Government incentives for a pair of proposed nuclear reactors could cost U.K. taxpayers as much as £17.62 billion, thus exceeding the reactors' projected cost. The EC figure is a preliminary estimate included in an initial report to London published on Friday by European Commission competition czars. The letter notifies the British government that—as we predicted in December—Brussels is launching a formal investigation to assess whether the subsidies violate European state aid rules.
The preliminary findings suggest that the U.K. and E.C. are on a collision source. As the Financial Times summed it up this weekend: "The severity of [the EC's] initial concerns will cast a shadow over government hopes to win approval for the deal."
The pair of reactors concerned are French-designed 1600-megawatt EPR reactors that Paris-based Électricité de France (EDF) wants to build at the Hinkley Point nuclear power station on England’s southwest coast. In October, the government of British prime minister David Cameron (pictured above at one of Hinkley Point's existing 1970s-era reactors) guaranteed EDF approximately £92.50 ($151) for every megawatt-hour generated at Hinkley Point. That price is nearly double the average amount paid to U.K. generators last year.
EDF insists that without the so-called contract-for-difference guarantee, U.K. power prices, as well as carbon credits that the plant would earn, are too low and uncertain to justify the £16 billion investment. And the U.K. government argues that it needs up to 16 000 MW of new nuclear to meet ambitious greenhouse-gas reduction goals that call for a near decarbonization of the electricity system by 2030.
However, European limits on state aid forbid aid to new nuclear generation. The UK tried to add an exemption for nuclear generation during a recent rewrite of the state aid rules, but its motion failed. Hence its insistence in public statements that the price guarantee, as well as government backing for the plant's financing, do not represent subsidies. As Secretary of State for Energy Edward Davey insisted when the deal was announced in October: "For the first time, a nuclear station in this country will not have been built with money from the British taxpayer."
The EC doesn't seem to be buying that. As Commission Vice-President and competition chief Joaquín Almunia described the initial findings: "The nuclear plant operator will ultimately receive a fixed level of revenues and will therefore not be exposed to market risks...It would appear to be difficult for the UK to provide a greater degree of certainty." [emphasis added]
The EC also questions whether there is a "market failure" that requires correction. It suggests that the subsidies might therefore be unnecessary and/or that they will freeze out competitors, including developers of renewable resources such as offshore wind power.