European Commission Prolongs and Expands State Aid Temporary Crisis Framework

On October 28, 2022, the European Commission adopted a second amendment to its Temporary Framework for State aid measures to support the economy following Russia’s aggression against Ukraine (“TF”). The TF was set to expire on December 31, 2022. As the war in Ukraine continues to affect companies in the EU, the Commission has extended its application until December 31, 2023. In addition, the second amendment to the TF raises the ceilings for limited amounts of aid and provides for additional flexibility for liquidity support to energy utilities for their trading activities and for companies affected by rising energy costs. It also introduces means to support electricity demand reduction, in line with the recent Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices. The changes reflect the growing concern of the EU institutions about the security of gas and electricity supply in Europe.

The TF was initially adopted on March 23, 2022 to allow support to companies and sectors suffering from the economic consequences of the war in Ukraine to be provided in compliance with EU State aid rules. More specifically, the TF allows EU countries to grant three types of aid: (i) limited amounts of aid, (ii) liquidity support in the form of guarantees and subsidized loans and (iii) aid for additional costs due to high gas and electricity prices (see also our previous alert).

The TF was first amended on July 20, 2022, in line with the Winter Preparedness Package. With this first amendment, the Commission provided new support categories to accelerate and facilitate investments in renewable energy (including hydrogen), along with diversifying energy supply and reducing dependence on imported fossil fuels by supporting decarbonization measures.

Additional flexibility and support options due to the energy crisis

The second amendment to the TF introduces several flexible measures to mitigate the effects of the energy crisis on the European economy:

• Support for energy utilities – EU countries can now provide additional liquidity support to energy companies for their trading activities. More specifically, where public guarantees are provided as financial security to central counterparties or clearing members it is now exceptionally possible to exceed the 90% coverage limit that normally applies to public guarantees, subject to strict safeguards. This is in line with the Delegated Act adopted by the Commission on October 18, 2022, which allows the use of unsecured bank and public guarantees under specific conditions.

• Companies affected by rising energy costs – EU countries now have more flexibility to grant temporary aid to mitigate the effects of exceptionally severe increases in natural gas and electricity prices. Specifically, they may calculate the amount of aid on the basis of past or current energy consumption, although they must keep in mind the need to reduce total energy consumption throughout the EU (against the background of the scarcity of gas supplies in the EU). One of the main conditions is that the aid may only cover up to 70% of the beneficiary's gas and electricity consumption in the same period of the previous year.

In addition, EU member states can be more lenient towards beneficiaries who have suffered from reduced economic performance during the crisis, including heavily affected energy-intensive sectors. However, there are safeguards attached to this, amongst others to avoid overcompensation.

• Measures to support further reduction of energy consumption – A new support option has been introduced to allow aid to achieve electricity consumption reductions covered by Regulation (EU) 2022/1854 on emergency measures against high energy prices. The TF stresses the importance of maintaining incentives for existing electricity consumption reductions and ensuring consistency with the gas demand reduction targets set in Regulation (EU) 2022/1368 on coordinated action to reduce gas demand.

These changes reflect the Commission's readiness to take further steps to ensure the competitiveness of the European industry and energy independence across the EU. Against this background, the Commission’s Work program for 2023 (which contains 43 new policy initiatives) sets out a bold agenda aimed at tackling Europe’s most pressing challenges, such as the energy crisis.

Higher ceilings for limited amounts of aid

Furthermore, the second amendment to the TF raises the ceilings for limited amounts of aid to €250,000 and €300,000 for companies active in the agriculture, and the fisheries and aquaculture sectors, respectively, and up to €2 million for companies active in all other sectors (all figures are gross, before any deduction of tax or other charge).

Criteria for assessing recapitalization support measures

Finally, the new measures clarify the criteria for the assessment of recapitalization measures. Specifically, these measures must (i) be necessary, appropriate and proportionate, (ii) involve appropriate compensation of the State and (iii) be accompanied by appropriate competition measures to ensure effective competition in line with the principles set out in the 2014 Rescue and Restructuring guidelines. These measures include behavioral commitments by the beneficiaries, including a ban on bonus and dividend payments, and on acquisitions.

The TF will remain in force until December 31, 2023. The Commission will assess the need for an extension at a later stage.