Consequences of Failure to Notify on Green Certificate State Aid

The Great Polish Train Wreck of 2015?

At this point the Polish Government has apparently made a decision to not notify the Commission on the Green Certificate system. Since there is absolutely no doubt that it does constitute state aid and the Commission has informally signaled that to the Government, it is probably a good time to ask what will happen next. This will be such a disaster that the Government will have to back off its current stance. There is simply no alternative.

State aid that is done without notification is unlawful and must be recovered from the recipients.  See CELF case (C-199/06) European Court of Justice, February 12, 2008. .  “In cases where Member States do not notify the Commission of its plans to grant or alter aid prior to such aid being put into effect, the aid is unlawful in relation to Community law from the time that it is granted.” Notice From The Commission, “Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid,” (2007/C 272/05), par. 8 (emphasis added).

The European Court was completely clear in the CELF decision:

In order to ensure the effectiveness of the Commission’s role in monitoring and reviewing aid in the Community interest, Article 88(3) EC imposes two unequivocal obligations on Member States when they intend to grant a new aid or alter an existing aid: a notification and a so-called ‘standstill’ obligation. The first sentence of Article 88(3) EC requires the Member States to inform the Commission of a planned aid in due time. The last sentence of Article 88(3) EC imposes an additional obligation on the Member States concerned to refrain from implementing the aid until the procedure provided in Article 88 EC has resulted in a final decision by the Commission. Thus, as the Court pointed out in Adria-Wien Pipeline and Wieterdorfer & Peggauer Zementwerke,  Article 88 EC ‘imposes on Member States specific obligations to facilitate the Commission’s task and to prevent faits accomplis for that institution.’

Member States may not grant State aid until the Commission has adopted a final decision stating that the aid in question is compatible with the common market. Failure to comply with those obligations renders the State aid unlawful. [par. 22-23](emphasis added).[2]

If anyone doubts that this means exactly what is says, look at the response of the French wind industry and French Government to the European Court of Justice case. See prior post. 

This also affects all of the substitution fees received by the National Environmental Protection Fund: everything that they handed out is illegal state aid and has to be returned. 

Bank loans granted based on the cash flow from Green Certificates will be in default. 

The Green Certificates have no legal value and are 

null and void under EU law.

While the certificates and the substitution fees are illegal, this does not affect the obligation to have a quota of renewable energy under the Polish Energy Law. So the alternatives for utilities will be to have the renewable energy requisite percent or to pay a penalty for the missing obligation. Instead of having an accumulation of certificates with value,  these companies will go to owing major penalties. If the failure to fulfill the obligation is viewed as retroactive, then they would face retroactive penalties for all the prior years' shortfall. 

Every Polish electricity customer could claim a refund on their bills since 2005 to recover all of the charges added because of Green Certificates. This process had actually started in France with the pending court decision.[3] 

The invalidity of Green Certificates will also cause the new law to fail, since Green Certificates are part of its support and even some auction values are pegged to their value.

There is absolutely nothing that Poland can do to change the law described above. It is embedded in the European Treaty, Articles 107 and 108. Enforcement of this obligations does not take the form of an infringement action and a long-drawn out process, since the Commission can order the relief itself [4]. 

The Commission has apparently told UOKiK that it contends that the certificates are state aid. [An obvious point since every certificate program since 2001 has been classified as state aid by the Commission]. See references in "Why Poland Urgently Needs a New Green Certificate Law," gramwzielone.com [PL].  [English version]. The Commission has the authority to declare state aid unlawful and is required to do so if it is not notified. The Commission has at least one complaint on Green Certificates pending which requires a formal decision. 

What in the world do Polish officials think will happen? 

The only solution is to revive the 2012 draft law with levelized certificates based on costs of production. This is required by the State Aid Guidelines and was recognized as necessary by UOKiK. It will also be necessary to enact the ban of aid to depreciated hydro  and anything else fully depreciated now or in the future. Co-firing of any type will have to be justified by its costs of production. After the many times that the Ministry of Economy and even the Prime Minister's office [5] have indicated that co-firing is overcompensated, this means some sharp reduction or termination of the support altogether. The Institute of Renewable Energy recommends no support based on a wide range of data. 

Failure to promptly take up an emergency bill to enact this remedy and to then notify the Commission to repair the system will be one of the most irresponsible actions ever taken by the Polish Government. 

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[1] The Commission apparently has already advised the Office of Competition (UOKiK) in Warsaw that the certificates are state aid. See UOKiK correspondence to Ministry of Economy, November 28, 2013:  :According to the OCCP, the certificate system constitutes state aid. Detailed clarification in regard has been presented in previous correspondence [citing June 5, 2012 and August 10, 2012 correspondence from UKOK to MG]'. Moreover, similar conclusions have been expressed by the European Commission within the framework of the ongoing process notification of the restoration of the certificate system for high-efficiency         co-generation.” (emphasis added).

[2] See Case C‑39/94 SFEI and Others (‘SFEI’) [1996] ECR I‑3547, paragraph 41, and more recently, Case C‑368/04 Transalpine Ölleitung [2006] ECR I‑9957, paragraph 37.

[3] The French case got to the European Court on a request by the French court for a preliminary ruling. National courts can rule on state aid themselves but only the Commission can determine incompatible aid exists (a decision that can only be reviewed in the European Court of Justice). 

  

[4] “Under the Treaty, the Commission is given the competence to determine whether or not the notified aid measure constitutes State aid in the sense of Article 87(1) of the Treaty, and if it does, whether or not it qualifies for exemption under Article 87(2) or (3) of the Treaty. Member States cannot grant any State aid unless it has been notified and authorised by the Commission. Any aid, which is granted in absence of Commission approval, is automatically classified as “unlawful aid”.  DG Competition, Vademecum Community law on State aid , 30 September 2008, p. 13 (emphasis added). UOKiK pointed this out to the Ministry of Economy on June 5, 2012. 

[5] As recently as March 2014 the Ministry of Economy stated that “technology showing the lowest cost of power generation received unjustified support”. In 2013, the Ministry of Economy state that “uncontrolled development of such technology caused oversupply of green certificates and led to the collapse of their market price .”  They further stated in the 2013 justification for the new draft RES legislation:

The presence of excess amounts of certificates of origin, was mainly due to the more rapid pace of development of renewable energy sources in Poland than was envisaged in the National Action Plan in the field of renewable energy. Multi-fuel co-firing plants contributed the most to the rapid increase in the volume of electricity production from renewable energy sources which in recent years recorded the highest growth (which is related to low expenditure necessary to run this type of production and high revenues generated by this practice). (emphasis added).

Even the Prime Minister’s website has recently conceded the point:

“The dynamic development of technologies using renewable energy sources caused the embracing of all energy technologies have the same level of support has lost its justification. The existing system of certificates of origin stimulates only some sources, which in turn results in sub-optimal use of locally available resources, power terminal blocks for other technologies and limited economic development and creation of new jobs. In addition, the system of certificates of origin, there is a situation in which technology showing the lowest cost power generation receive unjustified support that interferes with the development of the RES market….” (emphasis added).