By a Newsnet reporter
The UK government’s plans to promote the development of nuclear energy by rewarding plant operators through fixed prices for low-carbon energy are illegal under EU law, according to EU and legal sources.
The Westminster government hopes to expand its nuclear programme by reforming the electricity market to fix a minimum price for nuclear energy, but it transpires the plan will require approval from the European Commission, who may block it.
The subsidy instruments being considered by the UK government, called “contracts for difference” (CfDs) must be approved by Brussels, under state aid rules. Westminster is currently in talks with French energy company EDF about a CfD for the company’s Hinkley point C nuclear project in south-west England. The new development would be the UK’s first nuclear plant since 1995. The new plant is scheduled to go into operation around the turn of the decade.
However according to lawyers specialising in EU law, the British government’s plans are incompatible with European state aid rules.
Doerte Fouquet, a lawyer specialising in EU law with legal firm Becker Buettner Held in Brussels, said: “Neither under the current (…) nor under possible future frameworks could the CfD scheme for nuclear generators be declared compatible with European state aid rules.”
In order to secure approval for its plans, the UK government must persuade other EU member states to agree to a change in the regulations. However several leading members of the EU, including Germany, have already stated their intention to phase out nuclear power following the disasterous accident at the Fukushima plant in Japan. It is unlikely that these nations will look favourably on an application from the UK to change EU rules.
Mr Fouquet said that in order to change state aid rules, the Commission would have to embark on a lengthy consultation process with member states and other interested parties. The consultation would be likely to take up to 2 years.
A spokesman for Britain’s Department of Energy and Climate Change said Britain was talking to the EU executive, saying:
“We are working with the European Commission to ensure mechanisms and institutional arrangements within Electricity Market Reform are consistent with EU state aid rules.”
However a spokesperson for the EU Commission said that they had not received any application from the UK government for a change in CfD rules.
SNP MEP Alyn Smith has now called for a wholesale review of how the UK government proposes to subsidise nuclear power.
Mr Smith, himself a lawyer, has been working on how CfDs can possibly be compatible with state aid rules and has had his view today confirmed – they’re not, and any chance of changing state aid rules to make them work will require agreement from all other member states.
Mr Smith said:
“I find it staggering that the UK government can give planning permission to new nuclear power developments, albeit in England, when the legal and financial basis of the proposed subsidy have not been signed off.
“This is a massive uncertainty hanging over the projects, and at a time of austerity it simply staggers me that the UK government could proceed in this reckless fashion when it seems clear the taxpayer will pick up the tab.
“My group in the European Parliament has been at the forefront of probing the murky world of nuclear subsidy, but this has taken some beating. I cannot for the life of me see how CfDs can possibly be permissible under EU law, and while anything is possible eventually, it will take time and negotiation, and all the while the project ticks away.
“The commercial risk premium being charged on this project must be immense, and we need to see a lot more clarity on how new nuclear will be subsidised. I’m glad Scotland is making so much better a job of kicking our renewables revolution rather than being shackled to this old and expensive technology.”