Judgment;Summary — ECLI:EU:C:2022:981
Date: 2022-12-15
Language of the case: Estonian
Court formation: First Chamber
Subject matter: State aids;Competition
Procedure: Reference for a preliminary ruling
Origin: Estonia

Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged:  
29 September 2020 
Referring court or tribunal:  
Riigikohus (Estonia) 
Date of the decision to refer:  
28 September 2020 
Applicants:  
Veejaam AS 
Espo OÜ 
Defendant:  
Elering AS 
  
Subject matter of the main proceedings 
Appeal on a point of law by Veejaam AS and Espo OÜ against the judgments of 
the Tallinna Ringkonnakohus (Court of Appeal, Tallinn, Estonia) upholding the 
judgments of the Tallinna Halduskohus (Administrative Court, Tallinn, Estonia) 
dismissing the applications for annulment of the decisions of Elering AS not to 
pay the applicants any renewable energy subsidies. 
Subject matter and legal basis of the reference 
The questions referred for a preliminary ruling pursuant to Article 267(3) TFEU 
concern the interpretation of provisions of EU law on State aid, including the 
Communication from the Commission ‘Guidelines on State aid for environmental 
protection and energy 2014-2020’, paragraph 50, Article 1(c) of Regulation (EU) 
2015/1589 and Article 108(3) TFEU. 
EN 
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Questions referred for a preliminary ruling 
1. Are EU rules on State aid, including the incentive effect required under 
paragraph 50 of the Communication from the Commission ‘Guidelines on State 
aid for environmental protection and energy 2014-2020’ to be interpreted as 
meaning that an aid scheme which allows a renewable energy producer to apply 
for State aid after work has started on a project is compatible with those rules 
where domestic legislation grants every producer which fulfils the requirements 
laid down by law the right to apply for the subsidy without granting the competent 
authorities any discretion in that regard? 
2. Is the incentive effect of aid always precluded where the investment on 
which the aid application is based was made due to a change to the terms of 
environmental approval, even where, as in this case, the applicant would probably 
have ceased its activity due to the stricter terms of approval had it not received the 
State aid? 
3. In light, inter alia, of the findings of the Court in its judgment in Case 
C-590/14 P (paragraphs 49 and 50), where, in a case, such as this one, in which 
the Commission has adopted a decision on State aid finding that an existing aid 
scheme and planned changes are compatible with the internal market and the State 
has announced, inter alia, that it will only apply the existing aid scheme up to a 
particular cut-off date, the existing aid scheme based on the applicable provisions 
of law is applied beyond the cut-off date announced by the State, does it qualify as 
new aid within the meaning of Article 1(c) of Regulation (EU) 2015/1589? 
4. Where the Commission decides ex post facto not to raise any objections to 
an aid scheme applied in breach of Article 108(3) TFEU, are persons with a claim 
to operating aid entitled to apply for payment of the aid for the period prior to the 
Commission’s Decision, provided that domestic procedural rules so permit? 
5. Does an applicant which applied for operating aid under an aid scheme and 
which started to implement a project which fulfilled the criteria for compatibility 
with the internal market at a time when the aid scheme was lawfully applied, but 
applied for the State aid at time when the aid scheme had been extended without 
notifying the Commission, have a claim to State aid notwithstanding the rule 
enacted in Article 108(3) TFEU? 
Provisions of EU law and case-law of the Court of Justice cited 
Article 108(3) TFEU 
Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules 
for the application of Article 108 of the Treaty on the Functioning of the European 
Union (OJ 2015 L 248, p. 9), Article 1(c) 
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Communication from the Commission ‘Guidelines on State aid for environmental 
protection and energy 2014-2020’ (OJ 2014 C 200, p. 1), paragraphs 49 and 50 
Judgment of the Court of 26 October 2016, DEI and Commission, C-590/14 P, 
EU:C:2016:797, paragraphs 49 and 50 
Provisions of national law cited 
Elektrituruseadus (Law on the Electricity Market, ‘the ELTS’) 
Brief summary of the facts and proceedings 
Administrative case no 3-16-1864 
1 Veejaam AS (‘Veejaam’) started to produce electricity at the Joaveski 
hydroelectric power plant in 2001. Electricity was generated from 2001 to 2015 
using two generating units with output of 100 kW and 200 kW. Veejaam applied 
to Elering AS (‘Elering’) for the renewable energy subsidy provided for in 
Paragraph 59 of the ELTS for the production of electricity started in 2001. Elering 
registered the generating unit in the Joaveski hydroelectric power plant as a 
beneficiary and paid Veejaam the renewable energy subsidy up to 31 December 
2012. In 2015, Veejaam replaced the existing generating units with a new turbine 
generator with a nominal output of 200 kW. The measuring point was all that 
remained of the previous units. On 21 January 2016, Veejaam provided Elering 
with the data on the new generating unit in order to apply for the renewable 
energy subsidy. On 22 January 2016, Elering advised Veejaam that the generating 
unit had been registered as a beneficiary, but noted that same day that it had failed 
to take account in the course of registration of the fact that the applicant had 
already received a subsidy in previous years and requested clarification. 
2 In its replies of 3 February, 6 July and 24 August 2016, Elering advised that the 
renewable energy subsidy is paid for electricity produced by a new integrated 
generating unit on a generating unit basis; that the subsidy could not therefore be 
paid, as the turbine generator which had replaced the original generating unit 
could not be considered a new integrated generating unit; that a new dam had not 
been constructed; that the objective of the subsidy referred to in Paragraph 59 of 
the ELTS in the version that applied when the application was made was to 
eliminate market barriers to new electricity producers in the aim of diversifying 
electricity production; that the objective was not to subsidise electricity producers 
indefinitely; and that it would therefore be incompatible with the objective of the 
subsidy if a producer which had replaced part of a generating unit had a claim to a 
new 12-year subsidy. 
3 On 16 September 2016, Veejaam lodged an action in the Administrative Court, 
Tallinn, seeking judgment ordering Elering to pay the renewable energy subsidy 
in an amount of EUR 57 519.98. In its statement of claim, Veejaam contends that 
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the Environmental Agency granted it a new special water use permit on 
28 December 2011, requiring the normal backwater height to be guaranteed at all 
times and prohibiting the regulation of the water level needed in order to use the 
previous turbines; that it was therefore no longer possible to generate electricity 
using those generating units; that, had the terms of the permit not changed, 
Veejaam would have also continued production using the existing units and used 
the new generating unit to expand production; that, when the turbine and 
generator were replaced, new hydraulics and a new automatic control system had 
to be installed; that, to all intents and purposes therefore, Veejaam had had to re-
enter the market and the previous subsidy paid had not achieved its objective of 
compensating for the initial investment needed to start production; that, it had 
installed a new integrated generating unit, not replaced individual parts of a 
generating unit at the Joaveski hydroelectric power plant; that the term ‘generating 
unit’ is defined in Paragraph 3, points 9 and 25, of the ELTS; that a distinction has 
to be drawn between a generating unit and a power plant (Paragraph 3, point 8, of 
the ELTS); and that auxiliary equipment and structures, which are separate parts 
of the power plant, not components of the generating unit, include the dam as one 
of those structures, meaning that a dam does not need to be erected in order to 
obtain the renewable energy subsidy. 
4 Elering contested the claim. It contends that the objective of the renewable energy 
subsidy is to support new market operators and increase the proportion of 
renewable energy in the generation mix; that paying an additional subsidy would 
achieve none of the objectives; that this is unlawful State aid; that only the subsidy 
for the installation of a new generating unit as the result of the activity of a new 
producer or investor or which a producer and/or investor already participating in 
the market uses to increase the proportion of electricity generated from renewable 
sources, that is which expands production, is compatible with the objectives of the 
subsidy; that the aid must have an incentive effect, that is it must be necessary and 
limited in time; that the European Commission recognised by Decision of 
28 October 2014 in case SA.36023 (C(2014) 8106 final, ‘the 2014 Decision’) that 
the renewable energy subsidy paid under Paragraph 59 of the old version of the 
ELTS constitutes ‘State aid’ within the meaning of Article 107(1) TFEU; that it is 
therefore of material importance that the subsidy be paid in keeping with State aid 
rules and the guidelines laid down in the aforesaid Decision; that the meaning of 
the incentive effect is explained in paragraph 49 of the Guidelines on State aid for 
environmental protection and energy 2014-2020, which states that aid must not 
subsidise the costs of an activity that an undertaking would anyhow incur and 
must not compensate for the normal business risk of an economic activity; and 
that the sole purpose of the subsidy in this case would be to compensate for the 
normal business risk, so as to enable renewable energy production already started 
to continue more profitably. 
5 The Administrative Court dismissed the action by judgment of 10 October 2017. 
It gave as its reason that, as interpreted by Veejaam, the ELTS infringes EU law 
prohibiting State aid that distorts competition; that the subsidy must therefore 
support the start of production or, at the very least, the expansion of production 
VEEJAAM AND ESPO 
 
5 
(incentive effect and/or increase in the proportion of renewable energy in the 
generation mix); and that, in installing the new turbine generator, Veejaam had, 
however, neither expanded nor started production. 
6 Veejaam lodged an appeal with the Court of Appeal, Tallinn, which upheld the 
appeal in part by judgment of 27 June 2018. The Court of Appeal found that, 
based on their wording, Paragraph 108(1) and (3) of the old version of the ELTS 
are to be interpreted as meaning that the subsidy must be paid for 12 years from 
the start of production using a specific generating unit; that, although Veejaam 
had already produced electricity previously at the same site, in part using the same 
units and structures, the quantity of electricity produced had declined overall; that 
it is possible to produce larger quantities of electricity using the new units, as 
variable speed turbine technology allows the turbines to operate continuously, not 
just during higher flow rates; and that the proportion of electricity produced from 
renewable energy sources had therefore been increased, which is an objective in 
keeping with the 2008 Community Guidelines on State aid for environmental 
protection (OJ 2008 C 82, p. 1). 
7 At the same time, the Court of Appeal agreed with Elering’s argument that the 
subsidy must have an incentive effect. It found that, by its own admission, 
Veejaam had started preparations to put a variable speed turbine generator into 
operation as early as 2008 and had installed the new units in 2015; that it 
submitted the application for payment of the subsidy to the defendant on 
21 January 2016, that is after the start of work on the project and even after it had 
been completed; that these circumstances do not support the contention that 
Veejaam would not have made the investment without the subsidy; that it is to be 
assumed, in light of the size of the investment, that it would have been made even 
without payment of the subsidy; and that the subsidy did not therefore have the 
required incentive effect. 
8 The court further found that replacing part of the internal unit of a hydroelectric 
power plant had significantly less of a positive effect than replacing the entire 
internal unit of a hydroelectric power plant or erecting a new hydroelectric power 
plant; that payment of the same subsidy for replacing part of the internal unit of a 
power plant and for erecting a new power plant would constitute unjustified 
unequal treatment of electricity producers generating electricity from renewable 
energy sources; that payment of the subsidy in this case would simply have 
resulted in no reduction or a slight increase in the previous production capacity 
and, therefore, given the less than usual positive effect of the investment, 
Paragraph 108(1) and (3) of the old version of the ELTS, read in combination with 
its other provisions aimed to guarantee competition, are to be interpreted strictly 
and understood to mean that, in this case, the generating unit includes the dam and 
penstock of the hydroelectric power plant; and that the lack of incentive effect of 
the subsidy justifies that interpretation. 
9 Veejaam lodged an appeal on a point of law against that judgment in the 
Riigikohus (Supreme Court, Estonia). 
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Administrative case no 3-17-753 
10 Espo OÜ (‘Espo’) owns a hydroelectric power plant in the village of Pikru in the 
county of Viljandi (Estonia) which used a 15 kW Francis turbine between 2004 
and 2009. On 30 March 2009, a new 45 kW Kaplan turbine was put into 
operation. On 13 April 2016, Espo submitted an application to Elering under 
Paragraph 59(1), point 1, of the old version of the ELTS for payment of a 
renewable energy subsidy for the generating unit installed in 2009. Elering 
rejected the application by letter of 8 July 2016, giving as its reason that the 
turbine generator cannot generate electricity independently as it formed part of an 
existing integrated generating unit, rather than being a separate integrated 
generating unit within the meaning of Paragraph 3, point 25, and Paragraph 59(1), 
point 1, of the ELTS. It stated that Espo had received a renewable energy subsidy 
from 1 April 2004 to 31 December 2015 for the electricity generated using the 
existing generating unit, and that the 12-year period does not start anew following 
the replacement of certain parts. In response to a letter from Espo, Elering 
explained by letter of 27 July 2016 that, when a new generating unit is erected, the 
other units to create an integrated generating system must also be erected (in this 
case the dam, new power lines, etc.). 
11 Espo lodged an action in the Administrative Court, Tallinn, which the court 
dismissed by judgment of 27 October 2017 on the basis of Paragraph 59 of the old 
version of the ELTS, which states that the subsidy is State aid to support the start 
of new production. The court found on that basis that that provision targets 
generating units capable of producing electricity independently; that the fact that 
the dam is classed as a structure under building regulations does not preclude its 
forming part of the functional assembly of the generating unit, as the criterion is 
the generating capacity; that Espo’s start-up investments were covered by the 
previous subsidy paid to it; and that it should be able at the end of the period of 
support to operate independently on competitive terms. 
12 Espo lodged an appeal against that judgment with the Court of Appeal, Tallinn, 
which the court dismissed by judgment of 15 November 2018, including for the 
reasons set out below: As the granting of State aid (payment of the renewable 
energy subsidy) distorts free competition and undermines the business activity of 
operators of generating units producing electricity from other sources, the basis 
for payment of the subsidy must not be interpreted broadly and, where conflict 
arises, payment of the subsidy should not be preferred. The legislature provided 
for the renewable energy subsidy to be paid only inasmuch as it is necessary to 
start renewable energy production, not for the entire estimated lifetime of a 
generating unit. It should not be concluded that the renewable energy subsidy can 
be paid only if energy from renewable sources was not produced previously on the 
same site using a different generating unit. The objective of paying the subsidy is 
to promote environmental protection through investments to increase the 
production of electricity from renewable energy sources. The more powerful 
turbine put into operation by Espo had increased the proportion of electricity 
produced from renewable energy sources in the overall generation mix. Moreover, 
VEEJAAM AND ESPO 
 
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the subsidy must have an incentive effect, that is the beneficiary must change its 
behaviour so that the level of environmental protection is higher than it would 
have been had the aid not been granted. Aid does not have an incentive effect if 
the project was started before the aid application was submitted. 
13 In this case, Espo replaced the operational turbines in 2009, at the end of their 5-
year life, but did not apply to the defendant for payment of the renewable energy 
subsidy for the new units until 13 April 2016, after the original period of support 
had ended (on 31 December 2015) and a full 7 years after the units had been put 
into operation. That being so, it cannot be argued that Espo would not have made 
the investment in question without the subsidy, which therefore had no incentive 
effect. The fact that the earlier investment stopped being used before the end of 
the estimated period of amortisation of the units does not preclude payment of a 
new subsidy; however, if only part of the internal unit of a power plant is 
replaced, the investment has less of a positive impact than it would have had if the 
entire internal unit of the power plant had been replaced or a new hydroelectric 
power plant had been erected. Payment of the subsidy is predicated on the 
quantity of electricity produced, not the size of the investment. In order to 
guarantee competition, the cited provisions of the ELTS must therefore be 
interpreted strictly, taking account of the less than usual positive effect of the 
investment. 
14 Espo lodged an appeal on a point of law against that judgment in the Supreme 
Court, which joined administrative cases no 3-16-1864 and no 3-17-753. 
Principal arguments of the parties to the main proceedings 
15 Veejaam contends that the Court of Appeal erred in its finding that the subsidy 
paid to it did not have an incentive effect; that the European Commission has 
taken the view that Estonia’s legislation to promote renewable energy has an 
incentive effect; that, however, the legislation enacted in the ELTS does not allow 
the subsidy to be applied for before electricity production is started with a new 
generating unit; that it cannot therefore be concluded that the subsidy has no 
incentive effect if it is applied for after the generating unit has been completed; 
that Veejaam would not have made the new investment had it not been able to 
count on the subsidy provided for under the ELTS; that Veejaam submitted the 
subsidy application as soon as the unit had been completed; that it would have 
been financially unsustainable for it to continue production with the old units and 
it would have had to cease production in Joaveski and that the Court of Appeal 
erred in finding that the erection of a new power plant has a greater positive effect, 
as the subsidy scheme approved by the Commission applies on a generating unit 
basis. 
16 Espo contends first and foremost that it always assumed that it would be entitled 
to a subsidy once the new generating unit had been installed; that the fact that it 
applied for the subsidy about 3.5 months after the end of the original period of 
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support did not constitute unreasonable delay that pointed to a lack of incentive 
effect; that Espo was unable to apply for the subsidy before making the 
investment, as Paragraph 59(1), point 1, of the old version of the ELTS only 
allowed the subsidy to be applied for after the investment had been made; that the 
legitimate expectation of receiving a subsidy was the main reason for Espo’s 
investment; and that the subsidy could have an incentive effect even if the project 
was started before the aid application was submitted. 
17 The defendant requests that the appeal on a point of law be dismissed. It contends 
that Paragraph 108 of the ELTS is in keeping with the objectives of the subsidy; 
that, according to EU law, those objectives are to eliminate entry barriers to the 
renewable energy market and remedy market failure with regard to the use of 
renewable energy sources for energy production, increase the proportion of 
renewable energy sources in the generation mix and ensure the market integration 
of electricity from renewable energy sources; that the legislature’s objective is to 
support the market entry of new producers and investors and competitiveness at 
the start of production; that, according to the applicants’ interpretation, 
undertakings could artificially extend the period of support by simply replacing 
individual units; that, as State aid, the subsidy is by definition limited in time and 
intended to support activity during the start-up phase of production; that the 
subsidy is not designed to compensate for the normal business risk of an 
undertaking; and that the start of production within the meaning of 
Paragraph 108(1) of the old version of the ELTS must necessarily be understood 
to mean the putting into operation of a new generating unit as a result of the 
activity of a new producer or investor or the expansion of renewable energy 
production by an existing producer, for example by giving the power plant new 
and additional generating capacity. 
18 By letter of 20 June 2019, the Supreme Court referred the following questions to 
the European Commission for its observations: 
1. Is it consistent with EU State aid rules and Commission Decision C(2014) 
8106 final of 28 October 2014 for the ‘start of production’ of a hydroelectric 
power plant to include the putting into operation of new electricity generating 
units on an existing dam? 
2. In deciding on an application for a renewable energy subsidy made in 2016 
on the basis of a subsidy scheme introduced before 2014, can the aid be assumed 
to have an incentive effect even if the generating unit was installed and put into 
operation before the subsidy application was made? 
19 The Commission replied to the Supreme Court by letter of 3 February 2020. It 
stated that neither a positive nor a negative answer by the Estonian authorities to 
the question of whether the time at which new generating units are put into 
operation on an existing dam counts as the start of production would conflict with 
EU State aid rules; that this must be determined based on domestic rules; that, 
however, aid may not be granted for more than 12 years from the start of 
VEEJAAM AND ESPO 
 
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production; that, in order to fulfil the requirement of an incentive effect, the 
beneficiary may only start work to install and put into operation the generating 
unit for which the aid is granted after the aid application has been made; that 
anyone who has started work on a project is clearly prepared to implement the 
project even if no aid is granted; that as, in this case, the applicants had even 
finished work to install the generating units before applying for the aid, the aid 
could not have had an incentive effect; that the fact that, by its own admission, 
Veejaam had to replace the generating units to fulfil the requirements of the new 
special water use permit points to the absence of any incentive effect; and that, if 
the construction works were provided for under domestic law in any event 
(without compensation), the aid does not achieve the necessary objectives. 
Brief summary of the grounds for the reference 
20 First, the Supreme Court notes in connection with the applicants’ claim to a 
renewable energy subsidy that, under Paragraph 59(1), point 1, of the old version 
of the ELTS, producers were entitled to claim a renewable energy subsidy from 
the transmission system operator for generating units with net output of no more 
than 100 MW. According to Paragraph 108(1) of the old version of the ELTS, the 
subsidy provided for under Paragraph 59(1), points 1 to 4, can be paid for 12 years 
from the start of production. Paragraph 108(3) of the ELTS states that the start of 
production within the meaning of that paragraph means the day on which a 
generating unit that fulfils the requirements first delivers electricity to the system 
or a direct line. The Court of Appeal did not concur in either case with the 
defendant’s contention that the term ‘start of production’ in Paragraph 108(1) of 
the old version of the ELTS and the term ‘time of start of production’ in 
Paragraph 108(3) of the ELTS are two different things. The Court of Appeal 
considers that any such finding would be inconsistent with the wording of the 
provisions, which predicate the start of production on the putting into operation of 
a particular generating unit, to the exclusion of any other activity by the same 
producer or at the same site. The Court of Appeal is of the opinion that it clearly 
follows from Paragraph 108(4) to (8) of the ELTS, which entered into force on 
9 July 2018, that payment of the renewable energy subsidy is linked to the 
particular generating unit, not the producer. The Chamber concurs with that 
opinion of the Court of Appeal. Once a new generating unit has been installed, 
production starts anew within the meaning of Paragraph 108(1) of the old version 
of the ELTS, it does not follow on from previous production. 
21 A subparagraph (4) has since been added to Paragraph 108 of the ELTS, which 
states that a subsidy is not paid where a producer received a subsidy for 12 years 
under Paragraph 59 of the ELTS for electricity produced with one generating unit 
which it then replaces with another generating unit. Subparagraph (6) allows for a 
derogation from that rule: where a generating unit is over 25 years old at the time 
of replacement, a subsidy is paid under the new subsidy scheme for the electricity 
produced by the generating unit installed in its place from the start of production 
using the new generating unit. Paragraph 108(8) of the ELTS stipulates with 
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regard to payment of the subsidy under the old subsidy scheme that a subsidy is 
paid for 12 years for electricity produced by the producer’s respective generating 
unit which fulfils the requirements of that provision or for a phase of the 
generating unit provided for in a follow-on contract in accordance with 
Paragraph 59 from the start of production with each generating unit or in each 
phase of the generating unit. Thus, the key significance of the term ‘generating 
unit’ with regard to payment of the subsidy also follows from those provisions. 
22 Although it can be assumed that it costs less to install a new generating unit in an 
existing power plant than to erect a new power plant, the size of the subsidy 
depends by law on the quantity of renewable energy produced, not the installation 
cost of a generating unit. The subsidy is not investment aid and it is not paid in 
each individual case on a cost basis. However, the subsidy achieves its objective 
by supporting an increase in renewable energy production, including by the 
applicants in this case. 
23 As there has been disagreement in the proceedings to date as to the meaning of the 
term ‘generating unit’ and as to whether the term ‘generating unit’ in the context 
of a hydroelectric power plant includes the dam and the penstock as well as the 
turbine generator, the Supreme Court considers that the definition of the term 
‘generating unit’ is the key question that must be answered in order to rule on the 
dispute on the basis of the old version of the ELTS. The Supreme Court is of the 
opinion that it is not possible to conclude, based on either a grammatical or a 
systematic interpretation, that the dam and penstock of a hydroelectric power plant 
form part of the generating unit. The Supreme Court finds, based on various 
provisions of domestic law, that, as by definition ‘power plant’ includes systems 
as well as structures, whereas ‘generating unit’ is defined as only including 
systems, lines and accessories, it is appropriate to class the dam as a structure that 
forms part of the overall power plant, not part of the generating unit. The Chamber 
is therefore of the opinion that the old version of the ELTS entitles the applicants 
to a renewable energy subsidy for the new generating units. 
24 However, the above considerations do not necessarily mean that the applications 
should have been admitted. As the renewable energy subsidy constitutes State aid, 
it is essential that EU State aid rules also be taken into account. If provisions of an 
EU act with direct effects preclude the subsidy, any domestic provisions that are 
inconsistent with EU law are to be disapplied. 
25 Second, the Supreme Court notes with regard to the incentive effect that the 
European Commission has analysed the various versions of Estonia’s renewable 
energy subsidy scheme and found them to be compatible with the internal market 
on two occasions, namely in 2014 and 2017. That being so, it should be assumed 
that a subsidy applicant which meets the requirements of the ELTS is also in 
compliance with EU State aid rules. However, the question has arisen in this case 
as to whether the subsidy scheme that applied in Estonia in 2016 fulfilled the 
requirement of incentive effect addressed in the Commission Guidelines on State 
aid for environmental protection and energy 2014-2020 (paragraphs 49 to 52). 
VEEJAAM AND ESPO 
 
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Paragraph 50 of the Guidelines states that aid does not present an incentive effect 
for the beneficiary in all cases where work on the project had already started prior 
to the aid application by the beneficiary to the national authorities and, where the 
beneficiary starts implementing a project before applying for aid, any aid granted 
in respect of that project will not be considered compatible with the internal 
market. 
26 The old version of the ELTS was based on the premiss that a subsidy is applied 
for after the generating unit has been installed. The facility to apply for a subsidy 
under the subsidy scheme that applied in 2016 after work on the project had 
started also follows from the amendments to the ELTS that entered into force in 
2018. For example, Paragraph 59(2)2 of the ELTS extending the application of the 
previous subsidy scheme, still allows producers to apply for a subsidy under the 
old subsidy scheme, provided they started work on the investment project for the 
generating unit concerned by no later than 31 December 2016. Moreover, the 
Commission approved the facility to apply for a subsidy after a project had started 
in its 2017 Decision on State aid, including in light of the 2014 Guidelines. The 
Commission based that approval on paragraph 126 of the 2014 Guidelines which, 
although it provides for aid to be granted exclusively in a competitive bidding 
process from 2017 onwards, states in footnote 66: ‘Installations that started works 
before 1 January 2017 and had received a confirmation of the aid by the Member 
State before such date can be granted aid on the basis of the scheme in force at the 
time of confirmation.’ The Commission found that, if an applicant which meets 
the requirements receives the subsidy and the State has no discretion in that 
regard, it can be assumed that confirmation by the Member State within the 
meaning of that footnote is automatic as soon as a project meets the requirements 
for the subsidy (2017 Decision on State aid, paragraph 38). However, that 
Decision does not expressly address the question of how the requirement of 
incentive effect is fulfilled in such a case. The Commission merely states that, on 
the basis of the State’s calculations, the aid scheme fulfils the general requirement 
of incentive effect laid down in paragraph 49 of the 2014 Guidelines, whereby aid 
should induce the beneficiary to change its behaviour, which it would not do 
without the aid (paragraphs 62 and 63 of the Decision). It did not address 
paragraph 50 of the Guidelines. 
27 However, the Commission took a different stand in its reply to the Supreme 
Court’s questions, stating that, in order to fulfil the requirement of incentive 
effect, the beneficiary may only start work to install and put into operation the 
generating unit for which the aid is granted after the aid application has been made 
and that anyone who has already started work on a project is clearly prepared to 
implement the project even if no aid is granted. 
28 The scheme in the old version of the ELTS corresponds to the requirement 
described in the Commission Decision, that every applicant which meets the 
requirements is granted the subsidy, hence it can be assumed that confirmation by 
the Member State is automatic as soon as a project meets the requirements for the 
subsidy. Renewable energy producers which met the statutory requirements were 
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already entitled to a subsidy by law. The defendant had no margin of discretion or 
latitude on the question of whether a particular producer should be granted a 
subsidy. As confirmation of the granting of the subsidy already follows from the 
law, the Chamber is of the opinion that the subsidy would have had an incentive 
effect even where, based on the provisions of the law, applicants install the 
generating unit first and then apply for disbursement of the subsidy granted as 
operating aid. In view of the different points of view expressed by the 
Commission on this question, the Chamber considers that the following question 
needs to be referred to the Court of Justice of the European Union for a 
preliminary ruling: are EU State aid rules, especially the requirement of incentive 
effect laid down in paragraph 50 of the Commission’s 2014 Guidelines, to be 
interpreted as meaning that an aid scheme which allows a renewable energy 
producer to apply for State aid after work has started on a project is compatible 
with those rules where domestic legislation grants every producer which fulfils the 
requirements laid down by law the right to apply for aid without granting the 
competent authorities any discretion in that regard? 
29 As regards Veejaam, the further question has arisen as to whether the subsidy had 
an incentive effect in light of the fact that the amended terms of the special water 
use permit, under which it was not possible to continue to produce energy 
efficiently with the old generating unit, induced it to replace the old generating 
unit with a new one. By its own admission, Veejaam would have had to cease 
operations had it been unable to count on the renewable energy subsidy. The 
subsidy therefore had an incentive effect, as it induced Veejaam to continue 
production with a more powerful turbine generator than before. The Commission 
took the view in its answer to the Supreme Court’s questions that, if the 
construction works were provided for under domestic law in any event without 
compensation, the aid does not fulfil any viable purpose. However, the Chamber 
is of the opinion that, where a law grants a claim to a subsidy to all applicants 
which meet the requirements laid down by law, what induced a renewable energy 
producer to install a new generating unit should be irrelevant. As both the State 
and the Commission have confirmed that the renewable energy subsidy provided 
for under the 2016 subsidy scheme has an incentive effect, as the implementation 
of such projects would not be financially viable without the subsidy (2017 
Decision on State aid, paragraph 63), Veejaam’s contention that it would not have 
installed the new generating unit had it not assumed that it would receive the 
subsidy provided for by law on installing the new generating unit is also plausible. 
In the opinion of the Chamber, therefore, this is not a situation, as described in the 
third sentence of paragraph 49 of the 2014 Guidelines, in which the costs of an 
activity are subsidised which the undertaking would anyhow incur. In light of the 
view taken by the Commission, the Chamber therefore considers it necessary to 
seek a preliminary ruling from the Court of Justice of the European Union on the 
following question: is the incentive effect of State aid always precluded where the 
investment on which the aid application is based was made due to a change to the 
terms of environmental approval, even where, as in this case, the applicant would 
probably have ceased its activity due to the stricter terms of approval had it not 
received the aid? 
VEEJAAM AND ESPO 
 
13 
30 Third, as regards the question of whether the subsidy granted in 2016 was in 
keeping with Article 108(3) TFEU and whether that is relevant in terms of 
enabling judgment to be given on the dispute, the Supreme Court notes that the 
Commission’s 2014 Decision on State aid highlights the fact that, according to 
Estonia’s description of its subsidy scheme, new producers would not be admitted 
to the old subsidy scheme in 2014 and, from the beginning of 2015 onwards, new 
producers would be granted aid only following a competitive bidding process 
(paragraphs 27, 28 and 106 of the Decision). Apparently the State intended to 
apply the old subsidy scheme only to existing producers who had started 
production by no later than 1 March 2013 (paragraph 17 of the Decision). The 
Commission did not therefore assess whether the old subsidy scheme was 
consistent with the 2014 Guidelines; it confined itself in that regard to the earlier 
guidelines and merely examined the new support scheme planned in light of the 
2014 Guidelines (see also 2017 Decision on State aid, paragraph 49). However, 
Estonia did not make the described amendments to the law following the 
Commission’s 2014 Decision; instead it continued to apply the old subsidy 
scheme until 2017, without the proviso that production must have started by no 
later than 1 March 2013. The Commission found in the 2017 Decision on State aid 
that, by continuing to apply the old subsidy scheme and allowing new producers 
to join the scheme even after 1 January 2015, Estonia was in breach of 
Article 108(3) TFEU prohibiting State aid not approved by the Commission from 
being put into effect (paragraphs 29, 31 and 96 of the Decision). 
31 Based on the Regulation laying down detailed rules for the application of 
Article 108 TFEU, the Court has drawn a distinction between existing and new aid 
within the context of Article 108(3) TFEU. According to Article 1(b)(ii) of 
Regulation No 2015/1589, existing aid means authorised aid, that is to say, aid 
schemes and individual aid which have been authorised by the Commission or by 
the Council, and, according to Article 1(c) of that Regulation, new aid means all 
aid, that is to say, aid schemes and individual aid, which is not existing aid, 
including alterations to existing aid. In its judgment in DEI and Commission 
(C-590/14 P), the Court held, in application of the identical provisions of Council 
Regulation (EC) No 659/1999, that the evaluation, by the Commission, of the 
compatibility of aid with the internal market is based on the assessment of the 
economic data and of the circumstances on the market at issue at the date on 
which the Commission makes its decision and takes into account, in particular, the 
period over which the grant of that aid is provided for. Consequently, the period of 
validity of existing aid is a factor likely to influence the evaluation, by the 
Commission, of the compatibility of that aid with the internal market. In those 
circumstances, extension of the duration of existing aid must be considered to be 
an alteration of existing aid (paragraphs 49 and 50 of the judgment and the case-
law cited). 
32 Although, when the 2014 Decision on State aid was adopted, the national scheme 
did not in fact include any provisions limiting the duration of the subsidy scheme, 
it follows from the description, repeated in the Commission’s 2014 Decision, of 
the aid scheme which was found to be compatible with the internal market that the 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING OF 28.9.2020 – CASE C-470/20 
 
14  
State did not intend to continue to apply the old subsidy scheme from 2015 
onwards. In those circumstances, the Commission took the view in 2017, rightly 
in the Chamber’s opinion, that the State had extended the subsidy scheme, in 
breach of Article 108(3) TFEU. Given the differing opinions, it is therefore also 
necessary to seek a preliminary ruling by the Court of Justice of the European 
Union on the following question: in light, inter alia, of the findings of the Court in 
its judgment in Case C-590/14 P (paragraphs 49 and 50), where, as in this case, in 
which the Commission has adopted a decision on State aid finding that an existing 
aid scheme and planned changes are compatible with the internal market and the 
State has announced, inter alia, that it will only apply the existing aid scheme up 
to a particular cut-off date, an aid scheme is applied beyond the cut-off date 
announced by the State, does it qualify as new aid within the meaning of 
Article 1(c) of Regulation (EU) 2015/1589? 
33 The above considerations may be relevant in terms of enabling judgment to be 
given on the dispute as, if the question is answered in the affirmative, the 
defendant was neither obliged nor even entitled to grant the subsidies at the time 
when the applicants applied for them (see, in particular, judgments of 26 April 
2018, ANGED, C-233/16, EU:C:2018:280, paragraph 71, and of 11 November 
2015, Klausner Holz Niedersachsen, C-505/14, EU:C:2015:742, paragraph 23). 
However, as the Commission decided in the 2017 Decision not to raise any 
objections to the aid on the grounds that it was compatible with the internal 
market (paragraph 97 of the Decision), that obstacle has now been eliminated. 
Therefore, if the question is answered in the affirmative, the Chamber must decide 
whether the rules of procedure allow it to admit an action seeking performance if 
the defendant was not obliged to take the measures requested when the action was 
brought. 
34 The question also arises, if it is possible in principle to admit the action seeking 
performance when judgment is given, as to whether it is possible, in light of 
Article 108(3) TFEU, to admit the applicant’s application for payment of the 
renewable energy subsidy for the period from the date of the application or 
whether the aid only became lawful from the date of the Commission’s 2017 
Decision on State aid. As the Court has explained, a Commission decision 
approving aid granted in breach of Article 108(3) TFEU does not make the aid 
lawful with retroactive effect (judgments of 19 March 2015, OTP Bank, C-672/13, 
EU:C:2015:185, paragraph 76; of 21 November 1991, Fédération nationale du 
commerce extérieur des produits alimentaires, C-354/90, EU:C:1991:440, 
paragraphs 16 and 17; and of 12 February 2018, CELF and ministre de la Culture 
et de la Communication, C-199/06, EU:C:2008:79, paragraph 40). On the other 
hand, the Commission decided in its 2017 Decision not to raise objections to the 
aid. In light of those circumstances, a preliminary ruling is also needed on the 
following question: where the Commission decides ex post facto not to raise any 
objections to an aid scheme applied in breach of Article 108(3) TFEU, are persons 
with a claim to operating aid entitled to apply for payment of the aid even for the 
period prior to the Commission’s Decision, provided that domestic rules of 
procedure so permit? 
VEEJAAM AND ESPO 
 
15 
35 It is common ground that Espo installed the generating unit used to produce the 
electricity for which it has applied for the contested subsidy in this case in 2009. 
The Commission found even in its 2014 Decision that the subsidy scheme that 
applied at that time was compatible with the internal market. However, Espo did 
not apply for the subsidy until 2016. If it follows from the Court’s preliminary 
ruling that the State should not have applied the old subsidy scheme in the years 
2015 to 2017, that does not necessarily mean that Espo’s application must be 
rejected, as in any case its generating unit fulfilled the requirements of the subsidy 
scheme approved by the Commission’s 2014 Decision on State aid. By that 
Decision, the Commission found, inter alia, that it was compatible with the 
internal market to pay a subsidy under the old subsidy scheme to producers which 
had started projects before 1 March 2013 (paragraph 17 of the Decision). 
However, bearing in mind that that cut-off date was not included in the ELTS and 
Espo did not apply for the subsidy until 2016, it is unclear whether the provision 
of Article 108(3) TFEU prohibiting State aid from being put into effect applies to 
it. The Chamber therefore requires a preliminary ruling by the Court of Justice of 
the European Union on the following question: does an applicant which applied 
for operating aid under an aid scheme and which started to implement a project 
which fulfilled the criteria for compatibility with the internal market at a time 
when the aid scheme was lawfully applied, but applied for State aid at time when 
the aid scheme was extended without notifying the Commission, have a claim to 
aid notwithstanding the rule enacted in Article 108(3) TFEU?