On January 29, 2021, the French Competition Authority (“FCA”) unconditionally cleared Engie’s acquisition, through its subsidiary Storengy, of a controlling stake in Dijon Métropole Smart EnergHy (“DMSE”), a joint venture between Dijon Métropole and the Rougeot group specialized in the production and distribution of hydrogen.[1] The FCA cleared the concentration even though the combined entity will become the first and sole operator producing and distributing hydrogen in the Dijon area.

Storengy’s and DMSE’s activities overlap in the hydrogen and electricity sectors in France.

With respect to hydrogen, the FCA found that the sector comprises three activities: the production, retail distribution, and conception and construction of hydrogen production facilities. The FCA examined a potential segmentation according to carbon footprint. Hydrogen can be produced through (i) steam methane reforming, which produces large amounts of carbon dioxide (“non-green” hydrogen), and (ii) water electrolysis, which does not release carbon dioxide (“green” hydrogen). The FCA found that the production volume of green hydrogen was currently minimal and therefore did not distinguish green from non-green hydrogen.

With respect to electricity, the FCA focused on the market for the retail distribution of electricity. The FCA found a growing demand for green energy and limited substitutability between “green” electricity and “non-green” electricity. While it left open the exact market definition, the FCA nevertheless conducted its competitive analysis on both (i) a narrow green electricity segment and (ii) a broader market encompassing green and non-green electricity.

With regard to the geographic scope of the hydrogen distribution market, the FCA found that, unlike gas, which is distributed through a dense, grid-like network, hydrogen is mainly distributed in stations along large highways, as well as at bus and truck depots, thus suggesting a broader geographic scope for hydrogen distribution.

Substantively, in line with well-established decisional practice at the national and European level, the FCA indicated that high market shares are not necessarily reflective of market power in emerging and fast-growing markets such as the hydrogen markets. Accordingly, the FCA focused on verifying that actual and potential competitors can enter and expand in the market, and concluded that competitors can expand locally given the absence of entry barriers.

Storengy/DMSE is the first case in which the FCA examined the hydrogen production and distribution markets. It shows that the FCA is attentive to the emergence of markets for “green” products and that, despite high market shares, a merger may be cleared on growing markets where the incumbent’s market share is contestable due to low barriers to entry.

[1]    The FCA’s press release is available here, https://www.autoritedelaconcurrence.fr/fr/communiques-de-presse/lautorite-autorise-lentree-de-storengy-filiale- dengie-au-capital-de-dmse.