EUROPEAN COMMISSION Brussels, 12.XII.2008 C(2008) 8560 PUBLIC VERSION WORKING LANGUAGE This document is made available for information purposes only. Subject: N261/2008– Spain Promotion of renewables in Spain/Coruna Sir, 1. PROCEDURE 1. By electronic notification dated 29 May 2008, registered on the same day, the Spanish Authorities notified the Commission of the above-mentioned financial support scheme, in accordance with Article 88 (3) of the EC Treaty. 2. The Commission asked for additional information by letter D/52539 of 19 June 2008 and D/53304 of 25 August 2008. The Spanish Authorities submitted the requested information by a letter of 1 August 2008, registered on the same day, a letter of 15 September 2008, registered on the same day and by a letter of 31 October 2008, registered on the same day. Excmo. Sr. Don Miguel Ángel MORATINOS Ministro de Asuntos Exteriores Plaza de la Provincia 1 E-28012 MADRID Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11. 2. DESCRIPTION OF THE MEASURE 2.1. Objective 3. The overall aim of the project to be carried out by the Diputación Provincial de A Coruña is to reduce the energy consumption in the province of A Coruña through equipping municipal facilities with small scale photovoltaic and thermal installations with the objective of promoting renewable energy and reducing the emission of gases from fossil fuels. 2.2. Beneficiaries 4. The scheme shall benefit the local public authorities located in the following 19 rural municipalities in A Coruña: O Pino, Arzúa, Touro, Boimorto, Sobrado, Toques, Melide, Santiso, Miño, Vilarmaior, Irixoa, Betanzos, Paderne, Coirós, Aranga, Oza de Ríos, Cesuras, Curtis and Vilasantar. 2.3. Form of aid, investments concerned and costs 5. The scheme will consist in financial support in the form of direct grants to the rural municipalities for the installation of photovoltaic panels and solar thermal installations in public buildings (town hall, hospitals, sports halls) located in the 19 rural municipalities of A Coruña. 6. The Spanish authorities have indicated that the project shall be carried out in two phases. The first phase shall include the drafting of environmental and performance studies in order to determine the location of the photovoltaic installations within the rural municipalities. Following the results of the studies, the local authorities shall decide upon the technical parameters of the installations and shall initiate the public tender procedure for their execution. The second phase of the project shall consist in the actual installation of photovoltaic panels and solar thermal installations and their operation. 7. Each photovoltaic installation shall be connected to the regional electricity grid and the entire amount of electricity generated by each installation shall be sold by rural municipality to the local distribution company and feed into the grid. According to the Royal Decree 661/2007 of 25 May 2007 regarding the regulation of the electricity production activity in Spain, each electricity producer choosing to feed in electricity into the grid shall receive a regulated tariff, in this case, 44.381 euro cents/kWh. The rural municipalities will subsequently buy from the regional distribution company the electricity needed for their daily consumption. The overall benefit of this mechanism consists in reducing the electricity costs of the rural municipalities while feeding electricity generated from renewable sources into the system. 8. According to the information provided by the Spanish authorities, the savings that may arise from the difference between the revenues from the sale of electricity and the electricity costs shall be used for the refurbishment of the public buildings. Due to the 2 early stage of the project, the Spanish authorities could not provide any calculation of expected profits from the sale of electricity. These will mainly depend on the location of the photovoltaic installations to be decided with the first phase of the project. In any case, the Spanish authorities stressed the fact that such benefits, if any, will be insignificant. 9. The thermal installations consist of electrical accumulators that will be used for water heating in municipal buildings. According to the information provided by the Spanish authorities, these installations shall operate in a closed circuit (within the public building where the equipment is installed) with the aim to promote the use of renewable energy sources for heating and decrease the consumption of energy produced from fossil fuels. 10. According to an initial estimation of the A Coruña local council, each rural municipality shall produce an average of 15,316.93 Kwh/ year and 118,237 Mj of heat per year. This would lead to an estimated reduction of CO2 emissions by 40.28 tons/year and a reduction of Sox emissions by 60 kg/year for each of the rural municipalities taking part in the project. Each installation has an average lifespan of 25 years. 2.4. Aid intensity and cumulation 11. The aggregate financial support sum to be distributed between the 19 rural municipalities amounts to EUR 1,181,023. Consequently the final financial support amount per rural municipality corresponds to an average of EUR 62,000. 12. The Spanish government confirms that the project will not benefit from other forms of support. 2.5. Financing and duration of the measure 13. The notified measure is a grant scheme awarded under the framework of the EEA Grants as part of the implementation of the EEA Financial Mechanism for the 2004-2009 period. 14. The EEA Grants is a financial mechanism established by three donor states: Iceland, Lichetenstein and Norway. According to the Protocol 38 (A)1, the aim of this mechanism is to contribute to the consolidation of the capacity of the new member states to take fully part in an enlarged European Economic Area internal market through the financing of grants to investment projects in several priority sectors: environment and promotion of renewable energy; promotion of sustainable development through improved resource use and management, conservation of European cultural heritage, including public transport, and urban renewal; etc. 1 Protocol inserted by the 2004 EEA Enlargement Agreement (OJ No L 130, 29.4.2004, p. 3 and EEA Supplement No 23, 29.4.2004, p. 1), e.i.f. 1.5.2004, and subsequently amended by the 2007 EEA Enlargement Agreement (OJ No L [to be published]), provisionally applicable as of 1.8.2007, e.i.f. pending. 3 15. According to the Grant Offer Letter dated 25 February 2008 issued by the Financial Mechanism Office, the EEA Grants offers a non-refundable financial support in the amount of EUR 1,181,023 to the Diputación Provincial de A Coruña for the financing of the project entitled "Promotion of renewable energies in the province of A Coruña". The disbursement of the grant is conditional upon its approval by the European Commission as being compatible with the common market. 16. The notified scheme will last until 31 December 2011. The support amount shall be disbursed in two tranches, one tranche of EUR 1,025,625 during 2009 and the second tranche of EUR 155,398 in 2011. Consequently the final financial support amount per rural municipality corresponds to an average of 62,000 € over the years 2009 to 2011. 17. Although the final financial support amount per beneficiary will depend on the environmental studies to be carried out in the first phase of the project, the Spanish authorities confirmed in their letter dated 30 October 2008 that the average financial support amount per rural municipality shall be of 62,000 €. In any event, the Spanish authorities ensure that the project shall comply with all the provisions of the Commission Regulation (EC) No 1998/2006 and consequently no beneficiary shall receive financial support exceeding a ceiling of 200,000 € over any period of three years. 18. In this regard, the services of the Directorate General for Competition reminded the Spanish authorities, by letter of 25 August 2008, that in case a notified measure respects the conditions of Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid, the notified measure does not constitute State aid in the sense of Article 87(1) of the EC Treaty and therefore is not subject to the notification requirement. Nevertheless, the Spanish authorities decided to maintain their notification as the express approval of the measure by the Commission represents a condition precedent for the disbursement of the grant under the Grant Offer Letter. 3. ASSESSMENT 3.1. Presence of State aid under Article 87(1) of the EC Treaty 19. According to Article 87 (1) of the EC Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market. 20. Since the rural municipalities will carry out an economic activity by selling electricity to the grid, they might be considered undertakings in the sense of Article 87 (1) of the EC Treaty. However in view of the analysis presented below, it is not necessary to take a final stand on this issue. 21. Regulation (EC) No 1998/2006 laid down conditions, in particular an aid ceiling, under which an aid measure is deemed not to meet all the criteria of Article 87(1) of the EC 4 Treaty and shall therefore be exempt from the notification requirements laid down in Article 88(3) of the EC Treaty. 22. Considering the average aid measure amount per rural municipality of 62,000 € over the period between 2009-2011 and the commitments provided by the Spanish authorities regarding the final beneficiaries of the aid measure, the Commission comes to the conclusion that the notified scheme complies with the Regulation (EC) No 1998/2006 and therefore does not constitute state aid.