The European Commission has approved, under EU State aid rules, a €1.3 billion French scheme to support the development of non-fossil flexibility technologies to ensure that the electricity supply matches demand during times of peak consumption. The measure contributes to the security of electricity supply and the decarbonisation of the economy, in line with the EU’s strategic objectives relating to the European Green Deal.

The French measure

France notified to the Commission its plans to complement its capacity mechanism with a scheme aimed at developing cost-efficient and non-fossil flexibility technologies. The objective is to ensure that supply and demand of electricity are kept in balance during peak times such as the winter period, which is a necessary condition for the integration of variable renewable energy sources in the system.

The scheme is open to operators of demand response and storage units, such as large industrial energy consumers, as well as small residential and tertiary services consumers. Capacities involving fossil-fuel generators are not eligible under this scheme.

Under the scheme, operators will receive a payment for being ready to (i) reduce or shift their consumption in case of demand response, or (ii) supply previously stored electricity for storage units, to meet the system’s needs.

The beneficiaries will be selected through a competitive bidding process. Aid will be granted to the operators who offer the lowest aid amount per offered capacity volume within the limits of the auctioned capacity.

The measure will run until the first quarter of 2026, when the French authorities intend to reform the existing capacity mechanism.

The Commission’s assessment

The Commission assessed the scheme 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 2022 Guidelines on State aid for climate, environmental protection and energy (CEEAG).

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The Commission found that:

• The measure supports the development of the economic activities, in particular by facilitating the development of non-fossil flexibility technologies, such as storage and demand response, in France.
• The measure is necessary and appropriate to ensure security of supply and flexibility of the electricity system, in line with the established needs.
• The aid has an incentive effect, as the beneficiaries would not keep providing existing flexibility capacities or invest in additional capacity to the same extent without the public support.
• The aid is proportionate as the level of the aid corresponds to the effective financing needs. Moreover, necessary safeguards limiting the aid to the minimum will be in place, including a competitive bidding process for awarding the aid open to different technologies.
• To further ensure that distortions of competition and trade are limited, France will perform ex post evaluation of the scheme in 2024 to assess whether and to what extent the original objectives of the scheme have been fulfilled and to determine its impact on markets and competition.
• The aid brings about positive effects, in particular on the environment in line with the European Green Deal objectives, that outweigh any possible negative effects in terms of distortions to competition.

On this basis, the Commission approved the French scheme under EU State aid rules.