For a full briefing on the Commissions comments please go to Energydesk.
The European Commission (EC) has delivered what can only be called a scathing initial verdict on the UK Government’s deal with French state owned EDF to build the first new nuclear reactors in the UK for a generation.
It concludes the measures are definitely state aid and therefore illegal under EU law.
The initial analysis - published on the Commission website - suggested that the deal may not be proportionate and risked substantially overpaying EDF. The Commission said additional support to EDF (on top of market prices) could end up costing anywhere between £5bn and £17.6bn.
The Commission is now launching a full investigation into the package of measures supporting Hinkley C, including a contract providing a fixed price for power (known as a Contract for Difference), guarantees for loans to the project and political guarantees.
In particular the Commission says:
- Support to build new reactors may be unnecessary. Private investment is expected to invest in nuclear by 2030, without the need for government sweeteners.
- The deal is expensive. 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 UK may be paying too much for the new reactors because EDF can borrow money more cheaply thanks to the Contract for Difference and loan guarantees. This means EDF would be able to build the reactors for less than the UK government is paying. UK taxpayers will be protecting EDF and its investors.
- If the price of electricity falls below the fixed price guaranteed to EDF, the company stands to make a fortune while consumers are forced to pay artificially higher bills.
- There wasn’t a tender for Hinkley C. Low-carbon electricity sources don’t seem to have been considered instead of new nuclear reactors which could put the project in violation of EC directives.
- The Commission doesn’t believe the UK government when it says the reactors are needed to keep the lights on. They won’t be ready until 2023 at the earliest.
- The Commission also said that all these favours being done for the nuclear industry “might crowd out alternative investments in technologies or combinations of technologies, including renewable energy sources.”
- The fixed electricity price offered to EDF shields the company from risks that its competitors can’t avoid. The Commission concludes the package, especially Contracts for Difference, could severely distort the market. The combination of Contract for Difference, a credit guarantee, and compensation for political risk means the project “is not far from being risk-free at the level of operations.”
The bottom line is that the Commission isn’t sure nuclear power deserves state aid. Why does a mature technology like nuclear need assistance in this way? Two nuclear reactors being built in Finland and France didn’t need state aid and the Commission can’t see why Hinkley C is “fundamentally different”.
The UK government hopes the Commission will report again in the summer. The initial findings are so the sceptical, however, it’s difficult to believe it will approve the deal without demanding major changes.