Recent state aid decisions in the energy sector in Lithuania

Recently approved aid mechanism in the Lithuanian energy sector clearly show facilitation of national energy policy objectives such as diversification of energy mix and increase of production from local sources. Thus, RES support schemes and LNG terminal support mechanism are of major national importance.

Motieka & Audzevičius Regulatory and Antitrust‘s team member Rita Griguolaitė discussed most recent Commission‘s State aid decisions. Among them: (i) a late approval of the RES Support Scheme set up in 2012 and (ii) the new RES support scheme which will run from autumn 2019, (iii) energy-intensive users’ scheme and (iv) modification of Aid for LNG Terminal.

1. Late Approval of RES Support Scheme set up in 2012

  • State aid notified after a formal complaint from market participants in 2016. It took two years of extensive communication between the Commission, Lithuanian government and market participants to approve the scheme;
  • The scheme was set up in 2012 to support producers of electricity from renewable energy sources, including wind, solar, hydro, biomass and biogas. The scheme is applicable only for the past auctions, will be valid until 2029 and amount to 1,242 million. It will be financed via a levy paid by end-users. Beneficiaries under the scheme were selected via the tender procedure and granted a feed-in-premium for a period of 12 years. While, small scale electricity plants, i.e. ones below 30 kW and since 2013, below 10 kW received a fixed feed-in-tariff for a period of 12 years.

2. The new RES support scheme

  • In December 2018, a new support scheme for the development and promotion of RES was established by laws. The scheme will allocate the support to new power plants by technology-neutral auctions, the winner being determined by the smallest premium offered to the electricity market price in the exchange. The Commission already approved the new scheme and the first auction for distributing the quota of 0,3 TWh is planned in September 2019. About the new scheme, see here and here.

3. Energy-Intensive Users Scheme

  • The scheme intends to grant reductions on the charge paid by energy-intensive industrial users for the financing of a mechanism supporting the electricity production from RES. The compensation for 85% of the levy paid the previous year will be obtained with a condition that a company can demonstrate an electro-intensity of at least 20%.
  • The aid would ease the burden of RES levy, which is paid by final consumers on their electricity consumption. It is important to a number of manufacturers and fertilizer producers. According to the Lithuanian Energy Ministry over 150 companies could apply for compensation. The budget allocated for the scheme amount to € 30 million.

4. Modification of Aid for LNG Terminal

  • In October 2018, the Commission approved notified changes to the scheme of 2013 establishing a levy on all gas users to support the construction and operation of a liquefied natural gas (LNG) terminal in Lithuania. Two main changes are: (i) entrusting public service obligation to LITGAS for supplying the mandatory quantity of liquefied natural gas to the LNG terminal and (ii) removal of purchasing obligation.
  • At the beginning of 2019 such obligation to heat and electricity generators to purchase a certain quantity of gas from LITGAS was abolished. Thus, LITGAS will sell its gas directly on the market. That should enhance the competition in the gas market.
  • The financing scheme of the terminal brought various disputes, including national litigation to challenge legal acts establishing the levy, complaints for infringement of State aid, public procurement and energy law with the Commission. In 2016 initial modifications of aid for LNG Terminal has been challenged by AB Achema which filed a complaint to the Commission. The Commission found a violation of stand still obligation but concluded that the aid is compatible.
  • Furthermore, Achema aims for annulment of Commission’s decision of 2013 approving the primary LNG support scheme. The case is pending at the Court of Justice of the EU.

In general, Lithuania is reluctant to notify the Commission about the aid on time, but market participants played a crucial role to discipline the government. Also, a number of legal disputes pushed the government to look for more market-based support instruments. The new scheme of auctions, steps to modify LNG terminal support and arrangements of reductions on the charge paid by energy-intensive industrial users show the efforts of Lithuania to balance between the diverse objectives in energy policy and energy market.

The full article, published in European State Aid Law Quarterly (EstAL), is here.