August 22 2014 Latest news:
Wednesday, February 5, 2014
A deal worked out in an attempt to kick-start the UK’s new nuclear programme – including Sizewell C – may distort the electricity market, according to a scathing European Commission report.
The 68-page document threatens to derail plans for a nuclear renaissance because it suggests that a financial deal between EDF Energy and the government – known as a Contract for Difference (CFD) – may contravene state aid regulations aimed at preventing unfair subsidies in the European energy market.
It also suggests that the agreement does not represent particularly good value for money.
The EC has ordered a month-long investigation into last year’s deal between EDF and the government to guarantee a £92.50 payment – known as a “strike price” – for each megawatt hour of electricity generated by the first of the planned new nuclear plants, at Hinkley Point in Somerset, over its projected operating lifetime of 35 years.
A similar agreement was reached for Sizewell C, with an £89.50 per megawatt hour strike price.
Both deals involve payments well in excess of the current price in Europe, but the government and EDF claim that, as energy costs rise, they will prove good value over the 35-year reactor lifetimes.
The report says: “The commission has doubts on the structure of the CFD for nuclear which, by its design, duration and scope, has the potential for distorting competitive conditions.”
It also casts doubt on whether the aid measures are proportional to the potential benefits.
An EDF spokesman said the investigation would allow the firm and the government to show that market reform was essential “in order to give the UK the secure, low carbon electricity it needs for the future”.
The Department for Energy and Climate Change said it would show that the project meets state aid rules, will cut carbon and improve energy security in a way that is good value for money.