The EU Competition Commissioner has given the UK government a 28-day ultimatum to prove that its proposals for a guaranteed strike price for electricity to be generated from a new nuclear power station at Hinkley Point C do not skew the market in the form of illegal state-aid.
Commissioner Joaquin Almunia published the EU’s report on the proposed contract for difference which the UK government hopes will persuade the French-owned EDF nuclear power giant to build and operate the proposed new nuclear plant.
His sceptical report comes just one day after an upbeat forecast for new nuclear power in the UK by Baroness Verma in the House of Lords and also follows hot on the heels of the Franco-British summit hosted by Prime Minister David Cameron with French president Hollande, during which UK Energy Minister Ed Davey met with the French Energy Minister Phillipe Martin to discuss how the two countries can further work together to develop interconnectors, nuclear and renewable energy projects.
The EU Commissioner said in his report: “It is not clear to the Commission that nuclear technology is immature enough to warrant State aid, or that it is characterised by specific market failures or other features which make State aid in the form of revenue support, or revenue certainty, necessary.
“Nuclear technology might involve such high levels of capital investments that it might face issues in raising financing. Apart from that, however, it is not clear that the technology itself warrants the provision of State aid in the form which the UK has chosen.
“The Commission questions whether the aid is necessary to achieve the objectives which the UK is pursuing, and seeks comments by third parties on this point.
“In particular, the contract for difference (CfD) seems to provide the utmost certainty of a stable revenue stream, under rather lenient conditions – i.e. that the beneficiary carries out its normal activities as a producer of electricity and sells this electricity into the market.
“In other words, the CfD is conceived to entirely eliminate market risks from the commercial activity of electricity generation, for a period of time, the initial 35 years of operations of the plant.
“As such, the CfD is an instrument which can be regarded as effective in ensuring that investment takes place. It de facto eliminates any price risk that the beneficiary might face,at least during its provision.
“The Commission believes that such an instrument is capable of severely distorting market dynamics, precisely because it shields the beneficiary from risks which other market operators need to face.”
The previous day, Baroness Verma – while admitting that ‘there are still hurdles to overcome’ on the path to a final investment decision – said: “ I am delighted to mention, perhaps the biggest recent achievement – the agreement reached with EdF on key commercial terms for a potential investment contract for Hinkley Point C.
“Following a tremendous amount of work from many parties we can now look forward confidently to the first new nuclear power station in a generation being built at Hinkley Point.
“What we’ve agreed represents a very good deal for Britain. It’s a good deal for UK consumers providing value for money – and also provides an attractive proposition for EdF and its investors – offering a reasonable rate of return for the risks they are taking.”
Hinkley Point C would generate enough power for nearly six million homes, a city nearly twice the size of London, or 7% of Britain’s electricity supply by 2025. In addition it is estimated that around 25,000 jobs will be created during construction with a massive investment by EDF Group and its fellow investors of around £16 billion to build the plant.
She added: “It is dependent on a number of factors, such as a positive decision on State Aid from the European Commission and EdF’s progress with potential investors to secure the capital investment needed to deliver the plant.”
The report by the EU commissioner is already being seized upon by the renewables energy sector as evidence of market-distorting government subsidies.
Martin McAdam, Chief Executive of Edinburgh-based Aquamarine Power, commented: “The cost of electricity from the nuclear plant at Hinkley Point C is higher than the cost of electricity from an onshore wind farm. The headline nuclear tariff is slightly lower than onshore wind, but it lasts for 35 years rather than 15 years for renewables.
“No renewable energy plant gets this type of subsidy. The Hinkley deal virtually guarantees the project’s Chinese and French investors a 10% return for 35 years.”