CYIL vol. 15 (2024)

CYIL 15 ȍ2024Ȏ STATE AID BY CZECHIA TO DUKOVANY II agreement would maximize profits. Given that the special purpose vehicle would be a trader, buying all electricity produced at Dukovany II and reselling it to the electricity wholesale market, the Commission could not rule out that state aid benefits could spill over to large industrial electricity consumers. Such an artificial trader would not only strengthen the already strong market position of ČEZ on the Czech market but could also prevent market signals from reaching Elektrárna Dukovany II when operating Dukovany II . Concluding its analysis of the negative condition to ascertain the compatibility of the envisaged aid for Dukovany II with the TFEU, the European Commission found that the package of three support measures designed by Czechia could create distortions on the electricity market in Czechia and the Core Region that, upon balance, could exceed the positive effects of Dukovany II . Due to these major concerns regarding the proportionality of the envisaged aid package by Czechia to Dukovany II and the potential distortion it could bring about on the electricity markets in Czechia and in the Core Region, the European Commission opened an in-depth investigation on these concerns, which lasted from March 2022 until April 2024. Indeed, it was crucial for the European Commission to understand whether the combination of all three support measures to Dukovany II was needed with the envisaged intensity and duration, especially when comparing them to past nuclear investments in the EU. It was also key for the Commission to understand whether the project could be supported with less aid or alternative aid that would be less likely to distort competition in Czechia and the Core Region. During the in-depth investigation, in which interested parties in the EU and EFTA were allowed to provide their comments, the positive effects of the development of Dukovany II were carefully weighed against its negative effects on competition and trade between EU Member States. Pursuant to this balancing exercise, the European Commission required Czechia to make several changes to its support package. These changes were aimed at ensuring that Czechia’s aid would be proportionate to Dukovany II’ s objectives and would not unduly distort the functioning of the Czech and Core Region’s electricity markets. 32 In line with past nuclear investments, the duration of the power purchase agreement was reduced from 60 to 40 years, especially given that Dukovany II would also benefit from a state loan and a safeguard mechanism on top of the power purchase agreement. Moreover, in order to guarantee that the special purpose vehicle would maximize profits, a contract for difference mechanism with a strike price, taking account of the low-interest state loan, as well as a claw-back mechanism, were introduced. Inserting a contract for difference mechanism was necessary to expose Dukovany II to market signals so that it would operate efficiently. The contract for difference set-up ensures revenue stability and avoids excess remuneration through a yearly ex-post settlement scheme. The setup implies that when the average electricity price is low, Dukovany II will receive a top-up equal to the difference between the strike price and the reference price (an ex post-yearly average of hourly market prices). By contrast, when the average electricity price is high, Dukovany II will pay back the difference between the strike price and the reference 32 This article analyses the changes on the basis of the European Commission’s press release IP/22/4244 of 30 April 2024, available at https://ec.europa.eu/commission/presscorner/detail/en/ip_24_2366.

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