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Challenging an EU State Aid Approval: Update on UK and Pending Irish Cases

AUTHORs: Kate McKenna Services: Brexit DATE: 05/01/2019

A successful court challenge of an EU Commission State aid approval decision addressed to the UK has caused the suspension of the UK electricity market’s capacity mechanism.

In this article, we examine what outcome this could mean for (i) the similar pending court challenge of the EU Commission State aid approval of Ireland’s capacity mechanism, and (ii) clients adversely affected by any State aid measure approved by the EU Commission who are considering their legal options.

In November 2018, the General Court of the European Union found that the EU Commission had breached procedural fairness rules in approving the UK electricity market’s capacity mechanism under State aid law rules because it had failed to consider fully a complaint it had received and in particular it had failed to initiate a ‘formal investigation’ on foot of it.  This successful challenge was taken by the complainant, an energy provider who had expressed concerns to the EU Commission about discrimination against clean energy products.  The Court’s decision has resulted in the suspension of the operation of the UK electricity market’s capacity mechanism.

In 2019, we will await updates on the progress of a similar pending court challenge against the EU Commission’s approval of Ireland’s capacity mechanism.  Like the UK challenge, this claimant alleges that the EU Commission decision should be annulled on the basis that the EU Commission unlawfully failed to open a ‘formal investigation’.  We expect that the Commission and Ireland will strongly defend this ‘lookalike’ challenge and seek to differentiate the EU Commission’s State aid review of the Irish capacity mechanism from the equivalent UK review, noting that former seems to have involved a longer engagement with the Member State and took place at a later date when the EU Commission had a greater body of relevant experience and legal sources to draw upon.

Challenges of EU Commission State aid approval decisions are rare and indeed the Irish challenge appears to be the first of its kind.  Where successful, these challenges can have a huge impact (as shown by the current suspension of the UK capacity mechanism) and it will be interesting to see whether the recent cases will lead to greater awareness and uptake of this challenge strategy by parties aggrieved by EU Commission State aid approvals.

This article was co-authored EU, Competition and Regulatory associate, Áine Mariga.