of renewable support, but does not

cover the same surcharges dedicated to the funding of CHP.

(202) Furthermore, no other guidelines are applicable to the notified reductions granted

on the CHP charge used to finance CHP support. However, the Commission may

declare an aid measure compatible directly under Article 107(3)(c) TFEU if it is

necessary and proportionate and if the positive effects for the common objective

outweigh the negative effects on competition and trade.

(203) The Commission considers that the conditions for compatibility with the internal

market under Article107(3)(c) TFEU are met if the measure satisfies the

42

following conditions: (i) it aims at an objective of common interest;38 (ii) it is

necessary to attain the objective of common interest pursued; (iii) is appropriate

(iv) it has an incentive effect; (v) it is proportional to the needs based on which it

is deployed; and (vi) it does not unduly distort competition and trade between

Member States.

(204) The Commission has already concluded that reductions from surcharges used to

finance high efficient cogeneration can be considered as aiming at an objective of

common interest.39 The Commission also notes that the support to cogeneration

installations is part of the energy policy implemented by the Polish authorities. It

is therefore coherent for Poland to ensure the financing of this measure through a

charge imposed on electricity consumption.

3.3.2.1. Objective of common interest

(205) High-efficiency cogeneration is constituted by the energy savings obtained by

combined production instead of separate production of heat and electricity.

According to Annex II of the Energy Efficiency Directive high-efficiency

cogeneration shall fulfil two criteria. Firstly, cogeneration production from

cogeneration units shall provide primary energy savings of at least 10% compared

with the references for separate production of heat and electricity. Secondly,

production from small-scale and micro-cogeneration units providing primary

energy savings may qualify as high-efficiency cogeneration.

(206) CHP installations financed by the CHP charge comply with the criteria of high-

efficiency cogeneration set out in the Energy Efficiency Directive (see recital (14)

above).40

(207) The Commission notes that the promotion of high efficiency cogeneration is

recognised as an objective of common interest since it contributes to the increase

of energy efficiency and it reduces CO2 emissions.

(208) The Commission has already concluded that reductions from electricity charges

for the financing of cogeneration can be considered as contributing to an objective

of common interest in line with EU energy policy if they are necessary to secure a

sufficient financing base for the support measure aiming at the increase of energy

efficiency of energy production and the reduction of CO2 emissions linked to

electricity consumption.

38 Case T-162/06 Kronopoly v Commission EU:T:2009:2, especially paragraphs 65, 66, 74 and 75.

39 See Commission decision of 23 May 2017 in case SA.38635 (2014/NN), Reductions of the renewable

and cogeneration surcharge for electro-intensive users in Italy; Commission decision of 24 October

2016 in case SA.42393 (2016/C) (ex 2015/N) implemented by Germany for certain end consumers

(reduced CHP surcharge); Commission decision of case SA.36511 (2014/C), Support for EIU under

the CSPE in France; and Commission decision of 18 December 2018, in case SA.52413 – Greece -

Reduced contribution to financing of support for electricity from renewable sources (RES) and high-

efficiency cogeneration (HECHP) for energy-intensive users (EIUs).

40 See Directive 2012/27/EU of the European Parliament and the Council of 25 October 2012 on

energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives

2004/8/EC and 2006/32/EC (OJ L 315 of 14.11.2012, p.1), in particular recital 38.

43

(209) Based on those elements, the Commission considers that the notified reductions

of the CHP charge can be considered as contributing to a common objective as

they are necessary to maintain the CHP charge in place, thus ensuring support to

high efficiency cogeneration.

3.3.2.2. Need for State intervention, appropriateness of aid,

incentive effect, proportionality and no undue distortion of

competition

(210) The Commission observes that if reductions of the CHP charge are too high or

awarded to too many sectors or electricity consumers, the overall funding of CHP

support might be threatened as well and the public acceptance for cogeneration

may be equally hampered. At the same time, distortions of competition and trade

may be particularly significant. In order to assess necessity of the reductions the

eligibility criteria for reductions from renewable charges can be used as guidance

(paragraphs 185-187 of the EEAG).41 This seems particularly appropriate given

that the CHP support measures that are financed from the CHP charge serve an

environmental objective (environmental protection through promoting electricity

from high energy-efficient cogeneration). As the CHP charge is levied on the

basis of electricity consumption, it 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 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 developed under

paragraphs 185 to 187 of the EEAG aim at identifying.

(211) Paragraphs 185 - 186 of the EEAG provide that the aid should be limited to

sectors that are exposed to a risk to their competitive position due to the costs

resulting from the funding of support to energy from renewable sources as a

function of their electro-intensity and their exposure to international trade.

Accordingly, the aid can be granted if the undertaking belongs to the sectors listed

in Annex 3 to the EEAG. In addition, point 187 of the EEAG provides that

Member States can impose additional eligibility criteria provided that within the

eligible sectors the choice of beneficiaries is made on the basis of objective, non-

discriminatory and transparent criteria and that the aid is granted in principle in

the same way for all competitors in the same sector if they are in a similar factual

situation.

(212) Under the notified scheme, the reduction for EIUs will be granted only in relation

to the CHP charge. Undertakings from all sectors included in Annex 3 to the

EEAG are eligible, subject to certain selection criteria, as explained below. On

the other hand, only undertakings from the sectors included in Annex 3 to the

EEAG are eligible to benefit of a reduction, based on their electro-intensity.

41 See Commission decision of 24 October 2016 in case SA.42393 (2016/C) (ex 2015/N), Reform of

support for cogeneration in Germany, recital 275, Commission decision of 23 May 2017 in case

SA.38635 (2014/NN), Reductions of the renewable and cogeneration surcharge for electro-

intensive users in Italy, recital 136, and Commission decision of 18 December 2018 in case

SA.52413 (2018/NN) – Greece - Reduced contribution to financing of support for electricity from

renewable sources (RES) and high-efficiency cogeneration (HECHP) for energy-intensive users

(EIUs), recital 123.

44

(213) The selection of the beneficiaries and the differentiation of the aid intensity to

which they are entitled are done on the basis of their electro-intensity (see recitals

(80)-(81) above). This constitutes an additional eligibility requirement imposed

by the Polish authorities. The Commission notes that this additional requirement

is objective, transparent and does not discriminate between undertakings in a

similar factual situation (in this regard see paragraph 187 of the EEAG).

(214) Paragraphs 188 and 189 of the EEAG can also be used as guidance to assess the

proportionality of the reductions of CHP charges. This seems particularly

appropriate given that the CHP support measure that is financed from the CHP

charge serves an environmental objective (environmental protection through

promoting electricity from high energy-efficient cogeneration). In addition, the

reductions aim at ensuring the sustainability of the financing of those support

measures by limiting the burden for undertakings particularly affected by energy

surcharges, while still requiring from them a sufficient own contribution. The

criteria set out in paragraphs 188 to 189 of the EEAG aim at defining that

equilibrium. In particular, paragraph 188 of the EEAG provides that the aid is

considered proportionate if the aid beneficiaries pay at least 15 % of the

additional costs without reduction. The Commission considers that this minimum

rate can apply also with regard to CHP charge reductions, and hence be

considered proportionate. The system Poland established complies with this

condition, and the maximum reduction that can be granted (to beneficiaries with

an electro-intensity greater than 40 %), is 85 % of the quantity of electricity

withdrawn from the network (basis for the calculation of the CHP charge, see

recitals (80)-(81) above).

(215) Based on the above, the Commission considers that the Polish authorities

demonstrated that the reductions of the CHP charge are necessary, appropriate,

have an incentive effect, are proportionate and do not unduly distort competition

and are thus compatible with Article 107(3)(c) TFEU.

3.3.2.3. Duration

(216) The duration of the scheme is limited to 10 years, the Commission considers this

duration appropriate in light of paragraph 169 of the EEAG

3.3.2.4. Conclusion with regard to the compatibility of the

reductions to EIUs from the CHP charge

(217) In light of the above, the Commission considers that the notified scheme

concerning the reductions to EIUs from the CHP charge pursues an objective of

common interest in a necessary and proportionate way without unduly affecting

competition and trade, and that therefore the aid is compatible with the internal

market on the basis of Article 107(3)(c) TFEU.

3.3.3. Transparency

(218) Poland has committed to ensure the compliance with the transparency

requirements in paragraph 104-106 of the EEAG.

45

4. CONCLUSION

The Commission has accordingly decided not to raise objections to the aid scheme

providing for cogeneration premium to new, substantially refurbished, refurbished and

existing high efficient CHP installations (case SA.51192 (2019/N) – Poland – CHP

support) on the grounds that the aid is compatible with the internal market pursuant to

Article 107 (3) (c) of the Treaty on the Functioning of the European Union..

Furthermore, the Commission accordingly decided not to raise objection to the aid

scheme providing for reductions of the CHP charge to EIU(case SA.52530) (2019/N) –

Poland – Reductions from CHP charges for Energy Intensive Users) on the grounds that

the aid is compatible with the internal market pursuant to Article 107 (3) (c) of the Treaty

on the Functioning of the European Union.

If this letter contains confidential information which should not be disclosed to third

parties, please inform the Commission within fifteen working days of the date of receipt.

If the Commission does not receive a reasoned request by that deadline, you will be

deemed to agree to the disclosure to third parties and to the publication of the full text of

the letter in the authentic language on the Internet site:

http://ec.europa.eu/competition/elojade/isef/index.cfm.

Your request should be sent electronically to the following address:

European Commission,

Directorate-General Competition

State Aid Greffe

B-1049 Brussels

[email protected]

Yours faithfully

For the Commission

Margrethe VESTAGER

Member of the Commission

http://ec.europa.eu/competition/elojade/isef/index.cfm

mailto:[email protected]

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