State aid: Commission approves EUR40 million German support for on-shore LNG terminal in Brunsbüttel

The European Commission has approved, under EU State aid rules, a €40 million German support measure for the construction and operation of a new land-based liquefied natural gas (‘LNG’) terminal in Brunsbüttel. The measure will contribute to the security and diversification of energy supplies in Germany and help end dependence on Russian fossil fuels in line with the REPowerEU Plan.

The German measure

Germany notified the Commission of its plans to support the construction and operation of a new LNG terminal located in Brunsbüttel, with an annual capacity of 10 billion cubic meters. The terminal comprises import, storage and distribution facilities, and it is planned to start operating by the end of 2026.

The beneficiaries of the measure are the German energy operator RWE and the Dutch energy network operator Gasunie. The company German LNG Terminal GmbH (‘GLNG’) will build and operate the LNG terminal. GLNG will have three shareholders: (i) the German government through the investment and development bank KfW with a 50% stake; (ii) Gasunie with a 40% stake; and (iii) RWE with a 10% stake.

Under the measure, the aid will take the form of a preferential dividend distribution mechanism: KfW will give to its co-investors a share of the dividends paid by GLNG if the project’s annual return is below a fixed percentage of the total capital invested by all shareholders, including KfW. If the annual return is above a fixed percentage of the total invested capital, KfW will not share the dividends and thus no aid will be paid under the measure. The amount of aid disbursed under the measure will depend on the annual returns but is expected to amount to €40 million. KfW plans to exit the project after 15 years of operation of the LNG terminal, when the preferential dividend distribution mechanism will stop.

The LNG terminal will be constructed taking into account the technical specifications necessary to allow its conversion into a terminal for the import of renewable energy carriers (e.g. renewable hydrogen or renewable hydrogen derivates), thereby avoid a lock-in of gas. The terminal will be converted after 15 years of operation, at the latest by 2043.

The terminal will benefit from a partial exemption from Third Party Access and from Tariff Regulation, already approved by the German regulatory authority (‘Bundesnetzagentur’) and which the European Commission has found in line with internal market rules.

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, which enables Member States to support the development of certain economic activities subject to certain conditions, and the 2022 Guidelines on State aid for climate, environmental protection and energy (‘CEEAG’).

The Commission found that:

• The measure facilitates the development of an economic activity, in particular the import of gas. At the same time, it supports the objectives of key EU policy initiatives such as the European Green Deal and the REPowerEU Plan.
• The measure is necessary and appropriate to improve the security of gas supply of Germany and neighboring countries.
• The aid has an ‘incentive effect’, as the private investors would not have supported GLNG in carrying out the project without the public support.
• The measure is proportional, as the expected aid resulting from the preferential dividend distribution mechanism is below the expected funding gap. Moreover, there are safeguards against overcompensation. If the project turns out to generate higher value than projected, the beneficiaries will return part of the aid received to KfW when it exits the project (‘claw-back mechanism’).
• The positive effects of the measure on security of gas supply outweigh the negative effects on competition. In particular, the exemption from Third Party Access is limited and the measure does not result in a lock-in effect of natural gas. It contributes to the EU’s 2030 and 2050 climate targets, by helping to replace Russian gas and by having the conditions in place for the conversion of the terminal for the trade of green energy carriers.

On this basis, the Commission approved the German measure under EU State aid rules.

Background

The Commission’s 2022 CEEAG allow Member States to support investments in Energy infrastructure, subject to certain conditions. These rules aim to help Member States meet the EU’s ambitious energy and climate targets and guarantee energy security of supply at the least possible cost for taxpayers and without undue distortions of competition in the Single Market.

The guidelines, applicable as from January 2022, create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner. The rules involve an alignment with the important EU’s objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and cater for the increased importance of climate protection. They include sections on aid for reduction of greenhouse gas emissions including through support for renewable energy, energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, as well as measures to ensure security of energy supply, subject to certain conditions.

The REPowerEU Communication of March 2022 acknowledged that Russia’s unprovoked and unjustified military aggression against Ukraine has massively disrupted the world’s energy system. It has caused hardship as a result of high energy prices and it has heightened energy security concerns, bringing to the fore the EU’s over-dependence on gas, oil and coal imports from Russia. In March 2022, EU leaders agreed in the European Council to phase out Europe’s dependency on Russian energy imports as soon as possible. Building on the Fit for 55 package of proposals and completing the actions on energy security of supply and storage, the REPowerEU plan put forward an additional set of actions save energy, diversify supplies, quickly substitute fossil fuels by accelerating Europe’s clean energy transition and to smartly combine investments and reforms.

The non-confidential version of the decisions will be made available under the case number SA.102163 in the State aid register on the Commission’s Competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.