Limitation of State Aid Review for Levy-Financed Support Mechanisms

In the case concerning the German Combined Heat and Power Act (KWKG), the European Court of Justice ruled that the levy system provided for therein — and thus mandated and regulated by law — does not involve “state resources” and consequently does not constitute “state aid”. The decisive factor for determining the presence of “state resources” thus remains whether the state can actually dispose of the resources or whether they are subject to constant state control. Since the ECJ did not find this to be the case here, it dismissed the European Commission’s appeal against the General Court’s 2024 judgment, in which the latter had annulled the relevant Commission’s decision following an action brought by Germany (Case T-409/21): That judgment followed the Commission’s decision to approve the German CHP reform and changes to the scheme, while at the same time classifying them as state aid (SA.56826 [2020/N] and SA.53308 [2019/N]). Germany has now successfully challenged this classification before the ECJ as well.

The judgment thus limits the Commission’s practice regarding pass-through, compensation, and pass-on mechanisms and thereby confirms the line of reasoning established in the PreussenElektra judgment (Case C-379/98) and continued thereafter: Private funds do not become state funds merely because the legislature prescribes payment obligations or cash flows between market participants.

This case law is particularly relevant for regulated sectors such as energy, telecommunications, and infrastructure: For a measure to be classified as “state aid” within the meaning of Article 107(1) TFEU regarding the element of “state resources,” a mere reference to a statutory financing system is therefore insufficient. Rather, the state character of the funds can — under Article 107(1) TFEU — be established in only two ways: either through a mandatory levy on end consumers or end customers, or through state control over the financing system, in particular over the funds or their administrators.

With the judgment now published, the ECJ thus grants EU Member States greater leeway in the future to structure support mechanisms through private payment and settlement relationships without these automatically falling under Article 107(1) TFEU. However, the specific structure remains decisive: the more state authorities collect, manage, or direct funds, the more likely EU state aid law will apply.