State aid measure - funding assistance to Lee Valley Heat Network Limited
The measure supports the following project:
Lee Valley Heat Network Limited (“LVHN”) owns and operates a strategic heat network which takes waste heat from the incinerator at the Edmonton Eco Park and distributes it to homes and businesses in Enfield and potentially neighbouring local authority areas. LVHN is now looking to undertake a significant network expansion (the Expansion Project). The Expansion Project will initially provide the means to connect 4,750 homes to the Network. There is also the potential to connect to a total of 34,000 homes (including the initial 4,750) as and when housing developments are brought forward using contributions sought from developers. The production plant funded previously is sufficient to supply the homes connected through this expansion, so the funding requested for the Expansion Project will be wholly applied to the heat distribution network rather than any additional production plant.
The form of the measure
The measure is loan funding from the Enfield Council (“Council”) to LVHN.
Legal basis
The loan funding has been made under section 1 of the Localism Act 2011.
GBER provisions
The loan funding is compliant with Article 46 of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the common market in application of Articles 107 and 108 of the Treaty on the Functioning of the European Union, as published in the Official Journal of the European Union on 26 June 2014 (the “Regulation”) as published in the official Journal of the European Union (26 June 2014 - L 187/1). Article 46 permits certain investment aid for energy efficient district heating and cooling and states:
- investment aid for the installation of energy efficient district heating and cooling system shall be compatible with the internal market within the meaning of Article 107(3) of the Treaty and shall be exempted from the notification requirement of Article 108(3) of the Treaty, provided that the conditions laid down in this Article and in Chapter I are fulfilled
- the eligible costs for the production plant shall be the extra costs needed for the construction, expansion and refurbishment of one or more generation units to operate as an energy efficient district heating and cooling system compared to a conventional production plant. The investment shall be an integral part of the energy efficient district heating and cooling system.
- the aid intensity for the production plant shall not exceed 45% of the eligible costs. The aid intensity may be increased by 20 percentage points for aid granted to small undertakings and by 10 percentage points for aid granted to medium-sized undertakings.
- the aid intensity for the production plant may be increased by 15 percentage points for investments located in assisted areas fulfilling the conditions of Article 107(3)(a) of the Treaty and by 5 percentage points for investments located in assisted areas fulfilling the conditions of Article 107(3)(c) of the Treaty
- the eligible costs for the distribution network shall be the investment costs
- the aid amount for the distribution network shall not exceed the difference between the eligible costs and the operating profit. The operating profit shall be deducted from the eligible costs ex ante or through a claw-back mechanism.
Details of the measure and compliance with the regulation
The Council has onward lent £15 million to LVHN, which LVHN has transferred back to the Council. The Council will provide this loan to LVHN at LVHN’s request upon presentation of an acceptable business plan. LVHN will use the borrowing to fund the expenditure of eligible costs as set out in Article 46 of the Regulation. LVHN will pay back the original loan to the Council plus interest. The value of the aid to LVHN is the difference between the interest charged and the relevant proxy for the market rate of interest. The level of aid intensity to LVHN will be calculated so that it remains in compliance with Article 46 of the Regulation. Interest will be paid by LVHN at such a rate as to ensure that the aid thresholds under Article 46 of the Regulation are not exceeded. Additionally, there is a claw–back mechanism in the agreement between LVHN and the Council that can be used to recover any aid which exceeds the relevant thresholds (including the requirement for prior Commission approval where aid exceeds €45 million) and this is complemented by a mechanism for increasing the interest rate should this be required to ensure compliance with Article 46 of the Regulation.
The Regulation requires that the provision of aid has an incentive effect. In accordance with the Regulation, and as a large enterprise, LVHN has demonstrated that the aid provided will result in one or more of the following:
- A material increase in the scope of the project/activity due to the aid
- A material increase in the total amount spent by the beneficiary on the project/activity due to the aid
- A material increase in the speed of completion of the project/activity concerned
Exclusions from the measure
Export aid
The Regulation and accordingly this measure do not apply to:
- aid to export-related activities towards third countries or Member states, namely aid directly linked to the quantities exported, to the establishment and operation of a distribution network or to other current costs linked to the export activity
- aid contingent upon the use of domestic over imported goods
Recovery of illegal aid/undertakings in difficulty
The Regulation does not allow and this measure does not apply to:
- payment of aid in favour of an undertaking which is subject to an outstanding recovery order following a previous Commission decision declaring an aid illegal and incompatible with the common market
- aid to undertakings in difficulty. These are defined as follows:
- In the case of a limited liability company, where more than half of its registered capital has disappeared and more than one quarter of that capital has been lost over the preceding 12 months
- In the case of a company where at least some members have unlimited liability for the debt of the company, where more than half its capital as shown in the company accounts has disappeared and more than one quarter of that capital has been lost over the preceding 12 months
- Whatever, the type of company concerned, when it fulfils the criteria under its domestic law for being the subject of collective insolvency proceedings.
- An SME which has been incorporated for less than 3 years shall not be considered, for the purposes of this scheme, to be in difficulty unless point (c) applies.
Cumulation of aid
Aid provided under the measure may be cumulated with other forms of aid in relation to the same eligible costs only within the aid intensity limits for this measure. De Minimis aid may not be used to add to the aid awarded under this measure in respect of the same eligible costs.