European Union to investigate Nuclear Subsidy to Hinkley Point - same considerations will apply to Sizewell

18 December 2013

The European Commission today opened its investigation into the plans of the British government to encourage the construction and operation of a new nuclear power plant by EDF Energy at Hinkley Point C in Somerset.

Brussels wants to check that British plans to ensure predictable revenues for EDF over 35 years, despite the volatility of the electricity market, are not illegal under European Union's (EU) state aid rules.

"We must look whether state aid is really needed and if so whether the level of state aid is appropriate," EU competition commissioner Joaquín Almunia told journalists. The state aid given to EDF "may reach up to £17 billion ($27.8 billion) depending on future electricity prices and the operator's actual capital costs," according to Brussels, which will investigate if the power plant could have been built by market forces alone.

Under EU law, public support given to companies is acceptable as long as it is made on terms that a private operator would have accepted under market conditions. The deal between the British government and EDF says that the former would pay the difference between the agreed price and the market price if the latter price is lower. This strike price has been set at £92.50 ($151.60) per MWh with this reducing to £89.50 ($146.72) if a further plant at Sizewell is built. If the market price is higher than these, EDF would pay the difference to the government. "In either case, the nuclear plant operator will ultimately receive a fixed level of revenues and will therefore not be exposed to market risks for the duration of the scheme," the European Commission explained.

The UK government offers the same kind of mechanism to all low-carbon generating options, each with an individually set strike price. However, support for renewable generation forms is specifically allowed under EC guidelines while no such guideline exists for nuclear power. This means state aid for nuclear investments must be considered on a case-by-case basis.

• Another state aid investigation was announced today concerning exemptions of intensive electricity users from charges that support Germany's vast roll-out of renewables. 

• Earlier this year the European Commission approved state aid in the form of a €80 million ($110 million) loan from the Netherlands government for NRG to construct a new nuclear reactor at Petten to produce isotopes for medicine, research and industry.

Brussels must now decide whether the intervention of the British government will distort the energy market in the UK and in the whole EU market. "I cannot anticipate the results of the investigation, but if we opened it that means we have reasonable doubts about the compatibility of the public support that is included in the [UK's] notification, but we will see how the investigation evolves in the coming months," said Almunia. There is no legal deadline by which the investigation must be concluded, he noted. "It depends how complex the file is and I must say this is not the easiest file on my desk," Almunia further explained, adding that the UK plans to attract investment in nuclear energy are of an unprecedented nature and scale.

The cooperation of the UK in the investigation will also be crucial to shorten the amount of time needed for Brussels to reach a conclusion, according to him. "The Commission needs to investigate thoroughly its impact on the UK and the EU internal energy markets, and is requesting all interested parties to submit their observations," the Commissioner added. UK minister for energy and climate change Ed Davey said he welcomed the investigation, noting that London and Brussels had already been discussing the issue for 18 months.

The new plant, composed of two Areva EPR units, is expected to generate 3300 MWe from around 2023. 
 
By Carmen Paun and Jeremy Gordon
for World Nuclear News

Filed under: European Union, New build, Contracts, Politics, Energy policy, United Kingdom