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The UK's first new nuclear power station to be built in nearly 20 years is set to go ahead at the Hinkley Point C site following a long-awaited approval from the European Commission over the government’s funding plans for the project.
The EC said Wednesday morning that the project does not breach state-aid rules, but added that “significant” changes would be needed to be made to the deal.
“The UK has agreed to significantly modify the terms of the project financing. As a result, the state aid provided will remain proportionate to the objective pursued, avoiding any undue distortions of competition in the Single market. The modifications also reduce UK citizens’ financial contribution to the project,” a statement from the European Commission said.
Specifically, the European Commission has insisted that the guarantee fee which EDF would have paid to the UK Treasury was “too low for a project with this risk profile” and should be increased in order to reduce the subsidy by £1 billion.
The Commission has also put forward a new gain-share mechanism across the entire lifetime of the project to ensure that if the operating profits exceed a predetermined level the subsidy paid by consumer will be reduced.
“An increase in the profit rate of only one percentage point, for example, will generate savings of more than £1.2 billion,” the Commission said.
The EC’s Joaquín Almunia who is in charge of competition policy added: “On this basis and after a thorough investigation, the Commission can now conclude that the support is compatible with EU state aid rules.”
Crucially for the agreement between EDF and the UK government the strike price, set out in the contracts for difference (CfD) scheme, has not been changed.
The UK had agreed to provide a minimum guaranteed financial return of up to GBP92.50/MWh of electricity produced over 35 years at the plant to be built in southwest England through the CfD.
If EDF’s planned Sizewell C nuclear project were to move forward too, the Hinkley strike price would reduce by GBP3/MWh to GBP89.50/MWh, according to the previous plans.
The project could still face legal challenges from EU ministers opposed to supporting mature nuclear technology, but the success of Hinkley in navigating the EU state-aid rules is expected to provide a litmus test for the future of new nuclear investment across Europe.
“The decision will be welcome by all those planning new nuclear build projects in the EU and similar markets,” said director general of the World Nuclear Association, Agneta Rising.
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