Resolution of Germany’s Bundesrat on self-supplied electricity generated in cogeneration power plants – Are the EEG levy payments charged for self-supplied electricity generated in cogeneration power plants contrary to the EEG, unconstitutional and agains

​In a nutshell:

The stalemate in the dispute between the Federal Government and the EU Commission regarding the approval of the relief for producers of self-supplied electricity in new cogeneration power plants from payment of the EEG levy as compatible with state aid law continues to drag on despite the latest initiative of Germany’s Bundesrat. Therefore, in their energy billings for January 2018 some distribution network operators have started to charge the full amount of the EEG levy on self-supplied electricity generated in cogeneration power plants commissioned after 01/08/2014.The affected operators of cogeneration power plants and network operators should now quickly put an end to this political stalemate by seeking legal protection or initiating a procedure (for the issuance of an Indication Action) at the Clearingstelle EEG/KWKG.

​In a nutshell:

The stalemate in the dispute between the Federal Government and the EU Commission regarding the approval of the relief for producers of self-supplied electricity in new cogeneration power plants from payment of the EEG levy as compatible with state aid law continues to drag on despite the latest initiative of Germany’s Bundesrat. Therefore, in their energy billings for January 2018 some distribution network operators have started to charge the full amount of the EEG levy on self-supplied electricity generated in cogeneration power plants commissioned after 01/08/2014.The affected operators of cogeneration power plants and network operators should now quickly put an end to this political stalemate by seeking legal protection or initiating a procedure (for the issuance of an Indication Action) at the Clearingstelle EEG/KWKG.

On 01/01/2018, the approval under EU law expired which had been given for the partial exemption from payment of the EEG levy granted for self-supplied electricity generated in cogeneration power plants that were first put into (permanent) operation after 01/08/2014. Therefore, since 01/01/2018 some network operators have claimed the full EEG levy amount for self-supplied electricity generated in these cogeneration power plants.

Appellate resolution of the Bundesrat

Therefore, at the request of the Federal States of Thuringia and Rhineland-Palatinate, the Bundesrat intends to request the Federal Government to continue negotiations with the EU Commission so that legal certainty is established that proportionate relief from the EEG levy (BR-DrS [printed matter] 23/18 dated 24/01/2018 / Resolution on assigning the matter to a committee dated 02/02/2018) will continue to be ensured.

This resolution of the Bundesrat is of appellate nature only – in order for operators of cogeneration power plants to effectively enjoy relief a legislative initiative or, at least, a clarifying demand or a legal opinion issued by, e.g., the Bundesnetzagentur (BNA) [German Federal Network Agency] or the Federal Ministry of Economic Affairs and Energy (BMWi) and addressed to the network operators would be necessary.

The Bundesrat invokes the principles of protection of legitimate expectation, but does not comment on the legal classification of the activities.

Therefore, in our opinion, the EEG levy payments charged since 01/01/2018 are contrary to the EEG, unconstitutional and against European law.

Charge of the EEG levy is contrary to the EEG

This is because § 61b no. 2 EEG 2017 is the applicable law and reduces the EEG levy for self-supplied electricity generated in high-efficiency cogeneration power plants to 40%. Unlike with other incentive-related regulations in the EEG or KWKG, the proportionate 60% relief from the EEG levy is not subject to any legal requirement for obtaining a prior positive decision of the EU Commission. Thus, network operators who, despite of this, require payment of the full amount of the EEG levy or use it as the basis for their partial billings act contrary to the applicable law. Demanding the full EEG levy after 01/01/2018 or adjusting the scope of the relief from the EEG levy would only be admissible after the applicable law was amended by way of amending
§ 61b EEG 2017.

Constitutionally guaranteed protection of existing power plants for EEG 2017 power plant operators

But such a law amendment would be unconstitutional.

This is because also the original version of the EEG (§ 61 (1) EEG 2014) did not provide for the requirement of obtaining a prior positive decision on the EU level. § 98 (3) EEG 2014 only stipulated that the provisions of § 61 (3) and (4) EEG 2014 regulating the situation of existing power plants should be revised by the Federal Government by 2017, including an ”up-to-date” proposal concerning a new structure. But the currently affected cogeneration power plants do not have the status of existing power plants under § 61 (3) and (4) EEG 2014 but are new cogeneration power plants, according to the legislative situation at that time. As a result, based on this legislation, these power plant operators have developed the legitimate expectation that the proportionate relief from the EEG levy will be maintained on a permanent basis. Even

f one was inclined to ascribe to the EU Commission‘s temporary approval under state aid law, which was published in the English language only, an effect that would reduce the legitimation of the expectations, such effect would refer only to the EEG 2014. But the fact that the EEG 2017 amendment did not eliminate the doubts of the European Commission regarding compliance with state aid law was not made publicly known and was not foreseeable to power plant operators. And since the EEG 2017 is lacking any indication as to § 61 b EEG 2017 requiring approval in terms of state aid law the legislator has once again intensified the legitimate expectation which had already existed anyway. Therefore, the non-application or abolition of the relevant subsequent regulation of § 61b no 2 EEG 2017 violates the constitutional principle of protection of legitimate expectation laid down in Article 14 GG [Constitution of the Federal Republic of Germany]. In particular amendments to the law that have retroactive effect on investment decisions but also legal amendments that have ”false or artificial retroactive effect” are admissible under constitutional law only if they comply with very strict requirements.

Protection of fundamental rights according to European law

Even if a legal norm concerning incentives was possibly contrary to European law, this will not change anything. Here, the constitutional principles of protection of legitimate expectation (Article 14 GG) and the primacy of law (Article 20 (3) GG) have priority over the obligation to develop the European Union (Article 23(1) GG) and the international legal obligations of the state arising from the Treaty on the Functioning of the European Union (TFEU). Here, Article 6 (3) of the Treaty on the Functioning of the European Union (TFEU) gives priority to the protection of fundamental rights (under national law).

EU state aid law takes no direct effect between private persons

Admittedly, after an EU state aid law procedure is initiated, authorities may not put into effect any proposed law that is being reviewed (Article 108 (3) sentence 3 TFEU). In particular no permits may be issued. Existing permits, however, initially remain in force and may be revoked as per § 49 VwVfG [German Administrative Procedures Act] only after the legal basis is found to be invalid. In this context, e.g. the EEG provisions granting companies with high electricity costs relief from the EEG levy under the EEG 2012 (and earlier versions), which were also contested under EU law, were not suspended in the running year for which the relief had been granted. Although the EU Commission had initiated a state aid procedure already on 18/12/2013, neither the decisions granting relief for the year 2014 were revoked nor were the utility companies requested to charge the full EEG levy, and rightly so.

If an incentive is granted directly on the basis of a law it is controversial, however, whether a prohibition of implementation of that law is admissible. In any case, the prohibition of implementation is addressed to authorities only, since they exercise state authority and are, insofar, representatives of the state that possibly violates European law. But if a law contested under EU law establishes legal claims only between private persons, the state aid prohibition under EU law cannot take direct legal effect between private persons, as a rule, since EU law is effective between states. In exceptional situations, in turn, EU law allows private persons to make direct claims based on EU primary law provided that certain prerequisites are met; but this is not the case with Article 108 (3) TFEU. Consequently, also under EU law, the network operators’ claims for payment of the full EEG levy are neither necessary nor admissible.

What‘s next?

It remains to be seen whether and when the Federal Government will manage to reach an agreement with the EU Commission and with what result. The negotiations and their result will also be influenced by the scope and quality of resistance of the affected cogeneration power plant operators. After all, the relief from the EEG levy is also a question of liquidity, even when assuming the best-case scenario where the current legislation is approved in terms of EU law. Therefore, the affected cogeneration power plant operators and their associations should –in addition to political activities (such as the initiative of the Bundesrat)– also seek legal protection against the rejection of relief from the EEG levy, which for the first time happened in January 2018. Often, also distribution network operators serving a dual function as operators of cogeneration power plants and distribution network operators are affected by measures of transmission system operators. Finally, also network operators have an interest in the question of the EEG levy being clarified quickly and in a legally secure manner before enormous costs for legal disputes are incurred in many individual proceedings. In this respect, also proceedings before the Clearingstelle EEG/KWKG could bring a quick clarification of the legal situation for the industry.

On 01/01/2018, the approval under EU law expired which had been given for the partial exemption from payment of the EEG levy granted for self-supplied electricity generated in cogeneration power plants that were first put into (permanent) operation after 01/08/2014. Therefore, since 01/01/2018 some network operators have claimed the full EEG levy amount for self-supplied electricity generated in these cogeneration power plants.

Appellate resolution of the Bundesrat

Therefore, at the request of the Federal States of Thuringia and Rhineland-Palatinate, the Bundesrat intends to request the Federal Government to continue negotiations with the EU Commission so that legal certainty is established that proportionate relief from the EEG levy (BR-DrS [printed matter] 23/18 dated 24/01/2018 / Resolution on assigning the matter to a committee dated 02/02/2018) will continue to be ensured.

This resolution of the Bundesrat is of appellate nature only – in order for operators of cogeneration power plants to effectively enjoy relief a legislative initiative or, at least, a clarifying demand or a legal opinion issued by, e.g., the Bundesnetzagentur (BNA) [German Federal Network Agency] or the Federal Ministry of Economic Affairs and Energy (BMWi) and addressed to the network operators would be necessary.

The Bundesrat invokes the principles of protection of legitimate expectation, but does not comment on the legal classification of the activities.

Therefore, in our opinion, the EEG levy payments charged since 01/01/2018 are contrary to the EEG, unconstitutional and against European law.

Charge of the EEG levy is contrary to the EEG

This is because § 61b no. 2 EEG 2017 is the applicable law and reduces the EEG levy for self-supplied electricity generated in high-efficiency cogeneration power plants to 40%. Unlike with other incentive-related regulations in the EEG or KWKG, the proportionate 60% relief from the EEG levy is not subject to any legal requirement for obtaining a prior positive decision of the EU Commission. Thus, network operators who, despite of this, require payment of the full amount of the EEG levy or use it as the basis for their partial billings act contrary to the applicable law. Demanding the full EEG levy after 01/01/2018 or adjusting the scope of the relief from the EEG levy would only be admissible after the applicable law was amended by way of amending
§ 61b EEG 2017.

Constitutionally guaranteed protection of existing power plants for EEG 2017 power plant operators

But such a law amendment would be unconstitutional.

This is because also the original version of the EEG (§ 61 (1) EEG 2014) did not provide for the requirement of obtaining a prior positive decision on the EU level. § 98 (3) EEG 2014 only stipulated that the provisions of § 61 (3) and (4) EEG 2014 regulating the situation of existing power plants should be revised by the Federal Government by 2017, including an ”up-to-date” proposal concerning a new structure. But the currently affected cogeneration power plants do not have the status of existing power plants under § 61 (3) and (4) EEG 2014 but are new cogeneration power plants, according to the legislative situation at that time. As a result, based on this legislation, these power plant operators have developed the legitimate expectation that the proportionate relief from the EEG levy will be maintained on a permanent basis. Even

f one was inclined to ascribe to the EU Commission‘s temporary approval under state aid law, which was published in the English language only, an effect that would reduce the legitimation of the expectations, such effect would refer only to the EEG 2014. But the fact that the EEG 2017 amendment did not eliminate the doubts of the European Commission regarding compliance with state aid law was not made publicly known and was not foreseeable to power plant operators. And since the EEG 2017 is lacking any indication as to § 61 b EEG 2017 requiring approval in terms of state aid law the legislator has once again intensified the legitimate expectation which had already existed anyway. Therefore, the non-application or abolition of the relevant subsequent regulation of § 61b no 2 EEG 2017 violates the constitutional principle of protection of legitimate expectation laid down in Article 14 GG [Constitution of the Federal Republic of Germany]. In particular amendments to the law that have retroactive effect on investment decisions but also legal amendments that have ”false or artificial retroactive effect” are admissible under constitutional law only if they comply with very strict requirements.

Protection of fundamental rights according to European law

Even if a legal norm concerning incentives was possibly contrary to European law, this will not change anything. Here, the constitutional principles of protection of legitimate expectation (Article 14 GG) and the primacy of law (Article 20 (3) GG) have priority over the obligation to develop the European Union (Article 23(1) GG) and the international legal obligations of the state arising from the Treaty on the Functioning of the European Union (TFEU). Here, Article 6 (3) of the Treaty on the Functioning of the European Union (TFEU) gives priority to the protection of fundamental rights (under national law).

EU state aid law takes no direct effect between private persons

Admittedly, after an EU state aid law procedure is initiated, authorities may not put into effect any proposed law that is being reviewed (Article 108 (3) sentence 3 TFEU). In particular no permits may be issued. Existing permits, however, initially remain in force and may be revoked as per § 49 VwVfG [German Administrative Procedures Act] only after the legal basis is found to be invalid. In this context, e.g. the EEG provisions granting companies with high electricity costs relief from the EEG levy under the EEG 2012 (and earlier versions), which were also contested under EU law, were not suspended in the running year for which the relief had been granted. Although the EU Commission had initiated a state aid procedure already on 18/12/2013, neither the decisions granting relief for the year 2014 were revoked nor were the utility companies requested to charge the full EEG levy, and rightly so.

If an incentive is granted directly on the basis of a law it is controversial, however, whether a prohibition of implementation of that law is admissible. In any case, the prohibition of implementation is addressed to authorities only, since they exercise state authority and are, insofar, representatives of the state that possibly violates European law. But if a law contested under EU law establishes legal claims only between private persons, the state aid prohibition under EU law cannot take direct legal effect between private persons, as a rule, since EU law is effective between states. In exceptional situations, in turn, EU law allows private persons to make direct claims based on EU primary law provided that certain prerequisites are met; but this is not the case with Article 108 (3) TFEU. Consequently, also under EU law, the network operators’ claims for payment of the full EEG levy are neither necessary nor admissible.

What‘s next?

It remains to be seen whether and when the Federal Government will manage to reach an agreement with the EU Commission and with what result. The negotiations and their result will also be influenced by the scope and quality of resistance of the affected cogeneration power plant operators. After all, the relief from the EEG levy is also a question of liquidity, even when assuming the best-case scenario where the current legislation is approved in terms of EU law. Therefore, the affected cogeneration power plant operators and their associations should –in addition to political activities (such as the initiative of the Bundesrat)– also seek legal protection against the rejection of relief from the EEG levy, which for the first time happened in January 2018. Often, also distribution network operators serving a dual function as operators of cogeneration power plants and distribution network operators are affected by measures of transmission system operators. Finally, also network operators have an interest in the question of the EEG levy being clarified quickly and in a legally secure manner before enormous costs for legal disputes are incurred in many individual proceedings. In this respect, also proceedings before the Clearingstelle EEG/KWKG could bring a quick clarification of the legal situation for the industry.