We need smart State Aids for smart energy systems

The turbulent geopolitical and economic context facing Europe today has exposed the strategic vulnerabilities of our energy system. The war in Ukraine, volatile fossil fuel prices, and the threats of trade protectionism have underscored the need for a more resilient, autonomous decarbonised energy infrastructure. In this setting, the incoming publication this month of the Clean Industrial Deal State Aid Framework (CISAF) is more than a technical update: it is a strategic opportunity. By enabling targeted, forward-looking public support, CISAF has the potential to unlock the flexibility needed not only to bring carbon-intensive industries on the path to climate neutrality but also strengthen European competitiveness and energy security.

In this context, energy storage sits at the core of a stable and decarbonised energy system. Without energy storage, the EU cannot meet its renewable energy targets in a cost-efficient way or reduce its dependence on fossil-based backup, often imported.

Whether in the form of batteries, pumped hydro, thermal or long-duration solutions, storage enables energy shifting but also provides multiple services across the power system, from frequency regulation to congestion relief and resilience enhancement.

It is crucial to understand that energy storage is a wide set of different technologies that contribute in distinct ways to system flexibility and resilience, depending on their characteristics such as response time, storage duration, material availability, and suitability for different applications.

According to the European Commission’s Joint Research Centre, the EU’s flexibility needs will more than double by 2030 and increase sevenfold by mid-century. With a business-as-usual scenario, the JRC says, we will curtail 310 TWh in 5 years’ time, which would come at a cost, calculated on the average MWh price of 2024, to almost €23bn. Energy storage is the backbone of that flexibility (among other options) and should accordingly receive adequate support in EU policy and legislation. CISAF provides an opportunity to ensure this, enabling today the investments for tomorrow. Its stated goal, to align State aid with the Union’s decarbonisation objectives, is fully compatible with a strong push for storage deployment. However, the current draft CISAF needs better clarity in several key areas. 

In industrial decarbonisation, storage can be the enabler of deep emissions cuts by supporting electrified processes, managing on-site renewables, and recovering waste heat. However, certain industrial end-users who want to transition might be concerned that in case of a sudden drop in gas prices, the first movers with an electrified system may find themselves in a competitive disadvantage with peer industries that have not switched to decarbonised solutions. This competition risk is not anecdotical for energy-intensive industries where heat usually represents a significant share of their production cost. It may thus appear as a major deterrent for industries that are looking to decarbonise.

The inclusion of two-way carbon contracts for difference (CCfDs), such as those already approved in Germany under the name of Climate Protection Contracts, would offer a powerful tool to mitigate these risks. CISAF should give Member States the green light to replicate such mechanisms, ensuring that first movers are protected across Europe, not penalised.

On a similar note, the draft CISAF offers enough flexibility to cumulate capacity mechanisms with other types of State aid (e.g. flexibility and capacity) but misses the opportunity to use this to further endorse system decarbonisation. It could do so, for instance, by strengthening CO₂ requirements in this specific case. Currently, the carbon cap for capacity mechanisms of 550g/Kwh. Should the European Commission conditions the cumulation of capacity mechanisms with other aids to a lower threshold, e.g. 200g/Kwh, it would bring more decarbonisation for more taxpayer money.

Equally important is the need for CISAF to support the full energy storage value chain, from R&D and manufacturing to deployment and end-of-life processing. European energy security depends not only on building clean technologies but on ensuring that they can be built in Europe. To that end, we have called on the European Commission to consider at least temporary OPEX support to counteract artificially low prices from heavily subsidised non-EU competitors, in order to ensure fair competition and stimulating EU investments.

A final point where CISAF is actually going in the right direction, is when it ensures that Member States open markets to energy storage for different services to the grid. Mistakenly, energy storage is often exclusively associated with energy shifting (e.g. storing electricity at low-demand times and discharging it later).

However, it can provide further essential services to system performance, and being able to get remunerated for these different services helps build a stronger business case for projects.

By clarifying that subsidised energy storage projects should be allowed to provide such services and access these revenue streams, CISAF rightfully pushes Member States to implement the new rules of the recent Electricity Market Design.

However, CISAF could further encourage a broader implementation of EU rules, and ensure that Member States’ requirements are compatible with internal market principles. For instance, for technologies like battery energy storage systems (BESS), where standardisation is often essential to reach economies of scale, it is essential for CISAF to clarify Member States’ standards (e.g. on safety) should not conflict with EU regulations such as the new Battery Regulation.

Overall, EASE strongly supports the European Commission’s ambition to align State aid with climate goals and foster a more competitive industry. But to meet those goals in practice, the framework must do more than acknowledge the importance of storage: it must enable it. This means clear eligibility, long-term visibility, and flexibility in support tools. The coming years will define whether Europe leads or lags in clean energy resilience. With CISAF, the Commission has the chance to send the right signal. It must not be missed.