The European Commission approves the UK government’s backing for EDF’s Hinkley nuclear project

EDF's Hinkley Point C

The European Commission has given the green light to the £16bn Hinkley nuclear power project, ruling today that the deal the UK government struck with the developer of the project does not breach European state aid rules.

The European Commission (EC) said that the government’s plans to subsidise the construction of the £16bn power plant were compliant after “significant modifications” during the examination process, which it said would reduce the amount of taxpayer support given to the project.

The UK government and EDF’s deal, called a “contract for difference”, was agreed last October and guarantees the price that that EDF will be paid for the electricity from the plant for 35 years.

The project will also be underwritten by the UK government through the Treasury’s UK Guarantees scheme.

Joaquín Almunia, vice-president of the commission in charge of competition policy, said: “After the Commission’s intervention, the UK measures in favour of Hinkley Point nuclear power station have been significantly modified, limiting any distortions of competition in the single market.

“On this basis and after a thorough investigation, the Commission can now conclude that the support is compatible with EU state aid rules.”

However, the Austrian government is expected to challenge the decision to approve the plant (see box below).

Today, the commission said the UK was “within its national competence” to decide to promote nuclear power because it was up to individual states to decide on their energy mix.

It said the UK government had demonstrated that the support it was giving to the project was addressing a genuine market failure in the power plant construction market.

But during the examination process the price that EDF will pay for the UK guarantee was increased, reducing the subsidy by more than £1bn.

The UK government also introduced more stringent claw-back mechanisms into the deal so that taxpayers gain more from a rise in the electricity price and any savings from construction costs.

Energy secretary Ed Davey said the approval was “an important next step on the road to Britain’s first new nuclear power station in a generation”.

He added: “While there is much work still to do before a final contract can be signed, today’s announcement is a boost to our efforts to ensure Britain has secure, affordable low carbon electricity in the 2020s.

“After a thorough, detailed and independent analysis of our proposed project with EDF, this decision shows the European Commission agrees that this is a good deal for consumers and enables us now to proceed to the next stage.”

Questions over costs

In its decision the European Commission (EC) revealed it expected the Hinkley Point C project to cost £24.5bn to build and to have a total capital cost of £34bn - much higher than EDF’s stated £14bn construction cost and £16bn total cost. The difference is due to the inclusion of finance costs in the EC’s construction figure, which is also expressed in nominal terms to 2024, a year after the project is scheduled to be completed. EDF’s estimate is in 2012 prices. The EC’s total capital cost also includes a £9.5bn contingency.

Austria to challenge Hinkley green light

The Austrian government has confirmed it will launch a legal challenge to the European Comission’s decision to give the green light to the £16bn Hinkley nuclear project.

Speaking to Building today a spokesperson for the Austrian government confirmed it would be challenging the approval in the European Court of Justice.

He said: “For us it’s not fair to give that kind of subsidy to a technology that is quite established. It’s not wind or solar where we can see evolution in the future.”

According to Reuters, Austria’s chancellor Werner Faymann and vice-chancellor Reinhold Mitterlehner sent a letter to EC president Jose Manuel Barroso last week saying Austria would “reserve” the right to take legal steps should the project gain a stamp of approval in Brussels.

Reaction to the European Commission’s decision

Alasdair Reisner, chief executive of the Civil Engineering Contractors Association (CECA), said: “We are delighted to welcome the resolution of this long-standing issue. Hinkley Point C represents a hugely important element in securing the UK’s energy security for the future.

“CECA has long argued that the UK’s energy needs will only be met by a mixed portfolio of generation, of which new nuclear power stations will be a vital component.

“We now hope that all involved will work together to move forward with this project, and that work can start without further delay.”

Alan Raymant, chief operating officer at nuclear developer Horizon said: “This ruling is a huge boost for the UK nuclear new build programme which demonstrates the robustness of the model the UK Government has put in place to bring forward low carbon investment and underlines the attractiveness of the UK market for new nuclear.

“As the next UK developer in line, we take great confidence from the decision.

“We look forward to working with all parties, including the UK Government, as we continue to make strong progress towards delivering new clean, secure and affordable electricity for the UK.”

Craig Bennett, policy and campaigns director at Friends of the Earth, said it was a “shocking decision” to “funnel billions of pounds of public money into the hands of EDF”.

He added: “Scarce public funds should be targeted at clean technologies like wind and solar, whose costs are rapidly falling, rather than trying to breathe new life into the failing nuclear experiment - which remains extremely expensive after six decades of operation.”

Mark Stewart, head of energy at EC Harris, said the decision was a “major boost” to the UK nuclear industry

He said: “This will be the key that unlocks the UK nuclear industry, and the wider watching European new build arena. More jobs, more secure energy and a long term replacement for aging energy assets.

“It seems this is a good result for the large energy utilities to ensure the investment in our next fleet of nuclear plants. Of significance, It may not be as good a result for the rest of the stakeholders in the government’s proposed balanced energy mix.”

Institution of Civil Engineers (ICE) director general Nick Baveystock, said: “Nuclear - as part of a diverse energy portfolio - has an important role to play in achieving the UK’s aspirations for a decarbonised energy supply.

“The EC approval therefore marks a major step forward in realising its potential and we hope to see Hinkley being the first of a whole fleet of new nuclear stations.

“This could enable costs to be reduced over the course of the programme, limiting the impact on consumer bills, and importantly ensure the UK harnesses and further develops the expertise that will exist within supply chain.”