Hinkley C gets the go-ahead - but will it prove a dodgy nuclear deal too far?

Hinkley Point B. Photo: Ken Grainger / geograph.org.uk via Wikimedia Commons.
Hinkley Point B. Photo: Ken Grainger / geograph.org.uk via Wikimedia Commons.
The outgoing European Commission has just given the UK's controversial Hinkley C nuclear project the go-ahead, writes Paul Dorfman - approving a deal that will cost the UK public tens of billions of pounds. But now the deal faces a legal challenge in the European Court of Justice.
We are convinced that this state aid will distort the UK and pan-EU energy market, and that, in any case, subsidies should not be provided to a mature technology like nuclear power.

The European Commission has just voted today to allow the UK to subsidise two new EDF nuclear reactors at Hinkley Point C to the tune of £20 billion.

This sets an important precedent, and will have consequences not just in UK but also throughout the EU. If the UK can throw billions at subsidising nuclear, then countries throughout the EU could do the same.

Given there's only so much money to go round, if nuclear power is allowed to grab a huge share of the European energy finance pot, that will seriously diminish the funds available to develop the renewable energy revolution.

At least we now know that this is indeed a subsidy paid for by public money. The UK Government had contrived a position, by which they argued that the support for Hinkley C would not be a subsidy if it was also available to other low carbon technologies, including of course renewables.

But the subsidies the UK is determined to dole out with such largesse to EDF are not available to renewable energy. In particular renewable energy support contracts typically last for 15 or 20 years - compared to the 35-year contract on offer to EDF.

UK's billions will compensate EDF, no matter what

This is compounded by a new agreement between Ed Davey, the Secretary of State, and EDF which now allow direct compensation from DECC to EDF if the project runs over-cost or if future UK governments or environmental conditions derail the project.

EDF is building two reactors in Finland and France, and they are both hugely over-cost and over-time. EDF's Flamanville reactor in France was due to be completed by 2012 at a cost of €3.3 billion, but is now projected for completion in 2016 at a cost of €8.5 billion.

Finland's Olkiluoto-3 reactor, the first EPR construction project, is likely to be a decade behind schedule upon delivery, with a projected completion date of 2018. Construction of the 1.6GW plant began in 2005 and was originally due for completion in 2009. Cost figures are similar to those for Flamanville.

There is no reason to believe that Hinkley C, with its two 1.6GW reactors, will perform any better. This puts the UK tax payer as well as the energy consumer on the hook for the enormous costs of Hinkley Point, already the most expensive nuclear power station in the world on official estimates.

A rushed decision under pressure - strengthens case for legal challenge

Earlier this year, The Commission published a landmark report which detailed at great length a substantive set of concerns with the deal.

Originally, the Commission said that UK State Aid for nuclear would distort the EU and UK energy markets, precisely because it shields nuclear from financial risks that other energy operators are subject to.

We are convinced that this state aid will distort the UK and pan-EU energy market, and that, in any case, subsidies should not be provided to a mature technology like nuclear power.

The Commission also doubted that the level of profit for the UK deal was a reasonable rate of return taking into account the level of risk involved.

Furthermore, it said, UK subsidies would provide the certainty of a stable revenue stream under lenient conditions by eliminating market risks from the commercial activity of nuclear electricity generation for the amazingly long 35-year contract period.

As the Commission said in it's original report: "Nuclear energy generation has the capacity to crowd out alternative investments in technologies or combinations of technologies, including renewable energy sources, which are likely to emerge in the absence of specific UK State Aid subsidies for new nuclear."

Now the Commission has performed a 180 degree volte face. But it's not because the facts of the case have changed. It's the result of enormous political and industry pressure.

Why now - at the tail end of a Commission that's run out of steam?

The timing of the decision also warrants attention, coming as it does right at the tail end of Barroso's increasingly discredited Commission. The outgoing administration simply rushed it through at the last moment. And it only got its way by a narrow margin, with the support of just 16 Commissioners out of 28.

Among those raising concerns ahead of today's meeting were Connie Hedegaard, Climate Commissioner, and Environment Commission Janez Potocnik. Regional Policy Commissioner Johannes Hahn, from Austria, expressed outright opposition.

The decision deprives the new Commission the opportunity to review and reflect on a decision which will set a significant precedent for pan-EU energy and competition policy. That this decision has been taken in undue haste only strengthens the grounds for, and likely success of, a legal challenge, and one is current,y being prepared by Austria.

Also, the EC decision document refers to a significant body of new evidence from the UK and EDF, yet there is no access to this information - which means that it is impossible to check its veracity, or challenge the arguments made.

Since it is this evidence that has - so we are told - persuaded the Commission to change its mind, it should be made public to make sure it can be properly scrutinised and validated.

We do know that the 'strike price' of £92.50 per megawatt hour, guaranteed and inflation-proofed for for 35 years remains in place. But Commission Vice-President Joaquin Almunia assures us that the revised deal includes 'profit-sharing' provisions that will limit the gains to EDF and return them to tax payers:

"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.

"These modifications will also achieve significant savings for UK taxpayers. On this basis and after a thorough investigation, the Commission can now conclude that the support is compatible with EU state aid rules."

But until the whole deal is published, we simply cannot tell if this represents a great victory for the British public - or a dodgy under-the-table political fix.

Molly Scott Cato, Green MEP for Southwest England, clearly believes the latter: "It is a scandal that one of the final acts of the Barroso Commission is to turn a blind eye to the illegality of the Hinkley deal as some kind of quid pro quo for Germany's renewable energy support scheme."

Why is this a European issue?

Distorting nuclear subsidies in the UK will have a big impact across the whole EU electricity market. Increased renewable energy 'pooling' between countries will mean much more European-wide balancing to match supply and demand on a continental scale.

For example, solar power in Germany and southern Europe, hydro electric power in Norway and Sweden, and wind in the west may all produce local surpluses that can be transmitted afar to reduce fossil fuel burning on the far side of Europe.

But with very big nuclear subsidies, the market for renewable technologies will be reduced. And the inflexible output of nuclear power stations will increase the difficulty of establishing new renewable generation capacity, and pooling its output, across the whole EU - not just in the UK.

If the precedent is accepted for nuclear specific subsidies in the UK, then other countries are likely to follow the UK's lead - beginning with Poland and the Czech Republic.

We will challenge this disgraceful decision

A number high-level energy sector people and I are working with a large set of pan-EU and pan-UK energy associations, corporations and small companies who will be significantly - and negatively - affected by this decision.

We are convinced that this state aid will distort the UK and pan-EU energy market, and that, in any case, subsidies should not be provided to a mature technology like nuclear power - a point argued by the Commission argued in its original report.

We now intend to join Austria and press a legal challenge through the EU Court of Justice. In consultation with our legal team we have identified key criteria that will allow us to challenge the legality of this decision.

We argue that the decision by the European Commission to allow a support mechanism for new nuclear installations from public funds and guarantees will directly impact investment plans and business strategies in the UK and across Europe.

Those adversely affected include renewable energy generators, installers, equipment manufacturers, other efficient technology providers, fitters of insulation and other energy saving equipment, and investors in decentralized renewable energy projects.

Do we feel lucky today?

But at root, the argument is all about what we want - a plutonium economy, or a renewable one? In the UK and across Europe, public opinion is firmly on the side of renewables, and against nuclear power - all the more so following the triple nuclear reactor meltdown at Fukushima, Japan.

Maybe the question we need to ask ourselves is, 'do we feel lucky?' Because if we opt for a nuclear future, we had better be feeling very lucky, indeed.



Dr Paul Dorfman is a Senior Researcher at the Energy Institute UCL, Joseph Rowntree Charitable Trust Nuclear Policy Research Fellow; Founder of the Nuclear Consulting Group, Member, European Nuclear Energy Forum Transparency and Risk Working Groups, served as Secretary to the UK government scientific advisory Committee Examining Radiation Risks from Internal Emitters.

Paul is also 'Expert' to the European Economic and Social Committee Opinion: ‘European Energy Dialogue: Towards a European Energy Community', and led the European Environment Agency response to Fukushima in 'Late Lessons from Early Warnings' Vol 2.

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