As part of “A Green Deal Industrial Plan for the Net Zero Age” to respond to the US Inflation Reduction Act (IRA) (see our alert), the European Commission (the “Commission”) adopted on 9 March 2023 its Temporary Crisis and Transition Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (the “TCTF”). The text amends the Temporary Crisis Framework last amended on 28 October 2022 (see our blog). 

These are the three most important things you need to know about the TCTF:

  • To avoid that an investment would be located outside the European Economic Area (EEA), EU countries may support investments in the manufacturing of relevant equipment for the transition towards a net-zero economy, such as batteries, solar panels, wind turbines, heat pumps, carbon capture usage and storage (CCUS), as well as their key components and critical raw materials necessary for their production. They may even grant aid matching foreign subsidies to support those investments, provided that they are located in the poorer areas of the EU.
  • EU countries’ possibilities to grant aid for accelerating the rollout of renewable energy are extended to any renewable technologies, including hydropower, and no longer require a bidding process to select the aided projects that are considered as less mature.
  • The TCTF is not a subsidy program, and it is up to EU Member States to provide public funding.

Aid to cover investment costs for the production of relevant equipment for the transition towards a net-zero economy

Under general State aid rules, aid facilitating industrial production, cannot, in principle, be granted, except for initial investments in assisted areas (i.e. areas with low population density or abnormally poor) and under specific conditions. With the TCTF, EU Member States may grant aid for investments in the production of relevant equipment for the transition towards a net-zero economy (e.g. batteries, solar panels, wind turbines, heat-pumps, electrolysers, CCUS, key components and critical raw materials to produce such equipment). The following aid is now allowed:

  • “Anti-relocation” aid, even outside assisted areas, up to 15% of the investment costs incurred (e.g. land, buildings, plant, machinery, patent rights), with a cap of €150 million. Some top-ups are allowed for investments in assisted areas (up to 20-35% with a maximum of €200-350 million, depending on whether the investment takes place in an area with low population density or in an abnormally poor area); and for aid in the form of tax advantages, loans or guarantees (+5%) or for small- (+20%) and medium-sized companies (+10%). Such aid must be part of a program applicable in a non-discriminatory basis to any applicant that fulfils the conditions.
  • Exceptionally, “matching” aid on an individual basis, outside of any pre-defined program, to “match” a subsidy available for an equivalent investment outside the EEA, which includes the EU Member States, Norway, Lichtenstein and Iceland. The aid however cannot exceed the funding gap, that is the amount necessary to induce the company to locate the investment in the EEA. The investment must be fully located in an assisted area or partly in an assisted area but involving several EEA countries. The beneficiary must commit to use state-of-the art production technology from an environmental-emissions perspective and show that the aid does not create counter-cohesion effects, for instance because the project could have been located in an even poorer area of the EEA.

For both anti-relocation aid and matching aid, the aid must be granted by 31 December 2025 and the investment must be maintained in the area concerned for at least five years (or three years for small and medium sized enterprises) after completion of the investment. The risk that the investment would not take place in the EEA without the aid must be demonstrated as well as the absence of relocation of the investment within the EEA. The applicant to an aid program will also have to provide detailed information notably on the investment, including its expected positive effects for the area concerned in terms of job creation, R&D activities, etc.

Aid to cover operating or investment costs for accelerating the rollout of renewable energy

The TCTF expands until 31 December 2025 the possibility for EU countries to grant aid to accelerate the rollout of renewable energy and energy storage. Member States may devise State aid programs applicable to any company that would fulfil the conditions, to support electricity generation from any renewable energy sources as well as energy storage. Renewable energy sources are defined in the Renewable Energy Directive, and also include hydropower, initially excluded. The new or repowered installation must be completed and operational within 36 months except for offshore wind technologies.

Unless the power that the installation can produce is very low (e.g. for the own purposes of a company), aid for investments in solar photovoltaic, wind and hydropower generation must in principle be determined through a competitive bidding process. Such process should lead to the bidder(s) requesting the lowest support to win the subsidisation contract. In all other cases, the aid could also be set administratively by the granting authority. In any event, overcompensation must be avoided, and the aid amount may not exceed the total investment costs or, if set administratively, 45% of those costs.

Aid for renewable energy output could also be granted in the form of a two-way contract for difference of maximum 20 years, whereby the power producer is guaranteed a minimum remuneration for the electricity produced irrespective of market conditions (such as for instance negative electricity prices due to excessive renewable electricity supplies compared to demand) and the retrocession of revenues to the State where prices exceed a certain limit.

Similarly to investment aid, the amount of aid to support the production of electricity from solar photovoltaic, wind and hydropower is in principle determined after a competitive bidding process (except for small installations). In other cases, the strike price, which corresponds to the minimum remuneration, may be set administratively by the energy regulator to cover the net costs of the producers.

Impact on stakeholders in the Net-Zero Industry

Contrary to other jurisdictions, the TCTF does not create any overarching subsidy program, and each individual EU Member State remains competent to introduce State aid programs.

The TCTF is part of a larger initiative, and its use by EU countries may be incentivized by coming legislation, such as the Net-Zero Industry Act (NZIA) proposed by the Commission on 16 March 2023. The NZIA proposal intends to achieve climate and energy independency objectives. It sets a benchmark of 40% of EU deployment needs for the green transition to be covered by manufacturing capacity of strategic net-zero technologies located in the EU.

To diversify its energy sources, the EU also expects imports of energy, such as 10 million tons of renewable hydrogen by 2030. Contrary to aid for relevant equipment for the transition towards a net-zero economy, and similarly to the State aid rules that are generally applicable, aid to accelerate the rollout of renewable energy and energy storage may also be granted for imports in the EU (for a precedent see our alert). Companies manufacturing equipment for the transition towards a net-zero economy or investing in the production of energy from renewable sources or in energy storage  may consider approaching EU Member States to seek the most adequate public funding for their investments or export projects. Covington can help you navigating the complexities and opportunities of recent EU developments for the transition towards a net-zero economy.

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Photo of Johan Ysewyn Johan Ysewyn

Johan Ysewyn is widely recognised as one of Europe’s leading competition lawyers. As co-Chair of Covington’s Global Competition/Antitrust Practice, Johan brings over three decades of experience advising global corporates and financial institutions on their most complex and high-stakes competition and regulatory matters.

Clients…

Johan Ysewyn is widely recognised as one of Europe’s leading competition lawyers. As co-Chair of Covington’s Global Competition/Antitrust Practice, Johan brings over three decades of experience advising global corporates and financial institutions on their most complex and high-stakes competition and regulatory matters.

Clients turn to Johan for clear, strategic guidance on merger control, cartel and monopolisation investigations, and other antitrust enforcement actions. His approach is pragmatic and solution-driven, combining deep legal insight with a commercial understanding of his clients’ business.

Leading directories consistently highlight Johan’s exceptional skill and client service: Chambers Global describes him as “an exceptional lawyer who is solution-oriented, has a remarkable ability to rapidly understand our business and has excellent reactivity.” Who’s Who Legal praises his “energy and insight into cartel proceedings,” while Legal 500 calls him “one of the best European competition lawyers” with “a unique understanding of the EC and a very helpful network of connections across Brussels.”

Johan represents clients before competition authorities and courts around the world, leveraging his in-depth knowledge of regulatory processes and strong working relationships with key decision-makers, particularly within the European Commission’s DG COMP, who designated him as one of their Non-Governmental Advisors to the International Competition Network. His advisory practice spans the evolving intersections of competition law with ESG, digital markets, and strategic compliance.  His experience covers a wide range of sectors, including telecommunications, technology, media, financial services, healthcare, consumer goods, retail, energy, and transport.

Johan has extensive experience in global merger control, having advised on numerous complex, cross-border transactions requiring coordination across multiple jurisdictions. His recent merger work includes representing Discovery in its landmark acquisition of Warner Bros. and advising Illumina on its acquisition of Grail—both recognised as award-winning deals in the competition community. Johan’s merger practice spans a wide range of sectors, from media and technology to healthcare and energy, and he is known for navigating the most challenging regulatory reviews with strategic foresight and precision.

Renowned for his expertise in global cartel enforcement, Johan has represented immunity applicants and defendants in major cases involving industries such as financial services, consumer goods, pharmaceuticals, chemicals, and energy. He also advised the European Payments Council in the first European Commission investigation into standardisation agreements in the e-payments sector. A recognised thought leader, Johan co-authors the European Cartel Digest and lectures on cartel law and economics at the Brussels School of Competition.

In addition, Johan is one of Europe’s foremost practitioners in EU State aid law, advising both governments and beneficiaries. His experience includes landmark cases involving leading banks and airlines such as Fortis, KBC, Dexia, Arco, Citadele, airBaltic, and Riga Airport.

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Photo of Carole Maczkovics Carole Maczkovics

Carole Maczkovics is a market leader in State aid law, with a robust background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public and…

Carole Maczkovics is a market leader in State aid law, with a robust background in the economic regulation of network industries (energy and transport) and in public contracting (EU subsidies, public procurement, concessions).

Carole has a proven track record of advising public and private entities in administrative and judicial proceedings on complex State aid and regulatory matters before the European Commission as well as before the Belgian and European courts. She also advises clients on the application of the EU Foreign Subsidy Regulation (FSR) and UK subsidy control regime.

Carole has published many articles on State aid law and on the FSR, and contributes to conferences and seminars on a regular basis. She is a professor at the Brussels School of Competition on the application of regulation and competition law (including State aid) in the railway sector. Carole further gives lectures to King’s College London LLM students and trainings on State aid law at EFE, in Paris. She also acts as Academic Director of the European State aid Law Institute (EStALI).

Recognized as a leading EU State aid practitioner by Chambers Europe, and as Thought Leader in Lexology Index: Competition – State aid, Carole is praised by clients as being “really knowledgeable, approachable and very structured,” and having “in-depth knowledge and experience in state aid matters.”

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