EUROPEAN COMMISSION Brussels, 14.07.2004 C(2004)2634 fin Subject: State aid N 543/2003 United Kingdom CIS Photovoltaic re-cladding project, Manchester Sir, 1. PROCEDURE (1). By letter dated 24 th November 2003, registered at the Commission s Secretariat- General on 26 th November 2003, the UK authorities notified the above mentioned measure to the Commission pursuant to Article 88(3) EC. (2). By letter of 19 th December 2003 the Commission requested additional information, which was sent by the UK authorities by letter of 3 rd February 2004, registered on 6 th February 2004. (3). By letter of 5 th March 2004 the Commission requested additional information, which was sent by the UK authorities by letter of 16 th April 2004, registered on 22 nd April 2004. (4). By letter of 14 th May 2004 the Commission requested additional information, which was sent by the UK authorities by letter of 27 th May 2004, registered on 2 nd June 2004. 2. DESCRIPTION OF THE MEASURE 2.1. Objectives of the project (5). The project involves the re-cladding of the service tower of the 25-storey Cooperative Insurance Society (CIS) building (3,791 sqm) in Manchester which is a grade II listed building. Following the consultation of English Heritage and a sustainability assessment, CIS s identified solution is to re-clad the CIS service tower with electricity generating photovoltaic (PV) cell panels. The project has global construction relevance, in the combination of two existing techniques, The Right Hon. Jack STRAW, MP Secretary of State for Foreign and Commonwealth Affairs Downing Street London SW1A 2AL United Kingdom Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone : (32-2) 299 11 11.
providing a retro-fit building façade that generates energy, while displacing the use of a standard construction material. (6). Photovoltaic (PV) systems have a dual function in building sustainability as they can be used as a construction material to clad, glaze or roof buildings and they can also play an important role in energy efficient building design, due to its additional function as solar shading that enables the conversion of light into electricity, cleanly and silently for up to 25 years. When assessed as an energy generation technique, PV technology does not produce climate change emissions. Furthermore, the technology chosen for the project is a thick film PV panel that uses materials with a comparatively low environmental impact in extraction, preprocessing and manufacture. (7). The building is the hub of CIS s UK operations, housing up to 4000 staff and the main computer systems together with other support services for the business. As such, although the building is quite energy efficient, it is nevertheless a large consumer of electricity. In this respect, the PV re-cladding will result in a system with a rated power of between 250 and 350 KWp and is expected to meet about 10% of the building electricity requirements by generating approximately 180MWh electricity per year. Energy output estimates have been generated with well recognised software, PVSYST, taking into account independently verified 1 PV manufacturers data and real meteorological data collected in Central Manchester over the past 30 years. 2.2. Eligible costs (8). Eligible costs of this project are the extra investment costs for the re-cladding of the tower with PV panels in comparison with the costs for the re-cladding with conventional materials. Eligible costs also take into account any net savings over the first five years of the operation of the facility. Net savings are the reduced electricity costs minus any increased operating costs. n Cost item Amount in GBP Amount in EUR 2 1 Cost of the PV investment GBP 4,045,510 2 Cost of conventional re-cladding GBP 1,679,157 3 Electricity savings over 5 years GBP 33,755 4 Additional operating costs GBP 23,482 5 Eligible costs ((1)-(2)-(3)+(4)) GBP 2,356,080 EUR 3,538,720 Table 1- Calculation of eligible costs 1 2 Verification by the IEC61215 accreditation process. Exchange rate 1/06/2004, OJ C 147 of 2/06/2004, p.1.
(9). The costs of the PV investment (n 1) include the cost of re-cladding the tower in the silicon thick film photovoltaic cell panels and fixing framework and the additional professional fees for designing PV project versus the design fees for the re-cladding with conventional materials. Additional design costs are related to structural engineer, façade engineer, solar engineer, mechanical and electrical engineer, interface with the building systems. Additional fees for contract and risk management, architectural services for conservation issues, planning supervisor services for construction and health and safety regulations issues are also included. (10). The costs of conventional re-cladding (n 2) are the costs for re-cladding the tower with a conventional rain screen cladding or for re-cladding with mosaic cells as per original. (11). The reduced electricity costs (n 3) are calculated by multiplying the estimated annual kilowatt hours output of the installation by the average retail price per hour of electricity from conventional sources. This is then multiplied by five to determine the reduced electricity costs over five years. (n 3) Reduced electricity costs = 183,015 KWh * 3.689 p * 5 = GBP 33,755 (12). The operational costs for the PV solution are up to GBP 26,000 over a 5 year period. Due to the innovative nature of the building integration method, an annual safety and functionality survey is needed. In addition to the internal electrical installations, this will include a full cradle survey of the PV facades. The G59 relays are checked once every two years. (13). These operating costs are to be compared with the operating costs of a conventional power plant. The maintenance of CIS s High Voltage and Low Voltage Systems within the building is up to GBP 172,000 over a 5 year period for an annual electricity consumption of 12,500,000 kwh. Equating this cost pro-rata to the electricity produced over a year from the PV array, the cost for a conventional power plant with a similar electricity output equals (183,015 kwh /12,500,000 kwh) * GBP 172,000 = GBP 2,518 over 5 years. (14). Therefore, it is estimated that the additional operating costs for the PV solution (n 4) are the operating costs for the PV solution minus the operating costs for a conventional power plant, i.e.: (n 4) Additional operating costs = GBP 26,000 GBP 2,518 = GBP 23,482 2.3. Details of the aid (15). The aid will be awarded in the form of a non-repayable grant of GBP 885,236 (EUR 1,329,582) to the owner of the building, the Co-operative Insurance Society, by the North West Development Agency (NWDA). The legal basis for this grant is the Regional Development Agencies Act (1998). (16). The NWDA funding will be combined with a grant of GBP 175,000 (EUR 262,842), the maximum grant available under the UK Major Photovoltaic Demonstration Programme, notified to the Commission under the N158/02 3. 3 Decision of 19/06/2002, OJ C 238 of 3/10/2002, p.10.
3. ASSESSMENT OF THE MEASURE 3.1. Existence of State Aid within the meaning of Article 87(1) EC (17). The grant constitutes State aid within the meaning of article 87(1) of the EC Treaty: 1. The grant is awarded to an individual undertaking, the Co-operative Insurance Society. 2. It operates with State resources. The North West Development Agency is financed by its sponsoring UK government department, the Department for Trade and Industry. 3. It improves the position of the beneficiary in relation to its competitors in the EU by contributing to the cost for re-cladding its main building. 4. CIS is an insurance company. Insurance services are tradable within the European Union. Consequently, the measure may affect trade between Member States. 3.2. Lawfulness of the aid (18). The UK authorities have fulfilled their obligation according to Article 88(3) of the EC Treaty by notifying the aid before its awarding. 3.3. Compatibility with the common market under Article 87(3)c EC (19). The compatibility of the aid is assessed on the basis of the Community guidelines on State aid for environmental protection 4, (hereafter referred to as the environmental guidelines) and in particular section E.1.3. on investment aid for renewable energy sources. 3.3.1. Environmental benefits of the project (20). Environmental protection means any action taken to remedy or prevent damage to our physical surroundings or natural resources, or to encourage the efficient use of these resources. As outlined in point 6 of the environmental guidelines, the Commission regards the use of renewable sources of energy, such as solar power, as an action to protect the environment. Furthermore, point 32 of the environmental guidelines indicates that investments to promote renewable sources of energy are one of the Community s environmental priorities and one of the long-term objectives that should be encouraged most. (21). The beneficiary is making a positive choice in favour of environmental protection. It expects, through this project, to get about 10% of its electricity generated through an environmentally sound process. (22). Moreover, the project will promote sustainable development and the use of PV in particular, in Manchester, the Northwest and the UK. So far there has been very limited take up of grants under the Major Photovoltaic Demonstration Programme within the Northwest. The investment will be a large scale demonstration project for the attractiveness of PV solutions within the region as the PV installation will 4 OJ C 37, 3.2.2001, p. 3.
completely cover the east, south and western façades of the CIS service tower. It is significant in terms of visibility and scale as it will result in the largest PV installation by area in the UK with a 394.5 KW solar array. Most comparable projects in the EU are roof integrated including the 1MW array at Mont Cernise Academy, 300 KW array as a glass laminated roof for Berlin s new central station and 123 KW array at the Paul-Lobe-Haus parliamentary building in Germany. (23). Lastly, the project is also to explore new ways to energy savings by the use of PV material in existing buildings. While 50% of UK electricity consumption is associated with building occupancy and the building stock is renewed at a rate less than 2% per year in the UK, it is essential to develop techniques to improve the energy performance of existing buildings in order to achieve climate change emissions targets. Unlike photovoltaic, most energy efficient technologies are suited to new buildings or have to be used additionally, therefore they cannot address in a cost efficient way the energy impact of existing buildings. The project has been specifically designed to use standard equipment and construction techniques to optimise the transferability of the solution chosen. 3.3.2. Eligible costs (24). The eligible investments are in-line with point 36 of the guidelines. Additional design costs are justified insofar as the risks undertaken by CIS with the PV project are substantial and have been addressed by appointing an experienced design team: risk of refusal from planning and listed buildings authorities; risk of the insufficient robustness of the solution and risk of premature failure; risk of poor longevity of the solution because of technical obsolescence; financial and programme risks associated with an unusual and innovative project; programme risk associated with noise and disruption of CIS staff during the construction phase; risk to CIS brand if the project does not meet its objectives; programme risks associated with exceptionally inclement weather.
(25). The first paragraph of the point 37 of the guidelines states that the eligible costs must be strictly confined to the extra investment costs necessary to meet the environmental objectives. In the case of renewable sources of energy, extra investment costs are normally determined by deducting the cost of a conventional plant with similar capacity from the costs of the investment in renewable sources of energy. This logic does not apply in this case as the choice of investment for the beneficiary is not between a renewable energy plant and a conventional power plant but rather between a PV re-cladding and a conventional material re-cladding of the CIS tower. If the investment in the PV system was not made, CIS would not be investing in equipment for energy production, it would only re-clad the tower with conventional material and purchase electricity via a supply to the building. As currently most of the electricity suppliers in the UK are not from green sources, nearly no environmental benefit would be achieved. (26). The extra investment costs necessary to meet the environmental objective can therefore be considered to be the costs of the PV installation minus the costs of the conventional material solution, minus any net energy savings made over the first five years 5, as a result of having the solar installation. 3.3.3. Aid intensity (27). Point 32 of the environmental guidelines foresees an aid intensity of 40% of the eligible costs towards investment for renewable energies. A bonus of 5 percentage points may be awarded with respect to point 34 of the environmental guidelines as the beneficiary is located in an assisted area within the meaning of article 87(3)c. Consequently, the maximum aid CIS can be awarded equals: 45% of GBP 2,356,080 = GBP 1,060,236 (28). In line with point 74 of the environmental guidelines, the GBP 175,000 grant already awarded by the UK authorities under the Major Photovoltaic Demonstration Programme is deducted from the maximum aid authorised: NWDA grant = GBP 1,060,236 - GBP 175,000 = GBP 885,236 (EUR 1,329,582) 3.3.4. Conclusion (29). In light of the information above, the Commission considers the aid to be compatible with Article 87(3)c of the EC Treaty. 5 The period of five years is used, as this is the period identified in point 37, sub-paragraph 3 of the environmental guidelines, as the appropriate time over which any savings engendered must be considered.
4. DECISION The Commission has accordingly decided to raise no objection to the proposed aid. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://europa.eu.int/comm/secretariat_general/sgb/state_aids/. Your request should be sent by registered letter or fax to: European Commission B-1049 Brussels DG Competition State Aid Greffe Fax No: (+32)-2-296.12.42 Yours faithfully, For the Commission M. MONTI Member of the Commission