Concerned that Lithuanian support for Lietuvos Energija may have unduly favoured the company and distorted competition in the EU market, the European Commission opened an in-depth investigation to see the government’s decision to provide strategic reserve services to the state-owned incumbent breaches EU state aid rules.

The Commission said that the investigation concerns an electricity strategic reserve measure, which was in place in Lithuania until 2018. Strategic reserves generally keep certain generation capacities outside the electricity market for operation only in emergencies. They can be necessary to ensure the security of electricity supply when electricity markets are undergoing transitions and reforms, and are meant to guard against the risk of supply interruptions during such transitions, the Commission explained.

From 2013 to 2018 (when the scheme was discontinued), the Lithuanian Power Plant (LPP), owned by AB Lietuvos Energija, Lithuania’s state-owned incumbent, was selected by the Lithuanian government to provide strategic reserve services with the intention of increasing security of electricity supply in Lithuania. LPP was paid for the provision of these services.

In 2016, the Commission received a formal complaint alleging that the measure was incompatible with EU State aid rules. The Commission said the EC has reached the preliminary conclusion that the measure constituted State aid. The Commission will now assess the aid to ensure it did not unduly distort competition within the EU’s Single Market.

In order for the Commission to approve a capacity measure under EU state aid rules, the Member State must demonstrate the need for the measure, ensure that it is fit for purpose and open to all capacity providers.

At this stage, the Commission noted that it is concerned that the measure may not have been in line with EU State aid rules. The Commission’s in-depth investigation will examine in particular whether: The strategic reserve was necessary to ensure the security of electricity supply for the period 2015-2018, when Lithuania became significantly more interconnected   with neighbouring countries; It was appropriate and proportionate for Lithuania to assign the service directly and exclusively to LPP, without considering other potential capacity providers such as other power plants, storage or demand response; The design of the strategic reserve distorted the formation of market prices and undermined investment by other market operators that could have contributed to the security of supply.

The Commission said it would investigate further to determine whether its initial concerns are confirmed. The opening of an in-depth investigation gives Lithuania and interested third parties an opportunity to submit comments, the Commission said, explaining that it does not prejudge the outcome of the investigation.