The European Commission has issued a setback to the UK’s first new civil nuclear power project for decades after an initial assessment suggested that subsidies of up to £17.6bn may be unnecessary.
Failure will harm sector confidence
The proposal of the plant, located at Hinkley Point in Somerset, is being led by a consortium headed by French energy-behemoth EDF and is expected to cost approximately £16bn. The UK Government argues that the project would not happen without the subsidies in place and believes that a failure to complete the plant would harm confidence in nuclear and cause a lack of investment.
The main planned subsidy scheme for Hinkley Point involves guaranteeing EDF a price for the power the plant will generate for 35 years. This price is twice the current market rate of power and will be subsidised through billions of pounds of top-up payments generated by levies on UK energy bill-payers when the market price dips below the guaranteed level.
Is state aid needed?
However, the European Commission suggested that the support subsidies proposed constitute state aid and as such may be classed as illegal aid. Their report said: “It is not clear to the Commission that nuclear technology is immature enough to warrant state aid.”
The report goes on to question the assumptions used in calculating the guaranteed power price and warns against the contract to ensure that EDF will not receive “more than a reasonable rate of return.” In more criticism, they state that state support for such nuclear initiatives may crowd out future investment in renewable energy.
The final decision by EDF’s consortium to go ahead with the project is due later this year, following yet further investigations by the European Commission.
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