Does EU law prohibit Member States from introducing retroactive changes to their existing support systems?
The Renewable Energy Directive, Directive 2009/28/EC, itself does not prescribe in detail how the Member States shall support renewable energy, neither does it impose any specific support system or any fixed level of support. However, the Directive does oblige the Member States to reach their binding national target.[...]
Levels of support are subject to regular revision in most Member States and there is nothing in the Directive that would speak against changing support schemes or levels of support. Rather, the Directive itself even makes it explicit that “… For the proper functioning of national support schemes it is vital that Member States can control the effect and costs of their national support schemes according to their different potentials…”.6
The European Commission encourages the Member States as well to respond to technology development and avoid overcompensation.However, any changes should be done with due care and one should not have retroactive application, so as to respect the principle of legal certainty and the protection of legitimate expectations. The potential negative effects of such reform and the European Commission’s express rejection of retroactive changes have been recently highlighted by the European Commission in their Communication “Renewable energy: a major player in the European energy market”.7
According to Article 2 of the Treaty on the European Union (TEU), the Union is founded on inter alia the rule of law. The Member States subscribe to the rule of law in their national laws as well, but the concept is not fleshed out in exactly the same way in all of them. The Court of Justice of the European Union (ECJ) has derived general principles of law from Article 2 and the value of the rule of law. Those include the principle of the protection of legitimate interests and the prohibition of retroactivity.8 The concrete scope of application and protection offered by those principles has been developed in the case law.
The principle of legal certainty and the resulting protection of legitimate expectations have been recognized by the European courts as a general and superior principle of Union law for the protection of the individual.9 They apply to the EU institutions as well as to the Member States when they are implementing EU legislation and prohibit them from introducing or applying any administrative practice, ruling or the like to events which have already taken place in the past without adequate notice so as to permit those affected to adjust their position.10 In other words, the principle of legal certainty offers protection to
“…any individual who is in a situation in which it appears that the administration’s conduct has led him to entertain reasonable expectations.”11
According to the Court of Justice, generally, a law may not be applied to facts that have occurred before the publication of the law.12 This so-called retroactivity is given if a certain transaction has been completed before the new law was published and thus the legal consequences of the law applicable at the time of the transaction are invalidated. Those situations are quite rare, and often result in an obligation to give something back or make something undone which was granted or allowed under the previous legal framework. However, even retroactive changes can be justified based on pressing Union objectives demanding this temporal dimension and where the legitimate expectations of those affected are duly respected.13 Those reasons have to be properly presented and published, and the retroactivity must be unequivocal from the wording, the rationale and the general structure of the law in question.14
More common are so-called retrospective changes. Those are brought upon by laws which take effect only from the date of publication, but still impair existing rights and obligations, for example by invalidating current contracts or impairing existing property rights. However, the transactions
are not yet completed and the changes only apply to the future. They do not invalidate the previous law and do not result in obligations to give back or make undone.
In those cases, where there is no retroactivity strictu sensu, the principle of the protection of legitimate interests comes into play. In order to see whether this principle has been respected, normally, a three-staged test can be applied:
First, one has to see whether there are legitimate expectations of individuals which come under the protection of EU law. To establish those, the test of whether a “prudent and circumspect economic operator could have foreseen them” has been referred to.15 Given that support schemes are supposed to give investment security and are normally designed to grant support for a longer period of time, often more than 15 years, one could conclude that such a legal framework could be a ground for legitimate expectations. The European legislative framework of the Directive 2009/28/EC, with the binding national targets and the corresponding National Renewable Energy Action Plans which the Member States had to submit, may support this view.
The European Commission, in its Frequently Asked Questions on the Template for National Renewable Energy Action Plans, has further taken the position that the National Renewable Energy Action Plans are meant to provide renewable energy policy stability, so that reliability and credibility are “of outstanding importance and modifications should generally be avoided”.16 Thus, no method is foreseen for them to be modified or updated except under the precise circumstances mentioned in Art. 4(4) of the Directive 2009/28/EC, when a Member States’ share of renewable energy falls below the indicative trajectory.17 However, the Commission admits in the same document that situations may arise “where adjustments may be necessary”.18 In any event, all changes have to be notified to the Commission and will be subject to evaluation and possible action by the Commission, not excluding the initiation of infringement proceedings. Accordingly, one may argue that as the National Renewable Energy Action Plans have been adopted and
evaluated by the Commission, and normally, no possibility to modify them is foreseen, their content may give rise to legitimate expectations. This may support an argument that the principle of legal certainty and the protection of legitimate expectations apply as the Member States have
to some extent limited their discretion in this regard.
However, it should also be noted that the European Court of Justice stresses in its judgments that a measure does not frustrate any legitimate expectations if it is reasonably foreseeable.19 In areas of market regulation where constant adjustments are needed, the Court has held that foreseeability of measures with even retroactive or immediate application is usually given.20 Further, “economic operators are not justified in having a legitimate expectation that an existing situation which is capable of being altered by the national authorities in the exercise of their discretionary
power will be maintained”.21
In general, the European Court of Justice refers to the national courts, in order to determine whether a prudent and circumspect economic operator could have foreseen the changes, as this decision depends on all the exact circumstances of the case. Important aspects to consider include the exact consequences of changes in legislation, their scope and justification, whether there had been indications or announcements of such changes, and the like.22 Thus, it seems hard to generalize when it comes to the question whether and in which respect support schemes for renewables give rise to legitimate expectations under EU law.
Second, one would need to see whether the newly proposed measure is less advantageous for than the previous arrangement. If it is a change for the better, or if the situation is improved, then no protection can be sought.
Third, the weighting exercise of on the one hand the producers’ legitimate expectations against on the other hand the government’s reasons for introducing the new scheme has to be performed.23 The result of this will tell whether there has been an infringement of EU law through the introduction of retrospective measures which would allow for the Commission to initiate infringement proceedings. Overall, the question of whether and which changes can be made to existing support schemes for renewable energy without infringing the principle of legal certainty and the protection of legitimate expectations depends on several different factors and the circumstances of each case need to be carefully considered, so that a general answer seems quite impossible to give.
6 Directive 2009/28/EC, Rec. 25.
7European Commission, Communication – Renewable energy: a major player in the European energy market
[COM/2012/271].
8 E.g. ECJ, Case 120/86 Mulder (1988) ECR 2321.
9 E.g. ECJ, Joined cases C-104/89 and C-37/90, J. M. Mulder and others and Otto Heinemann v Council of the European Communities and Commission of the European Communities, 1992 ECR I-03061, para 15.
10 T Tridimas, The General Principles of EU Law, 2nd edition, Oxford University Press, Oxford 2006, p. 286.
11 E.s. ECJ, Case C-289/91 Mavridis v Parliament (1983) ECR 1731 , par 21.
12 E.g. ECJ, Case 98/78, Racke (1979) ECR 69, par 15ff.
13 E.g. ECJ, Case C-459/02, (2004) ECR I-7315 par. 26ff.
