Catherine Mitchell, IGov Team, 21st October, 2013
There are many interesting points about the much trailed nuclear announcement today but the ones I find particularly interesting is that regarding the 10% return on investment and the various issues which still have to be agreed, including the EU decision on State Aid. The latter is unlikely to be agreed in the next 2-3 years so today’s announcement is a political mirage.
In brief, and in non-legal language, countries should not favour certain parties and distort competition. Under Article 107 (3) TFEU, the European Commission may declare certain categories State Aid compatible with the internal market and thus approve them. To that end, the EC publishes Guidelines which set out which measures are less problematic. The Guidelines are guidelines and not legally binding. The current Guidelines will expire on 31 December 2014* and work has started on a successor. There needs to be 8 weeks of public consultation before the new guidelines come into force, and these are expected in the first quarter of 2014.
On 8 October 2013, the European Commissioners did not agree to change the Guidelines for State Aid to include nuclear power. This does not mean that State Aid for nuclear power is illegal. It means that nuclear power projects will continue to go through the case by case authorization process which takes longer and is not as legally certain.
The EUs Competition Commissioner, Almunia, said that in September 2013 that the UK Government would notify the EU about the British nuclear program. He clarified about a week later that the EU has no plans to encourage State Aid for nuclear power or to make it easier for member states to grant such aid.
Now that the British announcement has been made, the UK Government can notify the Commission. This will require an examination of Contract for Differences as a means of supporting nuclear power. Given the 35 year contract for nuclear unlike the 15 year contracts for renewables; the allowed 10% rate of return on investment which is higher than that allowed for regulated networks; and the Government Infrastructure Guarantee of 65% capital costs, this will without doubt have some problems. An examination of EMR will also be required and this is expected to cause even more problems.
Parts of Government have been determined to support nuclear power. This has led to the EMR and a very complex mechanism of support culminating in today’s announcement. The next step is for EMR, and CfDs to undergo a detailed examination by the EC in order to get through State Aid, and this must increase the already incredibly high levels of risk involved with EMR and investment in the British energy system. The key question is whether EMR is strong enough to withstand yet another hiatus and examination.
* This blog was amended on the 23/10/2013 – the correct date is 2014, not 2013 as originally stated.