Industrial Strategy 2035: Energy as a regional differentiator and competitive factor

Electricity price relief for large industrial consumers

In addition to extending the Austrian Act on Securing Business Locations (Standortabsicherungsgesetz, SAG), which aims to subsidise indirect CO₂ costs for companies, the Government plans to introduce an industrial electricity price. This instrument is intended to enable energy-intensive businesses to benefit from a reduced electricity price of no less than EUR 0.05/kWh for half of their consumption.

The costs of the subsidy measure – around EUR 250m annually – are to be financed by an additional budget contribution from the energy industry. Details are still to be finalised; discussions are currently focusing on levies on hydropower generation ("water royalties") or increased profit skimming from renewable energy generators.

From the perspective of equal treatment, such a unilateral burden on individual production segments could raise constitutional concerns. It would therefore be necessary to determine in more detail whether and to what extent imposing water royalties on hydropower plant operators and the associated disadvantage compared to other, in particular conventional, generators would be objectively justified. There is also the question of whether financing of the industrial electricity price by (individual) generators may require them to make a potentially unconstitutional special sacrifice to relieve the burden on other sectors or the federal budget. Finally, it would be necessary to examine more closely the relationship between the energy crisis contribution for electricity and the financing of industrial electricity prices. In the interests of equal treatment, double taxation of the same taxable item by two similar levies is generally not permitted.

It is clear that the industrial electricity price constitutes State aid within the meaning of art 107 para 1 TFEU. State aid must be notified to the European Commission (the "Commission") before it is granted and, as a rule, requires the Commission's approval. In the approval process, the Commission will presumably apply the new Clean Industrial Deal State Aid Framework ("CISAF"). This declares temporary electricity price relief for industrial companies to be permissible in principle but makes the relevant approval subject to certain conditions. Accordingly, beneficiary companies must make investments that contribute to decarbonisation and lead to a reduction in the costs of the energy system in the medium term. These include investments in energy efficiency measures, the construction of electrolysis plants and the electrification of industrial processes.

Electricity price subsidies may be limited to sectors of the economy that are particularly affected by high electricity costs. Cumulation with other aid is permitted up to the applicable maximum aid amounts.

A catalyst for the hydrogen ramp-up

The increased use of hydrogen in industry is to be achieved through regulatory simplification. To this end, the Government is advocating at European level for a relaxation of the strict criteria for renewable or low-carbon hydrogen.

The transport networks required for the ramp-up of hydrogen are to be created both by repurposing central long-distance pipelines (including WAG, Penta-West, SOL, TAG) and by the targeted construction of new transport pipelines. The initial hydrogen network is to be completed by 2035 at the latest, although the industrial strategy does not make any specific statements regarding financing. However, the Federal Ministry of Economy, Energy and Tourism (BMWET) has been working on a possible financing model for some time and is evaluating various options. The initial cost difference between the approved costs and the (non-cost-covering) ramp-up charges could be offset for hydrogen network operators by loans from private and public banks, for example. The provision of funds and the collection of proceeds from the ramp-up charges could be handled via a hydrogen ramp-up account that is secured by a State guarantee and settled after a specified period of time. A comparable intertemporal cost allocation mechanism has already been adopted in Germany and approved under State aid law. However, simply copying the German model would not be advisable, especially since the German model does not sufficiently limit the investment risk for infrastructure operators, making the implementation of the model questionable.   

The industrial strategy calls for the key provisions for the hydrogen sector from the Gas and Hydrogen Directive – in particular on unbundling and network access – to be implemented in a "hydrogen package in the Austrian Gas Act (Gaswirtschaftsgesetz, GWG)". In addition, the possibilities for constructing new hydrogen-compatible gas-fired power plants and retrofitting existing gas-fired power plants for the use of hydrogen are to be examined as part of a power plant strategy.

Carbon capture and storage (CCS)

Of particular importance for emission-intensive industries is the Government's announcement that it intends to lift the ban on geological storage of CO₂ enshrined in the Austrian Federal Act on the Prohibition of Geological Storage of Carbon Dioxide (Bundesgesetz über das Verbot der geologischen Speicherung von Kohlenstoffdioxid). This should enable the use of CCS as an important technology for so-called hard-to-abate sectors.

The Government's plan to advocate at European level for an extension of the free allocation of emission allowances beyond 2034 is also of great relevance to large industrial emitters.

Reducing the burden of network costs

The Government anticipates that State guarantees, mezzanine capital, a reduction in the equity ratio and an extension of the depreciation period for network infrastructure projects should enable more favourable equity and debt financing for network operators in future. Budget-friendly funding instruments such as guarantees, indemnities and subordinated loans are to be used more widely in the public funding framework going forward. The increased use of public-private partnership models for network projects is also being examined.

The planned reduction in the regulatory return on equity for infrastructure assets should be viewed critically, especially since a decline in network returns tends to be counterproductive in view of the necessary infrastructure expansion and is also questionable from the perspective of European Union and constitutional law. In any case, an adequate return on investment must be ensured. Furthermore, although subsidies and government guarantees can make it much easier to finance infrastructure projects, they generally lead to a reduction in regulated fixed assets and can therefore impair the economic attractiveness of infrastructure assets in the long term.

At European level, the Government intends to advocate for a reduction in redispatch and congestion costs. Specifically, the aim is to obtain a temporary exemption from the 70% capacity rule. This is provided for in Regulation (EU) 2019/943 (Internal Market for Electricity Regulation) and obliges transmission system operators to make at least 70% of their transmission capacity at the borders available to market participants for cross-zonal electricity trading. This requirement currently poses significant operational challenges for transmission system operators.

Increased expansion of renewable energies

In order to meet the growing demand for electricity resulting from digitalisation and increasing electrification, the Government wants to further boost the generation of renewable electricity. Against this backdrop, the imminent entry into force of the Austrian Renewable Energy Expansion Acceleration Act (Erneuerbaren-Ausbau-Beschleunigungs-Gesetz, EABG) has been announced. In addition, an analysis of the potential for hydropower and pumped-storage capacity is intended to tap into additional generation potential in Austria's rivers. There are also plans to assess the revitalisation potential of existing hydroelectric power plants.

To support the decarbonisation of the heating sector, the Government intends – as announced some time ago – to amend the Austrian Mineral Resources Act (Mineralrohstoffgesetz, MinroG) to enable the use of geothermal energy. Planned provisions include rules on rights of disposal, on the use of third-party land at great depths without affecting the near-surface region and on processing of the carrier medium. Amendments to the Austrian Water Rights Act (Wasserrechtsgesetz, WRG) are also planned, including provisions on using the thermal content of deep groundwater and on the obligation to tolerate drilling and the conveyance of water at great depths.

authors: Bernd Rajal, Patrick Barabas, Maximilian Klein, Michael Raab