EU rules Bulgaria's new support scheme for renewables unlawful

In late July, the European Commission's Director-General for Competition issued a ruling confirming that Bulgaria did not comply with the "stand-still" obligation under Article 3 of Procedural Regulation 2015/1589, regarding amendments made to the Bulgarian Energy Act in May 2018.

These amendments introduced an entirely new scheme for supporting producers of renewable energy with total installed capacity of 4MW and over, and made changes to the support scheme for producers with capacity under 4MW. Specifically, the amendments cancelled the Feed-In Tariff and the Power Purchase Agreements for producers and introduced quazi-CfD Feed-in Premium Agreements with the Fund Security of Electricity System. 

However, Bulgaria failed to notify the European Commission (EC) in advance regarding the allocation of state aid under the new scheme. As a result, when the Energy Act was adopted, the Bulgarian parliament instructed the Minister of Energy to make this notification following the amendments' entry into force.

On 6 July 2018, the EC received two notifications from Bulgaria, and responded on 26 July 2018.

Because of this late notification, the EC's DG Competition ruled that Bulgaria had not complied with procedure given that parliament had already passed the amendments to the Energy Act without inserting a clause specifying that the aid-granting body can only grant aid after the EC has cleared it.

Subsequently, the EC considers the aid to be unlawful or, to be more specific, non-notified. This reportedly represents a breach of Article 108, paragraph 3 of the Treaty on the Functioning of the European Union where: “The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the internal market having regard to Article 107, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision”.

It should be noted that the Bulgarian State Aid Act considers state aid to be unlawful if granted in breach of the above provisions of the Treaty.

Since the EC declared that the lack of timely notification and the lack of a stand-still clause for granting aid as provided for in the amended Energy Act both constitute breaches, the Commission has transferred the file for notification to the Register with Non-Notified Measures.

In the wake of the EC's decision, the Ministry of Energy has suggested to the Bulgarian Parliament that the measure not be put into effect until the matter is resolved in accordance with the Treaty. It remains to be seen whether Bulgarian lawmakers will introduce a stand-still clause regarding the new support scheme. 

For more information on the EC decision and its implications on the Bulgarian renewable energy sector, please contact: Kostadin Sirleshtov, Elena Yotova-Yordanova and Borislava Piperkova.