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Dutch Competition Authority concludes that element in Dutch “energy agreement” violates competition rules

Dutch Competition Authority concludes that element in Dutch “energy agreement” violates competition rules

Dutch Competition Authority concludes that element in Dutch “energy agreement” violates competition rules

26.09.2013 NL law

On 6 September 2013 Dutch private and (semi-)public organizations entered into the "Energy Agreement for promotion of sustainable growth".

This agreement, to which the Dutch Minister of Economic Affairs is also a party, provides arrangements regarding energy savings, clean technology and climate policy in the Netherlands. Within this context four energy companies agreed to close down 5 coal-fired power stations in the Netherlands before the end of their economic life cycle. The Dutch Consumer and Competition Authority ("ACM") was asked to provide its opinion on the compatibility of this element of the Energy Agreement with the competition rules.

Today, 26 September 2013, the ACM announced that the agreement to close down the 5 power stations is not compatible with the cartel prohibition. The ACM emphasizes that this is its provisional and informal view only. Moreover, the ACM suggests there may be room for a similar (but different) arrangement if it is less harmful to effective competition while allowing for more benefits in the area of environmental policy.

Scope

The ACM only examined the competition law aspects of the agreement between the four energy companies (GDF Suez Netherlands, E.ON, RWE/Essent and EPZ) concerning the coordinated shut-down of 5 coal-fired power stations. The ACM did not form a view on other aspects of the Energy Agreement.  

The agreement restricts competition

The ACM first established that the agreement will lead to a reduction of production capacity in the Netherlands of approximately 10%. The ACM restrict its analysis to the Dutch market because it considers that the relevant markets are not (yet) broader than national. It concludes that the significant reduction of production will result in upward pricing pressure for electricity sold on the Dutch market.

Balancing the negative effects on competition and the positive effects for the environment

The ACM then examines whether the negative effects on competition are sufficiently counterbalanced by the environmental benefits which are achieved by this measure. In this context the ACM embarks on an interesting (and unprecedented) quantification project to allow for the comparison of the positive and negative effects.  

The closure of the power stations will result in reduced emissions of carbon dioxide (CO2), sulphur dioxide (SO2), nitrogen dioxide (NOx) and particulates (PM). The ACM concludes that the improvement of the air quality as a consequence of reduced emissions of SO2, NOx and PM qualifies as benefits which can play a role in weighing the positive and negative effects of the agreements under the cartel exemption provision (the Dutch equivalent of Article 101(3) TFEU). The reduced emission of CO2 does not qualify as such since it will only lead to reduced need for CO2 emission rights, whereas those rights can then be traded with and used by third parties.

The quantification of the benefits of the reduced emission of SO2, NOx and PM is based on "shadow prices". The shadow prices are established on the basis of avoided costs for alternative reduction measures (for SO2 and NOx) and the value of the improvements in air quality for society. The ACM concludes that the total benefit of the agreement can be valued at around Euro 30 million per annum for the period 2016-2021, that is Euro 180 million in total.

The ACM estimates that the average price raise as a result of the reduced capacity will be around 0.9%. In real terms that would amount to around Euro 75 million per annum, which is Euro 450 million in total over the entire period.  

Clearly, the environmental benefits therefore do not outweigh the negative effects on competition. The ACM finds that various other potential benefits flowing from the agreement are either not the direct result of the agreement or are too uncertain to be considered as advantage of the agreement.  

Implications of the informal opinion of the ACM

The ACM emphasizes that it does not take a position on the consequences of its view set out in an informal memorandum. It is up to the parties to the agreement to determine whether the agreement is a crucial element in the broader arrangements and whether it can therefore be separated from the broader set of arrangements. As mentioned above, the ACM acknowledges that if the parties consider the agreement on capacity reduction to be intrinsically linked to the broader Energy Agreement, they can develop an alternative agreement on capacity reduction within the boundaries of competition law.

Team

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