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European Commission casts doubt on UK nuclear plans

10 February 2014

A letter to the UK government from European Commission Vice-President Joaquín Almunia at the end of January has fleshed out the EC’s December decision to launch a formal investigation into proposed subsidies for EDF’s proposed £16bn plant at Hinkley Point C in Somerset.

The letter, which claims the subsidy deal for the UK’s first new nuclear plant in decades may constitute illegal state aid, is a serious setback for the UK Government’s plans to build a fleet of new nuclear power stations.

Under a deal struck in October, France’s EDF and partners in the project will be guaranteed a price of £92.50 – twice the current market price of electricity - for each megawatt-hour of power that the reactors generate over a 35-year period. The subsidies will be funded through levies on all consumer energy bills.

In addition, the Treasury has offered a credit guarantee to underwrite up to £10bn of debt on the project.

The UK argues that the project would not take place without the subsidies and fears that if Hinkley does not go ahead it will destroy investor confidence, resulting in “a complete lack of investment in new nuclear plants”.

But the Commission argues the subsidies may be needless, risk handing EDF excess profits and could severely distort competition. It also warns that the UK’s failure to hold a competitive tender for new low-carbon power plants could be illegal.

The document will raise fresh doubts about the likelihood of EDF taking a final investment decision in July, as planned, given both the weight of concerns raised and the fact it makes clear that “many of the most important terms” in the deal itself “have not yet been agreed”.

The EC says it is “difficult to argue” that Hinkley can help the UK achieve security of supply, given it will not be running before 2023, too late to help in Britain’s looming power crunch.
It adds it “could hardly be argued to contribute to affordability – at least at current prices, when it will instead and most likely contribute to an increase in retail prices”.

The EC letter reveals that the UK government’s own analysis shows new nuclear plants would be likely to be built without such subsidies by either 2027 or 2030.

It says that the combination of the UK’s rising carbon tax, and the loan guarantee from the Treasury, may together have been sufficient to bring forward the investment without the guaranteed power price.

“It is not clear to the Commission that nuclear technology is immature enough to warrant State aid,” it says.

This comes at a time when other significant voices are being raised against the EDF deal.

In an interview with the BBC in December, INEOS chairman Jim Ratcliffe said £92.50 per Mwh was unaffordable for energy-intensive industries. "Forget it," he said in the interview. "Nobody in manufacturing is going to go near [that price]."

Ratcliffe said INEOS, a global chemicals giant which owns the Grangemouth refinery in Scotland and several plants in France, recently agreed a deal for nuclear power in France at 45 euros (£37.94) per Mwh.

It seems the UK Government is running out of options. The decision to run down UK nuclear engineering capacity in the 1990s means the country has to rely on technology and expertise from abroad to oversee any nuclear revival in the UK, but those foreign nuclear specialists can name their price given the lack of baseload generation alternatives to nuclear in the Brave New World we have created through ever more stringent environmental and decarbonisation legislation.

Some compromise with the Commission may eventually be reached over new nuclear, but if the UK is to retain any energy intensive industries into the future, other cheaper energy alternatives such as shale gas will also have to be fast-tracked.

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