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“Start of works” as subsidy cesura?

The subsidies under the Renewable Energy Expansion Act (EAG) have finally started. All began with the Investment Subsidies-Ordinance-Electricity (the second funding call is approaching!), and in June the EAG-Market Premiums-Ordinance was also sent for review. This gives the energy transition a boost, which is most welcome in times of surging energy prices.

Problems may arise when combining different subsidies: This applies in particular to COVID investment premiums and EAG investment grants. Even though these subsidies are compatible, taking certain measures may result in the green electricity subsidy not being granted.

“Start of works” and incentive effect

Subsidies under the EAG are not granted unconditionally. Rather, depending on the subsidy and the energy source, the law provides for certain substantive and formal requirements. One of these requirements is that the application for an investment subsidy must be submitted before the “start of works” (section 55 (2) EAG). “Start of works” is to be understood not only as the actual start of construction, but also as binding commitments to order plant components or other commitments that make the investment irreversible.

The background to this is that the subsidy must be linked to an incentive to actually carry out the investment. This “incentive effect” would be missing if the respective subsidy applicant were to carry out the green electricity project without the granting of the subsidy.

In practice, the question now arises as to whether certain activities, such as the ordering of plant components, lead to the inadmissibility of the granting of subsidies. This also against the background that for other subsidies, which can be combined, certain measures, such as orders, had to be already taken (COVID investment premium).

The answer to the question raised can be found in the current European Commission Guidelines on State Aid for Climate, Environmental Protection and Energy 2022, as well as in the recent case law of the European Court of Justice.

European Commission’s new environmental guidelines

In the guidelines – which refer to Art 108 TFEU but are relevant for interpretation – “start of works” is defined as the first commitment that makes an investment irreversible. This clarifies that “reversible” commitments, i.e. actions that can be undone, are not covered.

“Start of works means the first firm commitment (for example, to order equipment or start construction) that makes an investment irreversible.”

European Commission Guidelines on State Aid for Climate, Environmental Protection and Energy 2022

Consequently, the incentive effect of a subsidy is present if the subsidy causes the beneficiary to change their behavior and engage in additional economic activities or more environmentally friendly activities that they would not engage in without the subsidy, or only to a lesser extent or in a different way.

In the new guidelines, the Commission has also recognized that in certain cases an incentive effect can also exist if the application for funding is made after the work has started.

Current case law of the European Court of Justice

This broad approach, which the Commission is pursuing in its new guidelines on the “start of works”, is prompted and reinforced by the case law of the ECJ. In the current opinion of June 2022 (Case C-470/20, Veejaam and Espo), Advocate General Rantos pronounced – again on Art 108 TFEU – that the incentive effect can also exist if the application for funding is submitted after work has begun.

“The incentive effect condition does not prevent a producer of energy from renewable sources from applying for State aid payment after work on a project has begun.”

Advocate General Rantos, Case C-470/20, Veejaam and Espo, section 35

The European Court of Justice has previously stated – in the context of the General Block Exemption Regulation – that, with regard to the examination of whether work has already started, it is for the competent national authorities to examine in each individual case the exact nature of the commitments that a potential aid beneficiary has before submitting an application for aid (Case C-349/17, Eesti Pagar).

Conclusion: funding possible even after works have started

The current guidelines of the Commission and the case law of the ECJ show that the implementation of certain measures, e.g. the ordering of plant components, not necessarily has to constitute a subsidy cesura. Rather, the authority has to examine on a case-by-case basis whether the subsidy is associated with an incentive to carry out the green electricity project and whether the commitment entered into is actually “irreversible”.

In this context, it also does not appear impossible that a subsidy is granted after the works have begun, provided that the incentive can be proven accordingly.


This article is for general information only and does not replace legal advice. Haslinger / Nagele Rechtsanwälte GmbH assumes no liability for the content and correctness of this article.

Johannes Hartlieb from the antitrust and state aid team is happy to answer any further questions you may have on this topic.


3. August 2022

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