New rules proposed for overcompensation in biogas support schemes
The proposed rules aim to ensure that businesses under the biogas support schemes do not receive more state aid than permitted under EU State aid rules. The three proposals seek to provide a clearer framework for the Danish Energy Agency’s annual assessment of overcompensation and the recovery in case of overcompensation.
For upgraded biogas, the current model of three-year assessment periods followed by a reduction in the support rate would be replaced by a cumulative assessment and repayment.
Three support schemes are covered
The proposals cover support for:
- Upgraded biogas supplied to an interconnected gas system and purified biogas supplied to a town gas network.
- Electricity generated using biogas or gas produced by gasifying biomass.
- Biogas sold for transport or used in industrial processes or heat production.
The proposals include rules on annual checks, a cumulative assessment of overcompensation and repayment. However, the information the Danish Energy Agency must use in its assessment differs between the schemes.
The new model
Under the proposals, from 2027 the Danish Energy Agency would use a method where the assessment period grows year by year, starting with 2023. This cumulative assessment would apply to all three support schemes.
The model has three main steps:
- Each year, the Danish Energy Agency assesses whether there is overcompensation under each support scheme, using information for the full assessment period.
- If overcompensation is found, a repayment amount is calculated for each support recipient based on its production or volume during the period of overcompensation.
- The amount is deducted from future support payments or collected directly if deduction is not possible.
Overcompensation is therefore assessed for the support scheme as a whole, while the repayment amount is calculated for each recipient. The amount is linked to the recipient’s production or volume, rather than solely to the business’s own financial results.
For upgraded biogas, the model would replace the current system of three-year assessment periods followed by a general reduction in the state aid rate. However, the existing reduction of DKK 3.8 per GJ supplied, introduced following overcompensation in 2020–2022, will continue until 28 February 2027. The rate will then return to the index-adjusted level without this reduction.
Different information requirements for assessing overcompensation
For upgraded and purified biogas, support recipients must report key financial figures to the Danish Energy Agency each year via virk.dk by 7 July, following the Agency’s detailed instructions. Failure to report may result in aid payments being stopped. Businesses that are exempt from preparing an annual report under the Danish Financial Statements Act are exempt from this reporting requirement.
For the other two support schemes, the Danish Energy Agency must use the businesses’ publicly available annual accounts to assess overcompensation.
The Danish Energy Agency must publish its annual assessment and the consequences for support payments on its website.
Repayment through deductions or direct collection
Under the proposals, if the Danish Energy Agency finds overcompensation under a support scheme, it must issue a decision and deduct the amount of overcompensation from future support payments. Deductions will commence six months after the beneficiary has been notified of the overcompensation.
If deduction is not possible, the Danish Energy Agency must collect the amount directly. The drafts identify temporary relinquishment of entitlement to state aid payments, the cessation of such payments and changes of ownership as situations in which direct recovery may be relevant. For upgraded and purified biogas, the amount will be collected as a single payment.
Appeals
Under the drafts, decisions by the Danish Energy Agency may be appealed to the Danish Energy Board of Appeal. Appeals must be filed within four weeks of notification of the decision.
Plesner’s comments
Basis for the calculation: Overcompensation is established for the scheme as a whole, while each recipient’s repayment amount is calculated based on its production or volume during the period. Businesses must therefore be able to understand and check both the assessment for the scheme and the calculation of their own recovery amount. It should also be clear how the cumulative model works in practice, including how earlier recovery amounts are taken into account.
Future M&A transactions: Potential recovery of state aid payments should be addressed in due diligence, valuation and transaction documents. The parties should distinguish between liability towards the authorities and the contractual allocation of the economic burden, taking account of the transaction structure and the period to which the relevant support relates.
Completed transactions and changes of ownership: The proposals may also warrant a review of completed transactions. The drafts provide that the original beneficiary of the subsidy remains liable for recovery amounts related to state aid payments paid before the transfer of the subsidy and allow direct recovery where set-off is unavailable, including following a change of ownership. In an asset deal, a claim against the seller may therefore require a separate assessment of the allocation under the sale agreement. In a share deal where the beneficiary of the subsidy remains the same, the review should instead focus on the recipient company's exposure and any contractual recourse against the seller. For completed deals, the parties should review existing price adjustment provisions, indemnities and warranties, together with applicable notice requirements and contractual time limits. The proposals should not be assumed to automatically reopen an agreed purchase price or create a claim.
Plesner is closely following the development of the new rules. If you have any questions about the proposals and what they mean for your business and/or transactions you have completed, please contact our Energy and Infrastructure team.