EU approves electricity subsidies for energy-intensive industry under new state aid framework

The European Commission will on Wednesday publish a rewritten rulebook that effectively blesses national subsidies for industrial electricity consumption, marking a decisive shift in the EU's approach to state aid. Teresa Ribera, the commissioner for competition, will present the Clean Industrial Deal State Aid Framework (CISAF), a document that contains a dedicated clause on "temporary electricity price relief" mechanisms. Under the new rules, governments may cover up to half of the yearly average wholesale electricity price for energy-intensive companies, provided the supported price does not fall below €50 per megawatt hour.

The move validates Berlin's strategy. Only a month ago, German plans to foot part of the electricity bill for its most power-hungry firms were dismissed in Brussels as incompatible with Article 107 of the Treaty on the Functioning of the European Union, which prohibits state aid that distorts competition in the single market. Now the same mechanism is written into the framework as an explicit exemption. A lobbyist for energy-intensive industries, speaking on condition of anonymity, put the political calculus bluntly: "If Germany sinks, we all go with them." The comment reflects a wider recognition that the bloc's largest economy cannot decarbonise its industrial base without public support for power costs.

How the framework works

CISAF is the latest in a series of state aid frameworks the Commission has built over the years to carve out exemptions from the treaty's general ban. Each framework sets out the conditions under which national governments may channel public money towards objectives the Union deems legitimate, previously rescue and restructuring, regional development, or pandemic recovery. CISAF targets clean technology and decarbonisation. Its electricity price relief clause applies not only to Germany but also to Italy, Austria and other member states that still rely heavily on fossil-fuel generation and face higher wholesale prices than France or the Nordic countries.

The relief is capped at 50% of the yearly average wholesale price and cannot push the effective price below €50/MWh. That floor matters: it prevents governments from driving prices so low that they undermine investment in renewable generation or energy efficiency. In addition, a conditionality clause requires recipients to reinvest at least half of the aid amount in decarbonisation projects, new electrolyser capacity, carbon capture, process electrification or similar. The Commission says the combination of a cap, a floor and a reinvestment obligation keeps the measure targeted and proportionate.

France and the nuclear dimension

Paris lobbied hard for changes between the March draft and the version finalised last week. The revised text inserts multiple references to the Net-Zero Industry Act, a regulation that entered into force in 2024 and lists nuclear among the strategic technologies eligible for accelerated permitting and funding. Christophe Grudler, a French MEP sitting with the Renew group, told reporters the updated framework covers a broad range of nuclear technologies, calling it "good news for the whole value chain." He added that he had sent several prompts to Ribera flagging inconsistencies in the first draft. "It was absurd that the [initial] draft covered natural gas, which is imported and polluting, and not nuclear, which is clean and made in Europe," he said.

The inclusion of nuclear is more than symbolic. France's state-owned EDF and a cluster of smaller reactor developers are preparing multi-billion-euro investment programmes for new-build EPR2 units and small modular reactors. Under previous frameworks, notifying and defending such aid cases took years. CISAF's explicit cross-reference to the Net-Zero Industry Act is intended to shorten that process by signalling that nuclear projects satisfy the "incentive effect" test, the requirement that aid changes a company's behaviour in a way that would not happen without it.

State aid as industrial policy

The framework's emergence reflects a deeper shift. Since the financial crisis, the EU has lacked a central fiscal capacity for industrial policy. The Recovery and Resilience Facility provided temporary firepower, but its loans and grants are largely committed. In that vacuum, state aid frameworks have become the default instrument. Lena Hornkohl, a professor of law at Vienna University, observed that "there are no real instruments outside of state aid" for the Union to carry out its industrial policy. The Commission can expand its policy objectives virtually indefinitely, provided each new framework serves the Union's interest, a formulation that leaves considerable discretion to the competition directorate.

That discretion is not unlimited. The General Court and the Court of Justice have repeatedly struck down aid measures that lacked a genuine incentive effect, exceeded the minimum necessary, or conferred an undue advantage on a selected beneficiary. CISAF attempts to pre-empt such rulings by embedding safeguards: spending caps per member state, transparency requirements, and the proportionality and necessity tests that apply to all state aid. Katarzyna Berestecka, an antitrust lawyer at Norton Rose Fulbright, noted that the framework "still maintains key safeguards that apply to all state aid measures, such as the need for an incentive effect and ensuring that support is proportionate and necessary."

The conditionality trade-off

The 50% reinvestment requirement on electricity relief is the most concrete of those safeguards. It forces a direct link between short-term competitiveness support and long-term decarbonisation. A steelmaker receiving €100 million in power-price aid must commit €50 million to hydrogen-based direct reduction, carbon capture or equivalent. The Commission will verify compliance through monitoring reports and can claw back aid if targets are missed. Industry groups from ten countries, including Germany, Italy and Austria, wrote to the Commission on 19 June arguing that CISAF does not go far enough. They want higher relief percentages, lower floors, and lighter reporting burdens. The letter signals that the negotiation between capitals and Brussels is far from over.

Legal risk and the first big cases

The real test comes when the first large notifications land on case handlers' desks. Adina Claici, an economist at Berkeley Research Group and a former official in the competition directorate's chief economist team, warned that the stakes are high. "There is a risk for the Commission of losing court appeals [from rivals that did not receive state aid] after its decision," she said. Competitors excluded from aid, a rival aluminium smelter in Spain, a fertiliser producer in the Netherlands, have standing to challenge the Commission's approval decisions before the General Court. If the Court finds that the aid was not the minimum necessary, or that the incentive effect is missing, the entire measure can be annulled and recovery ordered.

That risk shapes how the Commission will handle the first wave. Officials are likely to apply the proportionality test rigorously, demanding granular data on each plant's electricity consumption, carbon intensity and investment plan. The €50/MWh floor provides a clear benchmark, but the definition of "yearly average wholesale price" leaves room for interpretation, day-ahead, month-ahead, or a blend of forward curves. The Commission's guidance on that point will determine whether the relief is worth €10/MWh or €30/MWh for a typical German chemicals plant.

What happens next

The framework enters into force on publication in the Official Journal, expected in early July. Member states can then notify individual schemes, Germany's electricity price compensation act, France's nuclear loan guarantees, Italy's gas-to-hydrogen conversion grants, for accelerated approval. The Commission has indicated it aims to clear straightforward notifications within three months. The first decisions will reveal how strictly the conditionality and proportionality tests are applied. A key date is 30 September, when the current Temporary Crisis and Transition Framework expires; CISAF is intended to replace it as the permanent legal basis for green industrial aid. If the early cases survive judicial review, the framework will become the architecture for European industrial policy well into the 2030s.