VIK German Association of Industrial Energy Consumers welcomes the efforts of the European Commission on revision of State Aid Framework to support the new initiatives within the Clean Industrial Deal Package and would like to provide feedback on the key issues which are important for energy-intensive industries.
The Guidelines for State Aid for climate, environmental protection and energy and CISAF-Framework should be flexible enough to ensure industrial energy consumers’ competitiveness and rapid actions of both EU and member-states[1], not only in case of new energy crisis. An introduction of the CISAF needs to be shaped in a way that unlocks more funding for cleantech and green projects by streamlining State Aid procedures and eliminating the need for complex individual assessments. The proposed implementation period is 36 months—adjustments should be made here as well, extending it to 48, 60, or even 72 months as a significantly more realistic approach.
For technical and economic reasons, industry in Europe is nowadays dependent on fossil fuels. Currently, infrastructure funds in Europe do not address operating costs in this context. Companies currently lack the financial capacity, as they face structural challenges: rising energy costs, generally increasing expenses and reduced competitiveness. Under these conditions, large-scale investments are hardly feasible. Preventing de-industrialisation should be a top priority for the EU. In this sense, national governments require a broader state aid framework so that companies can be supported through additional subsidies. In addition to all generally applicable aspects of the state aid guidelines, the targeted investment and operating cost subsidies for system-relevant goods will be beneficial as well.
The use of hydrogen should not be limited by the CISAF-framework to certain applications. It is crucial to create a functional hydrogen market as quickly as possible, which will be driven by a wide range of hydrogen applications rather than just a few. Therefore, it is essential to foster technological openness. There should be a solution during the ramp-up of the hydrogen economy, including recognition of OPEX-subsidies. Supplying industry with affordable and sufficient green hydrogen is not guaranteed in the coming years. The use of low-carbon hydrogen should be treated equally to green hydrogen for at least a transitional period.
Concerning the listed investment subsidies for storage it should be required that investments in storage for industrial sites with local relevance (i.e., directly at or on the site) should be promoted, and that this investment support should not conflict with presumed subsidies in the form of special grid fees. That is, special grid fees should also be granted if the investment in storage has already been subsidized. Additionally, "general" storage systems do not need to be subsidized, as this is already causing significant issues for network operators in terms of grid security. The funding should be limited to storage systems that are installed directly for industrial companies at or within their production sites. Chemical parks should be considered as production sites in this context. The better flexible approach would be if individual machines will be eligible for funding as well. Funding should not be limited to entire plants.
The current CISAF-draft is not sufficient to address support for industrial steam in the case that steam is produced not in the same legal entity as it is consumed. This excludes, for example, industrial or chemical parks where steam is produced by the site operator but consumed on-site by a chemical company that is a separate legal entity. Supply relationships within such chemical sites should also fall within the scope of CISAF, as strict "self-consumption" rules would unfairly disadvantage these highly efficient chemical parks. An enabling, technology-neutral CISAF-framework needs to effectively foster, for example, the necessary complementarity between different types of hydrogen[2] rather than unfortunate competition and allow for the support of low-carbon heat and steam production, especially in the context of industrial parks where the steam producer and the steam-consuming company are separate legal entities located in proximity at the same industrial site.
State aid for flexibility in Germany will likely be considered as implemented via the special grid charges ("Sondernetzentgelt"). However, flexibility is currently defined in terms of selling and purchasing on the day-ahead and intraday markets, participation in frequency and non-frequency ancillary services, and participation in market-based redispatch and congestion management services for both TSOs and DSOs. From our perspective, the proposed list should be expanded to include types of flexibility that serve to balance self-operated renewable energy systems or PPAs – for example, CHP-plants with controllable electricity generation, heat pumps or electric boilers. If a Member State grants aid in the form of special grid charges, all corresponding use cases should be appropriately taken into account.
A distinction is made between a market-based capacity mechanism and a strategic reserve. The strategic reserve is activated when TSOs have exhausted their balancing energy resources to maintain system balance. If carbon dioxide is emitted, at a minimum, the emission limits set out in the Electricity Regulation must be met (550 g/kWh electric and 350 g/kWh annual average per installed electric kW). It is important to clarify that the German network reserve/winter reserve should not be subject to the CO₂-emission limits of the Electricity Regulation. The capacity mechanism should be open to demand-side response and storage. However, the framework conditions (e.g., delivery periods extending over several months) are currently not feasible. Therefore, it should be required that the framework conditions for demand-side response and storage be designed in such a way that participation is technically and economically possible in the first place.
Point (71)(a) excludes from Section 5 the products listed in Annex I to the Treaty on the Functioning of the European Union. This annex includes products of the primary food processing industries, such as sugar and molasses, products of the milling industry, malt and starches, gluten, inulin, vegetable oils, cocoa, and bioethanol. Primary food processors are an important part of the basic raw material supply chain and should also have access to state aid for investments in industrial decarbonisation.
Moreover, certain primary food processors operate installations that produce both Annex I and non-Annex I products within the same facility. The eligibility of such installations for state aid under the proposed framework is therefore unclear. For these reasons, Point (71)(a) should be deleted to ensure that primary food processing industries can access state aid under CISAF.
Point (75) restricts support for investments in the self-production of energy in the case of “generation of heat and high efficiency cogeneration of heat and power for which also natural gas can be used”. This sentence discriminates against the investments in the self-production of energy where biomethane is to be used as the energy source.
In our view, subsidies for fossil raw materials and energy carriers are not adequately considered, even though substantial savings could be made in this area, and CAPEX and OPEX would initially be lower than for other investments. It is mentioned within the CISAF-draft that the focus should not be on a single technology (technology neutrality) but should take a holistic approach to renewables. However, the primary focus remains on green hydrogen, green electricity and water electrolysis. Biomass is only considered marginally and under specific conditions. In our view, all subsidies should be maintained to a certain extent and linked closely to circular economy.
Chapter 5.2, paragraph 86 describes the hurdles that a project in the form of emission reductions should overcome in order to be eligible for the state aid. In this context, reference is made to the ETS benchmark. For companies that meet or fall below the benchmark, the minimum requirement is a 10% reduction; for all others, it is 40%, provided that they are subsequently better than the benchmark.
Since the benchmark curve is quite steep for some products (for example, in paper and chemical industry), a large proportion of producers are relatively far from the benchmark. Therefore, there should be a possibility to support projects that achieve a 10% reduction but still do not reach the benchmark afterward. The reference to the benchmark (as already seen in the Innovation Fund) results in a small number of companies being eligible for aid. High-emission companies do not match the reduction goal of 10 % or more but could still save thousands of tons of CO₂—sometimes more than the total emissions of small emitters who receive funding. These absolute relations are not reflected in relative savings. For climate purposes, absolute reductions must also be considered when reviewing or granting funding.
The proposed individual aid cap of EUR 200 million and the aid intensity of up to 35% for electrification projects are insufficient (point 90). These limits should be raised to EUR 600 million and 60%, respectively. Electrification projects in the steel industry involve significantly higher financial costs. Limited availability of technology providers and inflation have driven up CAPEX for large-scale projects. Therefore, aid intensity should exceed that provided under the Temporary Crisis and Transition Framework.
The differentiation between renewable biomass-based and renewable non-biomass-based heat is not comprehensible. Biomass-based heat should be considered renewable if it meets the sustainability criteria set out in the Renewable Energy Directive. By prioritising “renewable heat and flexible direct electrification,” Point (73) further discriminates against low-carbon heat. Moreover, the requirement for “flexibility” is not feasible for seasonal industries that are unable to shift power consumption due to the nature of non-storable feedstocks. To the end of Point (73), the following should be added: “Natural gas must deliver energy savings of at least [30]% or greenhouse gas emission savings of at least [60]% per unit of output compared to the situation without the aid.” Point (73) should be therefore adapted as follows: “Investments aiming at the decarbonisation of industrial heat will prioritise renewable and low-carbon heat, direct electrification, and the reuse of waste heat, particularly below 400°C. Nevertheless, in duly justified cases, the use of other technologies may also be accepted, provided that natural gas delivers energy savings of at least [20]% or greenhouse gas emission savings of at least [60]% per unit of output compared to the situation without the aid.”
Generally, for high-temperature processes, we recommend implementing a technology-neutral approach under CISAF and thus allowing other non-fossil energy sources and hydrogen to be used. We welcome the inclusion of natural gas as an eligible transitional energy source.
The European Commission has removed all provisions from the current TCTF that would allow for any form of relief to mitigate high electricity and natural gas costs for companies —specifically Section 2.4. The Action Plan for Affordable Energy rightly highlights the growing energy price gap between the EU and other regions. For industry, retail electricity prices are currently two to three times higher than the historical levels observed before 2020. Given this context, and in order to support the competitiveness of both industrial and clean tech sectors, it is essential that the CISAF enables Member States to offer energy price relief on standard electricity market prices, within a newly dedicated section. The relief should act as a bridge solution to tackle high prices in the short term until the renewables will bring benefits into the system.
In the chapter 5.4., paragraph 86 it is required that subsidized projects must not increase production capacity by more than 5%. This contradicts the common practice that innovative production processes are typically installed in addition first, and the old facility is only shut down once the new one operates reliably. Therefore, this restriction also works against the actual intention of transformation.
The CfDs should be designed in such a way that compensation payments are made through the public budget, and that the reference price must be based on industrial electricity prices in key global markets. It could be required that there should be compensation for companies that have already taken responsibility and entered into PPA-contracts. These companies should decide between CfDs or PPAs. That means if already concluded PPAs are priced above the average price of future CfDs, a price adjustment (analogous to CfDs) should be provided – also financed from the public budget.
[1] The CID and the state aid framework should adjust and complement subsidies at both the EU and national levels (e.g., adaptation of the GBER). This should be given greater consideration, as it will have long-term effects on energy-intensive industrial companies. The central framework for all subsidies—GBER, IF, IPCEI, CCfDs, coupled with PPAs, etc.—must be taken into account, ensuring its general applicability.
[2] Specifically, the condition that a percentage based on the renewable share in the country of location must be used for aid to investments in low-carbon hydrogen is undermining the business case for low-carbon hydrogen projects.
Seniorreferentin für Klimapolitik & Koordinatorin für EU-Energie- und Klimapolitik.
