Zijne Excellentie de Heer Didier REYNDERS

Minister van Buitenlandse Zaken

Karmelietenstraat 15

B – 1000 Brussel

Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111

EUROPEAN COMMISSION

Brussels, 8.12.2016 C(2016) 8426 final

In the published version of this decision,

some information has been omitted,

pursuant to articles 24 and 25 of Council

Regulation (EC) No 659/1999 of 22 March

1999 laying down detailed rules for the

application of Article 93 of the EC Treaty,

concerning non-disclosure of information

covered by professional secrecy. The

omissions are shown thus […].

PUBLIC VERSION

This document is made available for

information purposes only.

Subject: State Aid SA.45867 (2016/N) – Belgium

The Belgian federal regime governing renewable energy certificates

and aid to the Rentel and Norther wind farm projects

Sir,

I am pleased to inform you that the European Commission has assessed the Belgian

federal regime governing renewable energy certificates (“the REC regime”) and

considers the REC regime compatible with the Treaty on the Functioning of the

European Union (TFEU). The Commission also considers the aid granted on the basis of

the REC regime to the Rentel offshore wind project and the Norther offshore wind

project compatible with the TFEU.

1. PROCEDURE

(1) Following pre-notification contacts, Belgium notified to the Commission on 6

July 2016 amendments to the REC regime for legal certainty claiming that the

measure did not constitute State aid within the meaning of Article 107(1) TFEU

2

on the grounds that it was still in line with the Commission decision that

considered the REC regime not to constitute State aid1. Irrespective of the

qualification of State aid, Belgium considers the measure compatible with the

internal market.

(2) Simultaneously, Belgium notified individual aid for two offshore wind projects,

Rentel N.V. and Norther N.V., that will benefit from aid granted on the basis of

the REC regime. Belgium notified the aid to these two offshore wind projects as

their production capacities are above the notification threshold2 provided in the

Commission Guidelines on State aid for environmental protection and energy

2014-20203 (EEAG).

(3) The Commission will assess in the present decision the compatibility of both the

REC regime and the individual aid for the two offshore wind projects that will be

granted on the basis of the REC regime.

(4) The Commission requested additional clarifications by letter of 3 August 2016 to

which Belgium responded by letter dated 3 October 2016.

(5) On 3 October 2016, Belgium waived its right under Article 342 of the TFEU in

conjunction with Article 3 of the EC Regulation No 1/1958 to have the decision

adopted and notified in French and Dutch and agreed that the decision be adopted

and notified in English.

2. DETAILED DESCRIPTION OF THE AID MEASURES CONCERNED

2.1. Background

(6) In 2001 Belgium notified to the Commission the REC regime to support

renewable energy4.The basic characteristics of the REC regime were as follows:

the federal energy regulator (CREG) grants a renewable energy certificate (REC)

for every MWh produced to producers of offshore renewable energy.

(7) Eligible offshore renewable energy producers were those holding both a domain

concession and a "guarantee of origin" certificate5. The producers would then

have to sell their RECs in the regional certificates markets6. In addition, the

1 Decision N 14/2002 – OJ C/309/2002, 01.09.2002.

2 See point 20(b) EEAG.

3 OJ C 200/1, 28.06.2014.

4 The legal basis of the REC regime was the Royal Decree on the establishment of mechanisms for

the promotion of electricity produced from renewable energy sources of 16 July 2002 ("the REC

Royal Decree"). 5 The RES Directive (2009/28/EC) defines the “guarantee of origin” as an electronic document

which has the sole function of providing proof to a final consumer that a given share or quantity of

energy was produced from renewable sources as required by Article 3(6) of Directive 2003/54/EC. 6 Both the Flanders region and the Walloon region had developed certificates markets.

3

Belgian transmission system operator (TSO), Elia7, was obliged to buy RECs at a

guaranteed (minimum) price determined by the State from producers that

requested Elia to do so.

(8) Elia could subsequently sell the purchased RECs on the regional certificates

markets. In the event that Elia would sell these certificates on the market at a loss,

Elia was mandated to collect a surcharge on their connection tariff to compensate

for the loss. The Commission concluded in 20028 that the REC regime, neither

the granting of certificates nor the guaranteed minimum price, constituted State

aid (see recital (1)).

2.2. The current REC regime

(9) The main objective of the REC regime is to promote the production of offshore

renewable energy in order to contribute to reaching the Belgian target laid down

in the RES Directive9 of at least 13 % of renewable energy from gross final

consumption by 2020. By means of an internal agreement, the target of 13 % has

been divided between the 3 regions of Belgium (Flanders, Wallonia and Brussels)

and the federal level. At federal level the target was fixed at 2.21 %. The offshore

renewable energy capacity falls exclusively within the purview of the federal

level.

(10) Under the current REC regime, renewable energy producers receive from the

CREG a REC for every MWh of renewable energy produced. The producers then

sell10

their RECs to Elia at a minimum price. The minimum price is the difference

between the LCOE11

and the reference electricity market price.

(11) The LCOE is set by law at 138 EUR/MWh. The reference electricity market price

is defined as the average in EUR/MWh of the daily quotations in year Y-1 of the

future contracts “calendar Y”, as published by APX Holding B.V., registered with

the Dutch Trade Register of the Chamber of Commerce, adjusted by the CREG

based on the difference between the contracted sales price and the average

nominal price equal to 90 % of the electricity reference price.

(12) The renewable energy producers sell their electricity directly in the market and

are subject to balancing responsibilities. In this respect, a separate mechanism for

offshore energy is established by Article 7, §3 of the Electricity Act of 29 April

7 Elia was for 70% privately owned and for 30% owned by municipality owned electricity

distribution companies. The Board of Directors was composed of 12 members: 3 members from

Electrabel, 3 members from the municipalities and 6 members appointed by the shareholder

meeting. 8 See footnote 1.

9 Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the

promotion of the use of energy from renewable sources and amending and subsequently repealing

Directives 2001/77/EC and 2003/30/EC (OJ 2009 L 140/16). 10

The producers and Elia cannot sell their RECs in the regional certificates markets. 11

LCOE means the levelised costs of producing energy.

4

1999 (“the Electricity Act”). Offshore energy producers will be subject to

standard balancing responsibilities, as the separate mechanism will be abolished

when the notified amendment of the Electricity Act is implemented.

(13) Belgium explained that often the producers will not sell the electricity themselves

but will engage into a contract with an intermediary that will buy the electricity

from the producer and take over the balancing responsibilities. In that case,

additional costs resulting from balancing responsibilities will be factored into the

price paid by the intermediary for the electricity.

(14) It is foreseen in the Electricity Act that the domain concession holders connect the

wind farm to the planned Belgian offshore grid (BOG). A domain concession

holder can be granted permission not to connect to the BOG. If such permission is

granted, the project is entitled to support for the submarine cable. The TSO pays

one third of the costs of the submarine cable with a maximum of EUR 25 million

for projects above 216 MW. The maximum amount is proportionally reduced for

smaller projects. In addition to this amount, the minimum purchase price of green

certificates is increased by 12 EUR/MWh.

The financing of the current REC regime

(15) To compensate for the obligation12

to buy the RECs, Elia collects a surcharge

from the holders of access contracts and from the distribution system operators

(DSOs). The latter may pass on the surcharge to the final consumers for each

kWh taken off the grid for their own consumption.

(16) Article 14 bis of the REC Royal Decree13

sets out that the surcharge for RECs is

owed by the final electricity consumers located in Belgium. To this extent the

TSO charges the surcharge to holders of access contracts and to DSOs. The

Article further explains that the surcharge can be passed on when these parties are

not the energy consumer. DSOs need to take into account the losses in the

distribution network.

(17) In addition, Article 14 ter of the REC Royal Decree sets out the tariff

methodology for adding the surcharge to the tariff in a specific formula. This

methodology confirms the purpose that the costs of the TSO following from its

obligation to buy the RECs are passed on to its customers in the tariffs. The

surcharge is determined by the Energy Minister according to Article 14 sexies of

the REC Royal Decree which states that “no later than 15 December each year, on

a proposal from the CREG, the Minister shall establish the amount of the

surcharge to be applied during the next financial year”.

12 This includes the costs of the grid connection that are added to the minimum purchase price of

green certificates (Article 14§2 of the REC Royal Decree). 13

Article 14 bis, Article 14 ter and Article 14 sexies were introduced by the Royal Decree of 31

October 2008.

5

2.3. The scope of the notification

2.3.1. Amendments to the REC regime

(18) Belgium notified amendments to the Electricity Act and the REC Royal Decree.

(19) First, Belgium will introduce changes to the LCOE-based formula to calculate the

minimum price of the certificates granted to offshore wind energy producers.

Based on a CREG report14

, Belgium decided that the minimum price formula (see

Section 2.2) which was based on a fixed LCOE of 138 EUR/MWh had to be

amended in order to address the risk of overcompensation. Following the

amendment, the LCOE level will be fixed by the Energy Minister15

for each

beneficiary separately on the basis of a proposal from the CREG.

(20) For offshore wind installations that are covered by a domain concession with

financial close as of 1 May 201616

, the minimum price for the RECs will be

determined according to the following formula:

LCOE - [(electricity price reference x (1 - correction factor) + the value of

the certificate of origin) x (1 - grid losses factor)]

With:

(a) the electricity reference price is defined as the average in EUR/MWh of the

daily quotations in year Y-1 of the future contracts “calendar Y”, as

published by APX Holding B.V., registered with the Dutch Trade Register of

the Chamber of Commerce, adjusted by the CREG based on the difference

between the contracted sales price and the average nominal price equal to

90 % of the electricity reference price;

(b) the correction factor is applied to the forward electricity price in order to take

into account costs and risks (balancing and profiling) incurred by the

electricity purchaser. The correction factor is established as 0.10 in the REC

Royal Decree;

(c) the value of the certificate of origin is based on the actual sales price traded in

the EU market. It will be stipulated in the contracts and updated annually by

the CREG;

(d) the grid losses factor, according to the draft amendment to the REC Royal

Decree, is calculated by the CREG each month, for each concession, on the

basis of the difference between the quantity of electricity produced and the

quantity of electricity fed into the grid.

14 CREG - Etude (F)151015-CDC-1462 relative à "l'analyse du soutien à l'énergie éolienne offshore

incluant le rapport annuel sur l'efficacité du prix minimum pour l'énergie éolienne offshore" - 15

October 2015 15

Article 2 of the draft Decree that amends the REC Royal Decree. 16

Five projects with domain concessions are concerned by the amendments. Two of them, the

Norther and Rentel projects, are notified by Belgium together with the amendments.

6

(21) Second, the duration of the obligation for the TSO to purchase green certificates

at minimum prices will be reduced from 20 years to 19 years and not exceed the

depreciation period.

(22) Regarding the financing of the grid connection costs, the draft Electricity Act also

provides for installations which have their financial close after 1 May 2016 that

the minimum price will be increased by an amount to be determined by the CREG

after verification of the grid connection costs17

. This only applies to projects that

will not be connected to the BOG. The subsidy payment from the TSO remains

unchanged (see recital (14)).

(23) Belgium submitted that neither these amendments nor any past amendment that

was implemented since the 2002 Commission decision changed the no aid

character of the REC regime. According to Belgium the past amendments are

essentially limited to:

in 2005, the extension of the purchase obligation for Elia, initially set up

for 10 years as of the installation concerned becoming operational, and

extended to a 20 year period;

the introduction of provisions concerning the calculation of the surcharge

for RECs (see recitals (16) and (17)); and

the introduction of an LCOE based formula to calculate the minimum

price of the RECs for installations which reached financial close after 1

May 2014 (see recitals (10) and (11)).

(24) Belgium claimed that the amendments to the REC regime did not change the very

substance of the regime and so remained indistinct from the original approved

regime. In this respect, Belgium recalled the ECJ’s judgment of 21 July 2011 in

Alcoa Trasformazioni v Commission18

where the Court established that

amendments to a non-aid measure do not necessarily convert the measure into a

“new” measure that potentially constitutes State aid. The ECJ held that the

Commission may consider “changes made to the very substance of the measure”

as a measure that is distinct from the original measure that was held not to be aid,

and which therefore needs to be notified as new aid.

2.3.1.1. Beneficiaries

(25) The beneficiaries of the amended REC regime are offshore renewable energy

producers holding both a domain concession and a "guarantee of origin"

certificate. Currently five projects are under development and have a domain

concession, including the Norther and Rentel projects assessed in the present

decision. Belgium also confirmed it will notify the other three projects.

17 As opposed to the fixed 12 EUR/MWh level (see recital (14)).

18 Case C-194/09 Alcoa Trasformazioni v Commission – judgment of the Court of 21 July 2011.

7

2.3.2. The individual aid to the Norther and Rentel offshore wind projects

granted on the basis of the REC regime

(26) In addition to the REC regime, Belgium also notified two individual aid measures

to support the offshore wind projects, Norther and Rentel, on the basis of the

amended REC regime (see recital (2)).

2.3.2.1. The Rentel project

(27) The Rentel wind farm project comprises 42 turbines with a total maximum

generation capacity of 296 MW. The total installed generation capacity in

Belgium is 21.5 GW19

which results in a share of 1.38 % for the project.

(28) The project is located 41 km offshore from the Belgian port of Ostend, in an area

with water depth between 25m and 35m. The Rentel project is planned to be

operational in 2018/2019. It is expected to reduce Belgian CO2 emissions by

around 300 000 tonnes per year.

(29) The CREG examined the figures of the Rentel project and concluded that the

LCOE for the offshore wind project would amount to 134.47 EUR/MWh for a

target level of 12 % return on equity (ROE). Belgium, however, fixed the LCOE

at 129.8 EUR/MWh for installations covered by the domain concession granted to

Rentel. The table below summarises the characteristics of the Rentel project:

Maximum generation capacity 296 MW

Total investment costs (CAPEX) […]* EUR billion

Generation 1.077 GWh/year

Investment costs […] million EUR/MW

Operation costs […] EUR/MWh

LCOE (set by Belgium) 129.80 EUR/MWh

(30) As Rentel will not connect to the BOG (see recitals (14) and (22)), in addition to

the green certificates, Rentel receives the maximum amount (EUR 25 million)

that can be granted by the TSO to finance the cost of the connection (the

submarine cable and certain related installations and equipment). Rentel will also

receive 12 EUR/MWh in addition to the minimum price to cover the connection

costs. The compensation for the connection costs was also based on the CREG

report20

, which calculated the LCOE of the connection costs, taking into account

the investment support that Elia contributes. The table below summarises that the

CREG report calculated a LCOE of […] EUR/MWh and that Belgium set the

compensation at 12 EUR/MWh:

19 Installed power generation at the end of 2015 based on FEBEG (Federation of Belgian Gas and

Electricity companies) data. 20

See footnote 14.

* Confidential information

8

Rentel

Total connection costs […] EUR

Investment support for connection 25 000 000 EUR

Connection costs […] EUR/MWh

Support for connection 12 EUR/MWh

(31) The share capital of Rentel is for 52 % held by Otary RS which is equally owned

by the same shareholders as Rentel (Aspiravi Holding NV21

, DEME NV22

, Elicio

NV23

, Power@Sea NV24

, Rent a Port NV25

, Socofe SA26

, SRIW SA27

and Z

Kracht NV28

). None of the other shareholders hold more than 25 % in Rentel and

none of them is a linked or partner enterprise. Otary appoints all of Rentel’s

directors and decisions taken by the Board of Rentel are taken on a unanimous

basis.

(32) Rentel counts 25 full time employees and, in 2014, realised EUR 1.3 million

turnover and EUR 30.7 million balance-sheet total.

(33) It has obtained a loan of EUR 250 million from the European Fund for Strategic

Investments (EFSI) through the European Investment Bank.

2.3.2.2. The Norther project

(34) The Norther wind farm project comprises 44 turbines with a total maximum

capacity generation of 350 MW. The total installed generation capacity in

Belgium is 21.5 GW29

which results in a share of 1.63 % for the project.

(35) The project is located 22 km offshore from the Belgian port of Ostend, in an area

with water depth between 16m and 33m. The Norther project is expected to

21 Aspiravi Holding NV gathers 95 Belgian municipalities, with the main goal of developing,

investing in and operating wind energy, biomass, biogas and small hydropower projects. 22

DEME NV is a worldwide dredging, environmental and marine engineering contractor based in

Belgium. 23

Elicio NV is a Belgian renewable energy producer operating internationally in renewable energy

project development. 24

Power@Sea NV is a Belgian company that develops and builds offshore wind projects. 25

Rent a Port NV is a Belgian company investing in offshore wind, grids and storage projects and

more generally in development of marine infrastructures and industrial zones. 26

Socofe SA is a Belgian investment company owned by a group of local and inter-municipal

authorities of the Walloon Region, as well as several institutional investors. It develops and

finances projects mainly in the energy, water and environment sectors. 27

SRIW SA is a Belgian investment company of the Walloon Region, dedicated to investing in

industrial projects and companies within the energy and environment field. 28

Z Kracht NV is a Belgian investment company of a group of local and inter-municipal authorities

of the Flemish Region. It owns several power generation companies, with a focus on renewable

energy. 29

Installed power generation at the end of 2015 based on FEBEG (Federation of Belgian Gas and

Electricity companies) data.

9

become operational in 2018/2019. It is expected to reduce Belgian CO2 emissions

by around 430 000 tons per year.

(36) The CREG examined the figures of the Norther project and concluded that the

LCOE for the offshore wind project would amount to 127.04 EUR/MWh for a

target level of 12 % ROE. Belgium, however, fixed the LCOE at 124 EUR/MWh

for installations covered by the domain concession granted to Norther. The table

below summarises the characteristics of the Norther project:

Maximum generation capacity 350 MW

Total investment costs (CAPEX) […] EUR billion

Generation 1.330 GWh/year

Investment costs […] million EUR/MW

Operation costs […] EUR/MWh

LCOE (set by Belgium) 124 EUR/MWh

(37) As Norther will not connect to the BOG (see recitals (14) and (22)), in addition to

the green certificates Norther receives the maximum amount (EUR 25 million)

that can be granted by the TSO to finance the cost of the connection (the

submarine cable and certain related installations and equipment). Norther will

also receive 8.2 EUR/MWh in addition to the minimum price to cover the

connection costs. The project also receives support to connect the offshore wind

farms to the grid. The compensation for the connection costs was also based on

the CREG report30

, which calculated the LCOE of the connection costs, taking

into account the investment support that Elia contributes. The table below

summarises that the CREG report calculated a LCOE of […] EUR/MWh and that

Belgium set the compensation at 8.2 EUR/MWh:

30 See footnote 14.

10

Norther

Total connection costs […] EUR

Investment support for connection 25 000 000 EUR

Connection costs […] EUR/MWh

Support for connection 8.2 EUR/MWh

(38) The share capital of Norther is 50 % held by Eneco31

(via its subsidiary Eneco

Wind Belgium NV) and 50 % held by Elicio (via its subsidiary Elnu NV).

(39) In 2014, Norther realised EUR 8.8 million turnover and EUR 8.3 million balance-

sheet total.

(40) The project was approved for EUR 250 million financing from the European

Fund for Strategic Investments (EFSI) through the European Investment Bank32

.

2.4. Legal basis, budget and duration

(41) The legal basis is set out in the Belgian Electricity Act and the REC Royal

Decree.

(42) The estimated total budget of the REC regime is EUR 10 billion. Out of the EUR

10 billion, the estimated budget allocated to the support of Norther and Rentel

projects is EUR 4.8 billion (EUR 2.24 billion being allocated to Rentel and EUR

2.56 billion to Norther) with an annual allocation of EUR 253 million.

(43) This estimated budget reflects the minimum purchase price of green certificates.

It has been set as a maximum amount, as the exact level of support that will apply

to future offshore wind farms projects cannot be precisely determined in advance.

(44) The REC regime is financed through a surcharge collected from final energy

consumers based on each kWh taken off the grid for their own consumption, as

described in recital (15), with the TSO including its investment support to the grid

connection in a public service surcharge for financing offshore wind grid

connections33

. As the Norther and Rentel projects are supported under the REC

regime, the financing will take place in the same manner.

(45) The REC regime as set out in the Belgian Electricity Act is not limited in time.

However, the scheme is notified for a duration of 10 years and Belgium

committed to re-notify the REC regime to the extent it would continue to apply to

new installations after this 10 year period.

31 Eneco is a major producer and supplier of natural gas, electricity and heat in the Netherlands and

Belgium, involved in sustainable energy projects. 32

http://www.eib.org/efsi/efsi-projects/index.htm 33

Article 12 of the Electricity Act.

11

(46) The aid to the beneficiaries, including the Norther and Rentel projects, will be

paid out over a 19 year period (see recital (21)).

2.5. Cumulation

(47) Belgium confirmed that the aid cannot be cumulated with any other aid covering

the same eligible cost. Belgium specifically clarified that the Federal government

is the only body competent for offshore renewable energy under Belgian law, and

the producers of offshore electricity cannot benefit from any aid granted by

regional governments.

2.6. Transparency

(48) Belgium committed to comply with the transparency requirements set out in Section

3.2.7 of the EEAG.

3. ASSESSMENT OF THE AID

3.1. Existence of State aid within the meaning of Article 107(1) TFEU

(49) Article 107(1) TFEU provides that "[s]ave as otherwise provided in th[e] Treaty,

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 shall, in so far as it affects trade

between Member States, be incompatible with the internal market".

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

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

measure must be imputable to the State and involve State resources, it must

confer an advantage on certain undertakings or certain sectors which distorts or

threatens to distort competition and is liable to affect trade between Member

States. The application of these cumulative conditions is examined below.

3.1.1. Existence of State resources

(51) Belgium notified the aid measures for legal certainty, referring to the Commission

about the REC regime adopted on 1 August 200234

in which it was concluded that

the scheme did not involve State aid. As explained in recitals (23) and (24)

Belgium considered that the amendments that took place since 2002 have not

materially changed the REC regime and thus do not change the conclusion of the

2002 Commission Decision.

(52) However, the Commission notes the following. Under the approved REC regime

in 2002, offshore renewable energy producers would receive green certificates

34 See footnote 1.

12

and in principle sell them on the regional certificate markets (see recital (7)35

). In

the REC regime notified by Belgium the offshore renewable energy producers are

not selling green certificates on the regional markets, but the offshore producers

are granted a premium on top of the market price in the form of a minimum price

of certificates paid by the TSO (see recital (10)). The REC regime does therefore

not constitute a certificates scheme where the price is determined in the

certificates market.

(53) The Commission recalls that concept of "intervention through State resources" is

intended to cover not only advantages which are granted directly by the State but

also "those granted through a public or private body appointed or established by

that State to administer the aid"36

. In this sense, Article 107(1) TFEU covers all

the financial means by which the public authorities may actually support

undertakings, irrespective of whether or not those means are permanent assets of

the public sector37

.

(54) In its Vent de Colère judgment (C-262-12), the Court of Justice recalled that

"[t]he concept of 'intervention through State resources' is intended to cover, in

addition to advantages granted directly by the State, those granted through a

public or private body appointed by that State to administer the aid"38

.

(55) Moreover, the Court held that "even if the sums corresponding to the measure in

question 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"39

.

(56) The financial flows stemming from the REC regime are under the strict control of

the State. The Electricity Act and the REC Royal Decree establish the green

certificates mechanism in order to promote renewable electricity production. The

renewable energy producers are compensated on the basis of a minimum price for

the RECs, calculated on the basis of the LCOE which is set by the Energy

Minister (see recital (19)). As shown in the case of Rentel (29)) and Norther (see

recital (36)) wind farm projects, the government can deviate from the CREG

proposal. The minimum price for the RECs is paid to the producers by Elia.

35 Green certificates could also be sold to Elia against a fixed price (see recital (7) and (8)).

36 Judgement in Steinike & Weinlig v Germany, Case 76/78, EU:C:1977:52, paragraph 21;

Judgement in PreussenElektra, C-379/98, EU:C:2001:160, paragraph 58; Judgement in Doux

Elevage and Cooperative agricole UKL-ARREE, C-677/11, EU:C:2013:348, paragraph 26; Case

Vent de Colère!, C-262/12, EU:C:2013:851, paragraph 20; Sloman Neptune, joined cases C-72/91,

C-73/91, EU:C:1993:97, paragraph 19. 37

Judgement in Doux Elevage, EU:C:2013:348, paragraph 34, Judgement of 27 September 2012,

France v Commission, T-139/09, EU:T:2012:496, paragraph 36, Vent de Colère !, C-262/12,

EU:C:2013:851, paragraph 21. 38

Case C-262/12, Association Vent de Colère!, EU:C:2013:851, paragraph 20. 39

Case C-265/12, Association Vent de Colère!, EU:C:2013:851, paragraph 21.

13

(57) Elia is for 47 % owned by public entities (Publi-T owns 45.08 % and Publipart

owns 2.51 %), with 52.41 % being floated. Publi-T has a statutory veto right at

the General Assembly and can recommend 7 out of 14 directors at the Board.

Elia’s articles of association foresee that the Board of directors adopts decisions

by consensus or, if not possible, by simple majority. Elia also has a government

appointed Board member with an advisory vote40

.

(58) The Electricity Act and the REC Royal Decree also establish that Elia can

subsequently recoup the costs incurred from the obligation to buy certificates. As

explained in recital (16), the REC Royal Decree foresees that the final electricity

consumers bear the costs of the green certificates (i.e. the minimum price)

through the offshore surcharge. Elia collects a surcharge with holders of an access

contract and DSOs to compensate for its obligation to buy RECs. The DSOs and

holders of an access contract can pass on the surcharge to their customers if they

are not the consumer of the electricity (per kWh) taken from the grid. As Belgium

stated, the REC surcharge is due by the end consumers of electricity located in

Belgium.

(59) Furthermore (see recital (17)), the REC Royal Decree defines the methodology

that is applicable to determine the level of the surcharge. The amount of the

surcharge to be applied is established every year, on a proposal from the CREG,

by the Energy Minister. Belgium essentially arranges that the financing of the

federal support to offshore renewable energy is financed through a surcharge on

electricity consumption.

(60) In addition, the Electricity Act mandates Elia to grant direct investment support

for the grid connection and include those costs in its public service tariff. In this

way, a triangular relationship is created in order to control money flows from the

consumers to the offshore wind farms. As a result of this mandate, Elia can be

viewed as an entity that collects and channels private contributions to the offshore

wind farms in the form of a raised tariff (see recital (53)).

(61) Therefore, on the basis of the elements provided above, it can be concluded that

the financing of the REC regime involves State resources. The Norther and Rentel

offshore wind projects are supported on the basis of the REC regime, thus the

financing of the aid to these individual projects also involves State resources.

3.1.2. Imputability

(62) The rules that set out the functioning of the REC regime result from State

legislation as is also described in recitals (59) and (60). The REC regime and the

support granted under the regime are therefore imputable to Belgium.

40 Elia’s website: http://www.elia.be/en/about-elia/corporate-governance/management-bodies.

14

3.1.3. Advantage favouring certain undertakings or the production of

certain goods

(63) The REC regime grants support to offshore renewable electricity producers

consisting of a premium (minimum price) that is paid on top of the electricity

market price. The premium is not provided by the market itself and would not be

obtained under normal market conditions. It therefore provides an economic

advantage to offshore renewable electricity producers that is not available to other

type of producers. The REC regime thus provides an advantage that is selective in

nature.

(64) As the Rentel and Norther offshore wind projects are supported by the REC

regime, these projects benefit from the selective advantage described in recital

(63).

3.1.4. Distortion of competition and effect on trade between Member

States

(65) The REC regime provides a selective advantage to producers of offshore

renewable electricity. These producers have to sell their electricity in the market

which is a liberalised electricity market where cross-border trade takes place (see

Section 3.4).

(66) The REC regime therefore provides a selective advantage to producers of

offshore renewable electricity, including the Rentel and Norther offshore wind

projects, that threatens to distort competition and is likely to affect trade between

Member States.

3.1.5. Conclusion on presence of State aid

(67) Taking the above into consideration, the Commission concludes that the REC

regime involves State aid within the meaning of Article 107(1) of the TFEU. As

the two individual projects receive aid on the basis of the REC regime, the

Commission also concludes that the support to the Rentel and Norther projects

constitutes State aid within the meaning of Article 107(1) of the TFEU as the

same reasoning applies.

3.2. Legality of the aid measure

(68) As Belgium notified the amendments to the REC regime and the individual aid

for the Norther and Rentel offshore wind projects before being put into force,

Belgium has complied with the standstill obligation set out in Article 108(3) of

the TFEU.

3.3. Compatibility with the EEAG

(69) The Commission has assessed the compatibility of the REC regime, and the

individual aid to the Norter and Rentel projects granted on the basis of the REC

regime, with the internal market pursuant to the EEAG which lays down the

general applicable rules in Section 3.2 and specific rules for supporting renewable

energy in Section 3.3.

15

3.3.1. Objective of common interest

(70) As set out in points 30 and 31 EEAG, the general objective of environmental and

energy aid is to increase the level of environmental protection compared to the

level without the aid, particularly referring to the Europe 2020 strategy. In this

respect, Member States will have to precisely define the objective pursued.

(71) Belgium explained that the REC regime helps Belgium to achieve its renewable

energy targets in line with the objectives of the RES Directive41

(see recital (9)).

Belgium confirmed that aid will only be granted to renewable energy sources

meeting the definition set out in point 19(5) EEAG and in Article 2(1) of the RES

Directive. The measures help Belgium in achieving its national and the European

renewable energy targets laid down in the RES Directive. This constitutes an

objective of common interest.

(72) Point 33 EEAG states that for individual projects Member States may

demonstrate the contribution to the common objective by quantitative data. The

Norther and Rentel wind farms will contribute to achieving this objective by

introducing 1.330 GWh/year and 1.077 GWh/year of renewable electricity to the

Belgian energy mix respectively (see recitals (29) and (36)).

(73) Therefore, the Commission concludes that the REC regime and the aid to the

Rentel and Norther offshore wind projects contribute to an objective of common

interest.

3.3.2. Need for State intervention

(74) Member States need to demonstrate that State aid is necessary to remedy a market

failure that otherwise would remain unaddressed (point 37 EEAG). As explained

in point 115 EEAG, the pricing of externalities may not have resulted in a full

internalisation of these costs and State aid may still be needed for distinct but

related objectives such as renewable energy. The Commission presumes that such

a market failure still exists in the field of renewable policy (point 115 EEAG).

(75) Furthermore, point 38 EEAG explains that while a general need for State

intervention may exist, for individual projects such need will still be assessed.

Belgium has demonstrated (see recital (100)) that without aid the two notified

offshore wind projects are not profitable. This shows that the pricing of negative

externalities has not taken away the need for State intervention for the individual

projects.

(76) Therefore, the Commission concludes that the negative externalities are not

sufficiently addressed and the need for State intervention is demonstrated for the

REC regime and the Norther and Rentel offshore wind projects.

41 See footnote 2.

16

3.3.3. Appropriate instrument

(77) With reference to points 40 and 116 EEAG, the Commission recalls that the aid is

presumed to be appropriate in order to allow Member States to achieve their

targets in line with the EU 2020 objectives, provided all other conditions are met.

(78) The Commission notes that all other conditions are met (see recital (113)) and

that the aid granted on the basis of the REC regime, including to the Rentel and

Norther offshore wind projects, contributes to achieving the 2020 targets (see

recital (71)).

(79) Belgium therefore demonstrated that the aid is an appropriate instrument.

3.3.4. Incentive effect

(80) The incentive effect is present if the aid changes the beneficiary's behaviour

towards reaching the objective of common interest. In particular, the Commission

considers that aid has no incentive effect for the beneficiary if work on the project

has already started prior to the aid application by the beneficiary to the national

authorities (point 50 EEAG).

(81) Belgium first explained the process provided under Belgian law to obtain a

domain concession. Owners of a domain concession can receive aid under the

REC regime (see recital (25)). The Royal Decree of 20 December 200042

provides

that an application to obtain a domain concession must be made public enabling

each interested party to submit a "request for competition"' in order to obtain a

domain concession for the same location.

(82) This process was also applied for the Norther and Rentel projects that are

benefitting from the REC regime. Belgium confirmed that these had not started

work before the aid application.

(83) Second, Belgium stressed that the high investment costs of offshore wind power

plants (compared to gas and coal) ensue from the significant need for capital, the

large amount of fixed costs and the fact that such investors are regularly

confronted with low electricity prices. Without the aid, the offshore wind farm

projects would not be financially viable, as the costs of generating electricity

would be much higher than the income from the sale of electricity generated. In

such a situation, rational market players would not want to invest in the project.

42 Royal Decree of 20 December 2000 concerning the conditions and the procedure for granting

public concessions for the construction and operation of plants producing electricity from water,

wind, or current in the marine areas where Belgium can exercise its jurisdiction in accordance

with international maritime law.

17

(84) Belgium provided a CREG's study from October 201543

on the Rentel and

Norther projects. The study demonstrates that the LCOE for Rentel project would

amount 134.49 EUR/MWh and Norther project 127.04 EUR/MWh under the

assumption of a return on equity of the projects of 12 % (see recitals (29) and

(36)). These costs are well above the wholesale electricity prices and market price

would not provide the incentive to go ahead with the projects.

(85) Therefore, the Commission concludes that the REC regime and the aid to the

Norther and Rentel projects have an incentive effect to address the objective of

common interest.

3.3.5. Proportionality and cumulation

(86) Point 69 EEAG states that environmental and energy aid are considered to be

proportionate if the aid amount per beneficiary is limited to the minimum needed

to achieve the environmental protection or energy objective. Specific conditions

for operating aid to renewable energy are laid down in Section 3.3.2 EEAG.

(87) With reference to point 124 EEAG, the Commission first notes that the aid is

granted as a premium on top of the electricity market price and Belgium

explained that offshore producers sell electricity directly on the market (see

recitals (12) and (13)). The renewable energy producers are also subject to

standard balancing responsibilities. In this respect, Belgium explained that Article

7, §3 of the Electricity Act which creates a separate mechanism for offshore

energy will be abolished as reflected in the draft Amendment to the Belgian

Electricity Act (see recital (12)).

(88) Belgium will also put into force the following mechanism to avoid creating

incentives to produce when electricity prices are negative: no support is granted

during (i) each quarter hour with positive imbalance prices below -20 EUR/MWh

(the negative imbalance event) or (ii) periods where the Belpex day-ahead prices

are negative (i.e. below 0 EUR/MWh) for at least 6 consecutive hours (the

negative day ahead event) provided that periods without support caused solely by

negative imbalance events shall be limited to 288 quarters hours per calendar

year, reduced by the total duration of the negative day ahead event in the same

calendar year (the negative price commitment). Periods without support caused

by negative day-ahead events are not capped.

(89) According to Belgium, the measure will provide an incentive to the offshore wind

farms (or their BRP44

) to actively participate in the balancing market. Belgium

considers that, as regard the imbalance market, it is only suitable to set the

minimum purchase price of RECs to zero when the Belgian control area has a

significant positive imbalance. Renewable energy producers typically need time

43 See footnote 14

44 Balance responsible parties.

18

to react to negative pricing signals45

and imbalance prices are published by the

TSO only after the relevant quarter hour.

(90) Based on historical data, Belgium established that over 50 % of imbalance events

with positive imbalance prices below 0 EUR/MWh are resolved within 3 quarters

hours, whereas imbalance events captured with a threshold of -20 EUR/MWh

tend to be longer-lasting (96 % of imbalance events with a threshold of -20

EUR/MWh last more than 2 quarter hours).

(91) Belgium caps the application of the ´imbalance system´ to the first 288 quarter

hours (corresponding to 72 hours) in which the imbalance rate for a positive

imbalance is less than or equal to -20 euros/MWh. Belgium explained that in

2014 and 2015 less than 288 quarter hours with negative imbalance rates for a

positive imbalance occurred and a cap avoids excessive negative impacts.

(92) Regarding the mechanism in place on the day-ahead market, Belgium explained

that the higher the share of renewables in the energy mix, the higher the

probability of occurrence of negative day-ahead prices at times of low demand

and high renewables production. The number of occurrences of negative day-

ahead market prices on the Belgian market has been relatively limited so far, but

as the share of renewable energy in the capacity mix increases, the same

dynamics as observed on the German market can also apply to Belgium. Belgium

introduced a 6 hour period rule as short-lasting negative price events can easily be

absorbed other means and only for longer lasting events renewable producers

should curtail their production.

(93) The Commission considers that the combination of the imbalance and day-ahead

market mechanisms are able to ensure that offshore producers have no incentive

to produce during negative price events. Therefore, the conditions of point 124

EEAG are met.

(94) With reference to points 126 and 128 EEAG, the Commission notes that the aid

under the REC regime is allocated on the basis of the process for receiving

domain concessions (recital (74)). Belgium explained that an application to obtain

a domain concession must be made public enabling each interested party to

submit a "request for competition"' in order to obtain a domain concession for the

same location. The main criteria for awarding the domain concession were quality

related, being the technical-economical superiority of the project proposal and the

optimization of the capacity installed in order for Belgium to meet its renewable

energy targets by 2020. The price was not one of the awarding criteria.

(95) In particular as the price was not an awarding criterion, the Commission cannot

view this process as a competitive bidding process in the sense of point 126

45 Belgium stated that offshore producers have (at least) a 15 minutes response time to adjust

production levels.

19

EEAG. As of 1 January 2017, the EEAG in principle requires the aid to be

granted on the basis of a competitive bidding process.

(96) In this respect, Belgium specified that Article 6 of the Belgian Electricity Act

enables the Federal Minister for Energy to grant domain concessions for offshore

installations for the production of electricity generated from water, streams or

wind. Only offshore renewable energy is concerned as competence for onshore

renewable energy is assigned to the Regions (i.e. the Flemish Region, the

Brussels Capital Region and the Walloon Region) whereas the federal

government retains competence for the marine area for which Belgium has

territorial jurisdiction under international public law. To date, only offshore wind

electricity producers have asked for a domain concession in the Belgian North

Sea (its territorial waters).

(97) Belgium committed to introduce a competitive bidding process as of 1 January

2017, which it envisages to be technology neutral between all types of offshore

renewable energy.

(98) As explained in recital (25) above, five projects are under development, including

the Rentel and Norther offshore wind projects, and already have a domain

concession. The individual aid to the Norther and Rentel offshore wind projects

has also been notified by Belgium and is further assessed below.

The Rentel and Norther projects

(99) With reference to points 128 and 131 EEAG, the Commission first notes that the

aid per unit of energy does not exceed the difference between the LCOE and the

market price of the form of energy concerned. As set out in recitals (29) and (36),

the LCOE was calculated by the CREG as 134.49 EUR/MWh for the Rentel

project and 127.04 EUR/MWh for the Norther project, including a normal rate of

return as demonstrated by the CREG report.

(100) Belgium decided to set the LCOE level used to calculate the aid amount below

the LCOE calculated by the CREG. This further ensures that the aid per MWh

does not exceed the difference between the LCOE and the market price, as the

minimum price (aid amount) is the difference between the market price and the

reduced LCOE (see recital (19)). Belgium furthermore confirmed that the aid will

not be granted beyond the depreciation period and the LCOE will be updated for

each beneficiary (see recitals (20) and (21)).

(101) As explained in recital (22), the projects also receive support to connect the

offshore wind farms to the grid. The level of compensation for the connection

costs was also based on the CREG report46

and the support is kept below the

LCOE calculated, taking into account the investment support that Elia contributes

46 See footnote 16.

20

See recital (30) and (37). It can therefore be concluded that the support granted

for the connection is less than the costs estimated.

(102) Belgium also showed that without the aid the current electricity market price is

not high enough to cover the LCOE of the Rentel and Norther offshore wind

projects and that without the aid the internal rate of return (IRR) of the notified

projects would be significantly below investors' expectations given the overall

risk profile of such projects. The IRR would be very low or even negative, as

shown in the table below:

Rentel Norther

Assumed WACC47

(pre-tax) […] % […] %

IRR with aid (pre-tax IRR) […] % […] %

IRR without aid (pre-tax IRR):

Low electricity prices scenario […] […]

Central electricity prices scenario […] % […] %

High electricity prices scenario […] % […] %

(103) The assumed WACC for the Rentel and Norther offshore wind projects is […] %.

With the aid, the project's IRR is in line with what is expected to be needed for

the projects, but still below the WACC for each of the two projects. The aid

would therefore not exceed what is needed for the projects to go ahead, including

a reasonable rate of return.

(104) Based on the information provided by Belgium, with reference to the conclusion

in recitals (93), (100) and (103), the Commission therefore concludes that the aid

is proportional.

3.3.6. Avoidance of undue negative effects on competition and trade and

balancing test

(105) The Commission first notes that point 116 EEAG states that, to allow Members

States to achieve their targets in line with the EU 2020 objectives, the

Commission presumes the limited distortive effects of the aid provided all other

conditions are met. As concluded in Sections 3.3.1 – 3.3.2, the aid is considered

to incentivise the beneficiary to contribute to a common objective in an

appropriate and proportional way.

(106) As set out in point 97 EEAG, for State aid measures that are well targeted to the

market failure they aim to address, the risk that the aid will unduly distort

competition is more limited. The Commission notes that the aid is directly aimed

at achieving the renewable energy targets set out in the RES Directive and CO2

reduction in a proportional (see point 98 EEAG) and appropriate way. The

measure will specifically help Belgium to achieve its renewable and

47 Weighted Average Cost of Capital.

21

decarbonisation targets for the energy sector in line with the EU targets for 2020

(see recital (9)).

(107) With reference to point 100 EEAG, the Commission notes that the measure does

not lead to market power. The electricity generated by the planned offshore wind

farms will be a small fraction of the total generation in Belgium. The Norther

project will represent 1.38 % of the installed production capacity in Belgium (see

recital (27)) and the Rentel project will represent 1.63 % (see recital (34)).

(108) Secondly, the offshore wind farms have a wide range of shareholders and the

realisation of the planned offshore wind farms will result in new market entry.

The two largest generation companies in Belgium, i.e. Engie Electrabel and EDF

Luminus, only have very limited participations in the offshore wind48

. The risk of

undue distortions of competition is limited.

(109) Therefore, the Commission considers that the negative effects of the aid in terms

of distortions of competition and impact on trade between Member States are

limited and out-weighted by the positive effects in terms of contribution to the

objective of common interest (production of energy from renewable sources and

reduction of CO2 in the electricity generation) so that the overall balance is

positive.

(110) Therefore, with reference to point 88 EEAG, the REC regime and the aid to the

Norther and Rentel wind projects are not expected to lead to undue market

distortions.

3.3.7. Transparency of the aid

(111) Member States are required under Section 3.2.7 of the EEAG to publish as of 1

July 2016 the full text of the approved REC regime or the individual aid granting

decision and its implementing provisions, and certain information related to the

beneficiaries of aid.

(112) Belgium committed to ensure transparency for aid granted as of 1 of July 2016 by

publishing information of all grants on a comprehensive State aid website, at

national or regional level.

3.3.8. Conclusion

(113) The Commission considers that the REC regime meets the conditions laid down

in the EEAG.

48 Electrabel holds 35 % of Mermaid shares (offshore wind farm under development) and EDF

Luminus holds 18.28 % of C-Power shares (operational wind farm).

22

(114) Furhermore, the Commission finds that the individual aid granted on the basis of

the REC regime to the Rentel offshore wind project and the Norther offshore

wind project complies with the requirements set out in the EEAG.

3.4. Compliance with other TFEU provisions

(115) In accordance with point (29) EEAG, the Commission has examined its

compliance with Article 30 and 110 of the TFEU.

(116) According to the case-law, a charge which is imposed on domestic and imported

products according to the same criteria may nevertheless be prohibited by the

TFEU if the revenue from such a charge is intended to support activities which

specially benefit the taxed domestic products. If the advantages which those

products enjoy wholly offset the burden imposed on them, the effects of that

charge are apparent only with regard to imported products and that charge

constitutes a charge having equivalent effect, contrary to Article 30 of the TFEU.

If, on the other hand, those advantages only partly offset the burden borne by

domestic products, the charge in question constitutes discriminatory taxation for

the purposes of Article 110 of the TFEU and will be contrary to that provision as

regards the proportion used to offset the burden borne by the domestic products.49

(117) If domestic electricity production is supported by aid that is financed through a

charge on all electricity consumption (including consumption of imported

electricity), then the method of financing, which imposes a burden on imported

electricity not benefitting from this financing, risks having a discriminatory effect

on imported electricity from renewable energy sources and thereby violating

Articles 30 and/or 110 of the TFEU.50

(118) The REC surcharge is imposed on final consumers of electricity located on the

Belgian territory, regardless of the origin of the energy consumed. The

Commission therefore is concerned that the financing mechanism could entail

discrimination against imports within the meaning of Articles 30 and 110 of the

TFEU.

(119) In order to remedy the potential discrimination, Belgium has committed to open

the federal support scheme (competitive bidding process) to producers of

electricity from RES with production sites outside Belgium as from 1 January

2017, up to a share of 2.64 % of new installed capacity.

49 Joined Cases C-128/03 and C-129/03 AEM, EU:C:2005:224, paragraphs 44 to 47; Case C-206/06

Essent, EU:C:2008:413, paragraph 42. 50

Case 47/69 France v Commision, EU:C:1970:60, paragraph 20. See also Case SA.38632 (2014/N)

Germany – EEG 2014 - Reform of the Renewable Energy Law EU:C:2015:325.

23

(120) The percentage figure has been established as a function of Belgium's total

imports of renewable electricity from the neighbouring countries51

divided by the

total electricity supply (consumption) in Belgium. The imports of renewable

electricity have been calculated as the average share of imports (more specifically

imports not due to transit, but for consumption in Belgium) from each of the

neighbouring countries multiplied by the renewables share of total electricity

production in each of those respective countries.

(121) The opening of the support scheme to producers outside Belgium will be subject

to the conclusion of a cooperation agreement with the relevant Member States in

order to ensure that the supported renewable energy counts to the Belgian 2020

target. Belgium indicated it would describe, among others, the rules to

demonstrate physical delivery of the renewable electricity in a Member State.

(122) As the opening of the support scheme removes the risk of discrimination against

producers of renewable electricity with production sites outside Belgium the

financing of the REC regime through the offshore surcharge is compliant with

Articles 30 and 110 of the TFEU.

4. AUTHENTIC LANGUAGE

(123) As mentioned under Section 1 of this decision, Belgium has waived its right to

have the decision adopted and notified in French and Dutch. The authentic

language will therefore be English.

5. CONCLUSION

The Commission has accordingly decided not to raise objections to the aid measures,

both the REC regime and the aid to the Norther and Rentel wind projects, on the grounds

that it is compatible with the internal market pursuant to Article 107(3)(c) of the Treaty

on the Functioning of the European Union.

The Commission reminds Belgium that, in accordance with article 108 (3) TFEU, any

plans to refinance, alter or change this aid have to be notified to the Commission

pursuant to provisions of the Commission Regulation (EC) No 1589/2015 implementing

Council Regulation (EC) No 659/1999 laying down detailed rules for the application of

Article 93 of the EC Treaty (now Article 108 of the TFEU)52

.

51 The extent to which the REC regime is opened will be revised as soon as the interconnections with

Germany and the United Kingdom have been realised (presumably in 2020). 52

OJ L 248, 24.09.2015, p. 9.

24

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

Stateaidgreffe@ec.europa.eu

Yours faithfully

For the Commission

Margrethe VESTAGER

Member of the Commission