Commission approves €750 million Estonian strategic reserve to support security of electricity supply

The European Commission has approved, under EU State aid rules, an Estonian €750 million strategic reserve to safeguard security of electricity supply in emergency situations. A strategic reserve is a type of capacity mechanism that remunerates resources that are held outside the market and used in cases of emergency, when the electricity demand exceeds the available supply. In Estonia, this occurs during periods of low wind and solar power generation while consumption is at its peak.

The strategic reserve, which will be in place until 2035, will be open to all projects that can contribute to achieving the security of supply objective, including electricity generation, demand-side response and storage. Electricity generation and storage units will offer their availability to start supplying electricity. Demand-response units (typically large electricity consumers) will offer their availability to reduce electricity consumption at peak times. To be eligible under the strategic reserve, projects will need to comply with the CO2 emission limits set out in the EU Electricity Regulation.

The projects that will benefit from the aid will be selected through a transparent, non-discriminatory bidding process, with safeguards to ensure effective competition. Beneficiaries will compete based on the amount of aid requested per MW of capacity available during a scarcity event.

The Commission’s assessment
The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union (‘TFEU’), which enables Member States to support the development of certain economic activities subject to certain conditions, and the Guidelines on State aid for climate, environmental protection and energy 2022 (CEEAG).

The Commission found that:
Estonia demonstrated that the measure is necessary and appropriate, in line with the Electricity Regulation.The measure has an incentive effect, as the beneficiaries would not keep operating existing power units or invest in additional units to the same extent without the public support.

The aid has a limited impact on competition and trade within the EU. It is proportionate, as the level of the aid corresponds to the effective financing needs. Safeguards limiting the aid to the minimum will be in place, including a competitive bidding process for the aid award and a verification of the funding gap for applicants which are deemed to have market power. Finally, distortions of energy markets are minimised, as the capacity funded is held outside of the electricity markets.

The measure brings about positive effects that outweigh any potential distortion of competition and trade in the EU. The aid complies with the relevant provisions on capacity mechanisms and strategic reserves included in the Electricity Regulation. On this basis, the Commission approved the Estonian measure under EU State aid rules.

Source: European Commission