State aid: Commission approves €5 billion Finnish umbrella scheme to support municipal electricity producers and suppliers in the context of Russia's war against Ukraine

The European Commission has approved a €5 billion Finnish subsidised loan umbrella scheme to support municipal electricity producers and suppliers in the context of Russia's war against Ukraine. The scheme was approved under the State aid Temporary Crisis Framework, adopted by the Commission on 23 March 2022, and amended on 20 July 2022, based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (‘TFEU'), recognising that the EU economy is experiencing a serious disturbance.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “In the difficult context of Russia's unjustified war against Ukraine, this €5 billion umbrella scheme will enable Finland to provide liquidity support to municipal electricity producers and suppliers, ensuring the continuation of their activities and the security of supply. We continue to stand with Ukraine and its people. At the same time, we continue working closely with Member States to ensure that national support measures can be put in place in a timely, coordinated and effective way, while protecting the level playing field in the Single Market.”

The Finnish liquidity support measure

Finland notified to the Commission, under the Temporary Crisis Framework, a €5 billion subsidised loan umbrella scheme to provide liquidity support to municipal electricity producers and suppliers in the context of Russia's war against Ukraine.

The measure will be open to municipal electricity companies that: (i) produce or supply electricity; (ii) engage in hedging operations; and (iii) are affected by the current crisis.

Finnish municipal energy producing and supplying companies hedge most of their production on the electricity derivatives exchange against future price drops. The adverse price movements caused by the current geopolitical crisis require these companies to provide significant amounts of additional cash collateral. The measure aims at providing municipal electricity producers and suppliers a last-resort financing option, to ensure that sufficient liquidity remains available to them for the continuation of their activities.

Under the scheme, the aid will take the form of subsidised loans to be granted by either the Municipality Finance Plc or the Finnish municipalities. The eligible loans, with a maximum maturity of three years, must relate to working capital needs.

In order to be eligible, electricity producers and suppliers need to demonstrate, through self-certification, that: (i) high collateral requirements on the electricity derivatives markets have created liquidity needs; and (ii) public support is necessary to ensure the security of supply. Under this measure, aid to cover collateral requirements for proprietary trading is excluded.

The maximum loan amount per beneficiary cannot exceed either (i) 15% of the beneficiary's average total annual turnover over the last three closed accounting periods; or (ii) the liquidity needs derived from the additional collateral requirements for the coming 12 months.

The Commission found that the Finnish scheme is in line with the conditions set out in the Temporary Crisis Framework. In particular: (i) the maturity of the loans does not exceed six years; (ii) the annual reduced interest rates respect the minimum levels set out in the Temporary Crisis Framework; (iii) loans granted under the measure relate only to working capital needs; (iv) the maximum loan amount per beneficiary respects the conditions set out in the Temporary Crisis Framework; and (v) the loan contracts will be signed by 31 December 2022 at the latest.

The Commission therefore concluded that the Finnish subsidised loan umbrella scheme is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Crisis Framework.

On this basis, the Commission approved the aid measure under EU State aid rules.

Background

The State aid Temporary Crisis Framework, adopted on 23 March 2022, enables Member States to use the flexibility foreseen under State aid rules to support the economy in the context of Russia's war against Ukraine.

The Temporary Crisis Framework has been amended on 20 July 2022, to complement the Winter Preparedness Package and in line with the REPowerEU Plan objectives.

The Temporary Crisis Framework provides for the following types of aid, which can be granted by Member States:

• Limited amounts of aid, in any form, for companies affected by the current crisis or by the subsequent sanctions and countersanctions up to the increased amount of 62,000€ and 75,000€ in the agriculture, and fisheries and aquaculture sectors respectively, and up to 500,000€ in all other sectors;
• Liquidity support in form of State guarantees and subsidised loans;
• Aid to compensate for high energy prices. The aid, which can be granted in any form, will partially compensate companies, in particular intensive energy users, for additional costs due to exceptional gas and electricity price increases. The overall aid per beneficiary cannot exceed 30% of the eligible costs and – in order to incentivise energy saving – should relate to no more than 70% of its gas and electricity consumption during the same period of the previous year, up to a maximum of €2 million at any given point in time. When the company incurs operating losses, further aid may be necessary to ensure the continuation of an economic activity. Therefore, for energy-intensive users, the aid intensities are higher and Member States may grant aid exceeding these ceilings, up to €25 million, and for companies active in particularly affected sectors and sub-sectors up to €50 million;
• Measures accelerating the rollout of renewable energy. Member States can set up schemes for investments in renewable energy, including renewable hydrogen, biogas and biomethane, storage and renewable heat, including through heat pumps, with simplified tender procedures that can be quickly implemented, while including sufficient safeguards to protect the level playing field. In particular, Member States can devise schemes for a specific technology, requiring support in view of the particular national energy mix; and
• Measures facilitating the decarbonisation of industrial processes. To further accelerate the diversification of energy supplies, Member States can support investments to phase out from fossil fuels, in particular through electrification, energy efficiency and the switch to the use of renewable and electricity-based hydrogen which complies with certain conditions. Member States can either (i) set up new tender based schemes, or (ii) directly support projects, without tenders, with certain limits on the share of public support per investment. Specific top-up bonuses would be foreseen for small and medium-sized enterprises as well as for particularly energy efficient solutions.

The following types of aid are also possible on a case-by-case basis, subject to conditions: (i) support for companies affected by mandatory or voluntary gas curtailment, (ii) support for the filling of gas storages, (iii) transitory and time-limited support for fuel switching to more polluting fossil fuels subject to energy efficiency efforts and to avoiding lock-in effects, and (iv) support the provision of insurance or reinsurance to companies transporting goods to and from Ukraine.

Sanctioned Russian-controlled entities will be excluded from the scope of these measures.

The Temporary Crisis Framework includes a number of safeguards:

• Proportional methodology, requiring a link between the amount of aid that can be granted to businesses and the scale of their economic activity and exposure to the economic effects of the crisis;
• Eligibility conditions, for example defining energy intensive users as businesses for which the purchase of energy products amount to at least 3% of their production value; and
• Sustainability requirements. Member States are invited to consider, in a non-discriminatory way, setting up requirements related to environmental protection or security of supply when granting aid for additional costs due to exceptionally high gas and electricity prices.

The Temporary Crisis Framework will be in place until 31 December 2022 for the liquidity support measures and measures covering increased energy costs. Aid supporting the roll-out of renewables and the decarbonisation of the industry may be granted until end June 2023.

The Commission is continuously monitoring the application of the State aid Temporary Crisis Framework to take account of the evolving situation. This is why, on 5 October 2022, the Commission sent to Member States for consultation a draft proposal to prolong and adjust the State aid Temporary Crisis Framework, including in the light of  the Commission's proposal on an emergency market intervention, on which a political agreement has been reached in Council on 30 September 2022. Member States now have the possibility to comment on the Commission's draft proposal.

The Temporary Crisis Framework complements the ample possibilities for Member States to design measures in line with existing EU State aid rules. For example, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Furthermore, Article 107(2)(b) of the Treaty on the Functioning of the European Union enables Member States to compensate companies for the damage directly caused by an exceptional occurrence, such as those caused by the current crisis.

Furthermore, on 19 March 2020, the Commission adopted a Temporary Framework in the context of the coronavirus outbreak. The COVID Temporary Framework was amended on 3 April, 8 May, 29 June, 13 October 2020, 28 January and 18 November 2021. As announced in May 2022, the COVID Temporary Framework has not been extended beyond the set expiry date of 30 June 2022, with some exceptions. In particular, investment and solvency support measures may still be put in place until 31 December 2022 and 31 December 2023 respectively. In addition, the COVID Temporary Framework already provides for a flexible transition, under clear safeguards, in particular for the conversion and restructuring options of debt instruments, such as loans and guarantees, into other forms of aid, such as direct grants, until 30 June 2023.

The non-confidential version of today's decision will be made available under the case number SA.104267 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

More information on the Temporary Crisis Framework and other actions taken by the Commission to address the economic impact of Russia's war against Ukraine can be found here.