The European Commission has approved, under EU State aid rules, a €2.6 billion German measure to support SHS Stahl-Holding-Saar GmbH & Co KGaA ('SHS') in partly decarbonising its steel production processes in Saarland. The measure will contribute to the achievement of the EU Hydrogen Strategy, the European Green Deal and the Green Deal Industrial Plan, while helping to end dependence on Russian fossil fuels and fast forward the green transition, in line with the REPowerEU Plan.
The German measure
Germany notified to the Commission a €2.6 billion measure to support SHS' project aimed to partially decarbonise its steel production in Völklingen and Dillingen, Saarland, where SHS operates two blast furnaces and five basic oxygen converters producing crude steel.
The aid, which will take the form of a direct grant, will support among other things the construction of a direct reduction plant and two new electric arc furnaces which will replace the existing blast furnaces and oxygen converters. Natural gas, initially used in the new direct reduction plant, will gradually be phased out of the steel production processes. Ultimately, the new installation will operate using mainly low-carbon and renewable hydrogen.
SHS intends to organise a competitive tendering process to select renewable hydrogen suppliers. The successful bidders will install electrolysers nearby SHS' facilities, thereby kickstarting the development of a renewable hydrogen value chain in the Saarland region. At a later stage, SHS expects to be connected to the German hydrogen network, which should result in the access to larger and cheaper volumes of hydrogen.
The new steel production installations are envisioned to start operating in 2026 and are expected to produce 3.05 million tonnes of crude steel per year, which will substitute an equal quantity of crude steel currently produced through the conventional and more polluting blast furnace process. Once completed, the project is expected to avoid the release of above 53 million tonnes of carbon dioxide over the project lifetime. SHS has committed to actively share the experience and technical know-how gained through the project with industry and academia.
The Commission's assessment
The Commission assessed the measure 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 Guidelines on State aid for climate, environmental protection and energy 2022 ('CEEAG').
SHS's project was selected by Germany in the context of an open call to form part of an Important Projects of Common European Interest ('IPCEI') on hydrogen technologies and systems. This call resulted in the two IPCEIs approved on 15 July 2022 ('Hy2Tech') and on 21 September 2022 ('Hy2Use'). However, given its characteristics and objectives, SHS' project was better suited for assessment under the CEEAG.
The Commission found that:
- The measure facilitates the development of an economic activity, in particular the production of steel through less carbon-intensive processes. At the same time, it supports the objectives of key EU policy initiatives such as the European Green Deal, the EU Hydrogen Strategy, the Green Deal Industrial Plan and the REPowerEU Plan.
- The aid has an 'incentive effect', as the beneficiary would not carry out the investments in green steel production without the public support.
- The measure is necessary and appropriate to promote the production of green steel. In addition, it is proportionate, as the level of the aid corresponds to the effective financing needs.
- The measure has sufficient safeguards to ensure that undue distortions of competition are limited. In particular, if the project turns out to be very successful, generating extra net revenues, the beneficiary will return to Germany part of the aid received (claw-back mechanism). Moreover, if SHS is able to procure hydrogen at a cheaper cost than initially planned, all the related cost savings will have to be paid back to Germany, insofar as they are not used by the company to increase the share of hydrogen used to operate the direct reduction plant. Furthermore, the project is subject to monitoring to verify its progress towards the objectives of CO2 emission savings, phasing out of natural gas and phasing in the renewable hydrogen. Finally, the beneficiary will disseminate the technical know-how gained through the project.
- The aid brings about positive effects that outweigh any potential distortion of competition and trade in the EU.
On this basis, the Commission approved the German measure under EU State aid rules.
Background
The 2022 CEEAG provide guidance on how the Commission will assess the compatibility of aid measures for environmental protection, including climate protection, and energy which are subject to the notification requirement under Article 107(3)(c) TFEU.
The Guidelines, applicable as from January 2022, create a flexible, fit-for-purpose enabling framework to help Member States provide the necessary support to reach the Green Deal objectives in a targeted and cost-effective manner. The rules involve an alignment with the important EU's objectives and targets set out in the European Green Deal and with other recent regulatory changes in the energy and environmental areas and cater for the increased importance of climate protection. They include sections on aid for reduction of greenhouse gas emissions including through support for renewable energy, energy efficiency measures, aid for clean mobility, infrastructure, circular economy, pollution reduction, protection and restoration of biodiversity, as well as measures to ensure security of energy supply, subject to certain conditions.
The 2022 CEEAG aim to help Member States meet the EU's ambitious energy and climate targets at the least possible cost for taxpayers and without undue distortions of competition in the Single Market.
With the European Green Deal Communication in 2019, the Commission reinforced its climate ambitions, setting an objective of net zero emissions of greenhouse gases in 2050. The European Climate Law in force since July 2021, which enshrines the 2050 climate neutrality objective and introduces the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, sets the ground for the 'Fit for 55' legislative proposals presented by the Commission on 14 July 2021. Among these proposals, the Commission has presented amendments of the Renewable Energy Directive and the Energy Efficiency Directive with more ambitious binding annual targets to increase the production of energy from renewable sources and reduce energy use at EU level.
In July 2020, the Commission published its EU Hydrogen Strategy, setting ambitious goals for clean hydrogen production and use, and launched the European Clean Hydrogen Alliance, bringing together the European hydrogen community (industry, civil society, public authorities).
In February 2023, the Commission published the Green Deal Industrial Plan to enhance the competitiveness of Europe's net-zero industry and support the fast transition to climate neutrality.
The non-confidential version of the decision will be made available under the case number SA.105337 in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.
