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‘Illegal UK state aid’ probe hits nuclear plans

A full-scale investigation is being launched into whether Britain’s deal with French nuclear giant EDF, backed with money from Chinese nuclear generators, to build new stations at Hinkley Point in the west of England, is illegal state aid.

The investigation by the European Commission is a serious blow to the nuclear industry in Europe and across the western world, because it delays any expansion of the industry for at least a year and may possibly permanently damage its prospects.

It is a test case because nuclear subsidies have never been looked at previously in Europe, since they pre-date existing EU policy on competition and so have never been challenged. However, countries like Germany, which have decided to phase out nuclear power in favour of renewables following the Fukushima accident, believe the UK’s nuclear subsidy is not compatible with EU policy.

Across Europe other critics of nuclear say that no new station has ever been built without state subsidies, and that since subsidies distort competition in electricity markets, they are therefore illegal in Europe.

Guaranteed price

The UK argues that a guaranteed price for electricity over 35 years, plus £10 billion (US $16.36 bn) in loan guarantees for building the station, and insurance cover in case of accident, do not constitute subsidies beyond what would be available to other low carbon forms of generation, and are therefore permissible.

Tom Burke, former advisor to Conservative environment minister John Gummer, asks why, if there is no public subsidy, the Government needs to apply to Brussels for state aid clearance for this deal.

But the UK Department of Energy and Climate Change countered: “The Commission is aware of our timetable for implementation. We are confident that the case we have put forward is robust and consistent with state aid rules.”

In other words, the British Government officials are optimistic that the investigation can be over quickly. It believes that by mid-2014 clearance will have been given for two reactors – costing £16 bn – to be built. If built on time they would provide 7% of Britain’s electricity by 2023.

Numerous objections

Objections to the deal are expected to be numerous, however, and an investigation could take far longer than that. If the decision goes in favour of the UK it will be a serious blow to the renewable industry, so supporters of wind, solar, wave, tidal and bio-gas technologies are all likely to submit objections.

For example Mark Turner, a director at the UK’s leading solar power generator, Lightsource Renewable Energy, has written to Prime Minister David Cameron to point out that Britain’s solar industry can deliver the same energy production at the planned Hinkley Point C within 24 months and at comparable cost.

Hinkley won’t be able to contribute to reducing dependence on fossil fuels for the ten years it would take to build the plant. Solar power, on the other hand, could provide energy security quickly, reduce electricity bills and protect the environment at the same time, he said.

One curious aspect of the saga is that the British Government pledged before the last election that nuclear power stations would be built only if they could compete with other forms of generation without subsidy. They then spent two years negotiating with EDF and agreed to pay £92.50 per megawatt hour for the electricity over 35 years, double the existing price of electricity.

UK gambles

The Government is therefore gambling that the price of electricity will double before the station starts up and that it will therefore not have to pay the subsidy. Among the issues the commission will be looking at is whether the deal gives EDF and its Chinese backers excess profits at the expense of British consumers.

In the wider context the deal is important because the nuclear industry’s revival in democracies depends on it being classed as a low carbon generator, which can benefit from carbon credits and other subsidies in the same way as renewables. This has already been ruled out in most democratic countries outside Europe.

Without state aid the large capital expenditure needed to build nuclear plants is hard to find from the private sector, and the time it takes to build reactors makes the return on capital long-term. Two stations being built in Finland and France are both up to seven years late and construction budgets have already doubled. They are the same design as the reactors intended for Britain.

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