European Commission to probe nuclear strike price plans

Fresh doubts raised over Hinkley Point C subsidies

Fresh doubts have been raised over plans to build a new nuclear reactor at Hinkley Point C in Somerset after the European Commission announced it was to investigate whether the subsidies for the plant breached EU state aid rules.

After protracted negotiations with French utility EDF, in October the government agreed a “strike price” of £92.50/MWh for electricity generated by the new nuclear power station. If the wholesale price of power falls below this level, consumers would make up the difference, guaranteeing EDF a certain level of revenue. EDF is also set to benefit from a government guarantee covering any debt it raises on the financial markets in the course of the reactor's construction.

But the commission cast doubt on the necessity of the measures being taken by the government to progress the project. “In particular, the commission has doubts that the project suffers from a genuine market failure.” It added that it wanted to give third parties the chance to comment on the impact of the guarantees on the UK and EU internal energy markets.

EDF said: “As part of a far-reaching reform of the UK energy market, it is right that the European Commission should examine the contract and highlight potential challenges. EDF Energy is looking forward to engaging fully with the commission and interested parties during the course of the investigation.

“This investigation gives the government and others the opportunity to show that electricity market reform in the UK is essential to deliver the investment needed for the country’s low-carbon energy future at a price that is fair for customers. Without this reform, the investment will not take place. The Hinkley Point C agreement is proof that this reform works to attract the investment needed to secure Britain’s future electricity supply.”

The utility added that electricity market reform is designed to help achieve decarbonisation of the economy “without offering any special treatment for nuclear power”.

The commission said it would examine the “contract for difference”, the credit guarantee, as well as the level of public support. It said the cost of these measures could reach £17 billion, depending on future electricity prices and EDF's capital costs.