The UK’s plan to build a new nuclear plant has hit a fresh stumbling block after the European Commission sent the government a letter questioning the deal’s legality on Friday. We summarise the commission’s “damning critique” of the UK’s new nuclear deal.

In October, the government signed a deal with energy company EDF to build a new nuclear power plant – the UK’s first in 20 years. But the commission is stalling over the deal as it is unconvinced the plan is fair, or that the new nuclear plant will help the EU meet its broader goals.

The deal

If built, the new power station at Hinkley Point in Somerset could generate about three gigawatts of nuclear power – enough to power around five million homes, according to EDF. The government says the deal is central to its plans to decarbonise the UK’s energy sector, while providing a reliable source of electricity.

As such, it agreed to:

• Guarantee EDF will receive around £90 per megawatt hour for power from the plant through the wholesale price and a top-up paid through customers’ bills.
• Underwrite the loans needed to build the plant to the tune of £10 billion.

(See this blog for much more detail on the deal).

The deal means the public will effectively subsidise the new plant through a levy on their energy bills. That’s not a particularly unusual way of getting energy projects built. For instance, the renewable energy industry currently gets a similar deal in the UK and across Europe.

But there’s a problem: The EU has strict criteria for when a government is allowed to subsidise an industry – known as state aid. The rules are meant to prevent governments giving some industries an unfair advantage, and the commission isn’t convinced the Hinkley Point deal fits the bill.

Objections

The commission allows governments to subsidise industries if they help the EU meet its broader economic and environmental goals.

The commission will exempt projects from the state aid rules if:

• They help the EU hit its emission reduction target
• They increase the security of the EU’s energy supply
• They wouldn’t get built without a leg up from the government

(We’ve gone into much more detail about state aid exemptions in this blog).

The UK sent a letter to the commission asking it to exempt the Hinkley Point deal on each of those grounds. The pleas seem to have fallen on deaf ears, however, as the commission last Friday said it disagreed with many of the UK’s arguments.

Environmental goals

The commission disagrees with the UK’s claim that the new nuclear plant is needed to help the EU hit its emissions reduction target.

In particular, the commission has two objections:

• It says the UK could reduce emissions to the same extent, and at the same rate, in other ways.
• It’s concerned that by subsidising Hinkley Point, alternative energy technologies which could help the UK reduce emissions – such as wind and solar – could be unfairly crowded out.

Security of supply

The commission also objects to the claim that the Hinkley Point plant is needed to secure the EU’s energy supply.

The commission believes that the more countries invest in a range of energy technologies, the better protected the EU’s economy becomes from fossil fuel price hikes. As such, it will sometimes allow governments to subsidise energy projects that secure the EU’s energy supply.

The UK government argues that the new nuclear plant would do just that – as nuclear is a reliable energy source, which is not dependent on the volatile fossil fuel market.

The commission says the government’s logic is flawed, however:

• It says while the UK’s market regulator, Ofgem, has warned energy supply could be running short before 2020, the new plant isn’t scheduled to come online until 2023. As such, the Hinkley Point plant can’t be essential to security of supply as the UK government must be making other, more immediate, plans.
• It also argues that the UK underestimates the extent to which continental interconnection – electrical wires and gas pipelines connecting the UK to Europe – will increase security of supply.

Competition

Finally, the commission says the Hinkley Point deal could be giving an unfair commercial advantage to the nuclear industry.

The commission currently permits renewable energy subsidies as they help the EU hit its climate and renewable energy goals. It argues that without the subsidies, investors would be put off the renewable energy industry as it relies on newer – and therefore more expensive – technology, than its fossil fuelled competitors.

The commission says the same argument can’t be applied to nuclear energy, however, because:

• Nuclear technology is now mature enough to stand on its own two feet.
• The new nuclear plant may have been built without government support, as existing policies – such as the UK’s carbon tax – make investing in nuclear power attractive.
• There are other examples across the EU where new nuclear projects were built without state aid – such as in France and Finland – and it’s unclear why the UK context should be any different.

Next steps

The fight is far from over.

The commission is currently consulting on whether to change the state aid rules. If it decides to relax the regulations, it could improve the chances of the nuclear deal getting approved.

Here’s what to expect in the coming months:

• Member states have until mid-February to respond to the commission’s consultation.
• The commission will decide on the new rules in June.
• In the meantime, it will continue to consider the UK’s request to exempt the Hinkley Point deal from the current state aid rules, but may not make up its mind about that until next year.

That leaves plenty of time for the UK government to lobby the commission and mobilise its allies – primarily France – in the continuing fight to get its new nuclear power plant built.

(Here’s all that info in a handy table).