News March 2013

22 March 2013

Nuclear Subsidies

Britain’s plans to reward nuclear plant operators through fixed prices for low-carbon energy are illegal under existing EU rules and efforts to adapt them are likely to draw opposition from other member states, EU and legal sources said. “Neither under the current (…) nor under possible future frameworks could the CfD scheme for nuclear generators be declared compatible with European state aid rules,” said Doerte Fouquet, a lawyer specialised in EU law at Becker Buettner Held in Brussels. The European Commission said it had not yet received a formal notification from Britain, but added that, in general, state aid is only authorised when the benefits of aid outweigh the distortion of competition brought about.

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Posted: 22 March 2013

21 March 2013

Carbon Floor Price

Consumers groups claimed the Chancellor has introduced a new “stealth tax” on energy bills which will cost every household an extra £34 a year and raise £2 billion for the Treasury. The Government’s so-called carbon tax, which penalises dirty coal and gas power stations but passes costs on to household bills, is being introduced on April 1. But yesterday it emerged that the tax would increase almost fourfold by 2015, adding about 6.5 per cent, or £34, to the average annual household electricity bill of £530, according to the IHS Energy consultancy. The tax was announced three years ago to encourage energy companies to build “low-carbon” nuclear reactors, by penalising dirtier forms of power generation for their carbon emissions. It “tops up” payments dirty power generators already make under a European carbon trading scheme to guarantee they pay a high-carbon penalty. But since the tax was announced, carbon prices under the European scheme have collapsed to almost zero. As a result, the level of the top-up tax levied by the Government is far higher than anticipated to make up the difference, resulting in an even bigger windfall for the Treasury. Two years ago, the Government expected the tax to raise £740 million in its first year and £1.4 billion in two years’ time. The tax is forecast to raise £975 million in 2013-14 and £2 billion in two years’ time.

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Posted: 21 March 2013

20 March 2013

Hinkley

Plans for Britain’s first new nuclear plant in decades will only become a “reality” if ministers “swiftly” agree on subsidies for the £14bn project, EDF Energy warned on Tuesday. Vincent de Rivaz said a deal was “still possible” but declined to express confidence it would be achieved. EDF is understood to want a price near £100 per MWh, but the Treasury initially offered nearer £80 per MWh. Sources suggested the Treasury position had softened but that many details remain unresolved. Any deal that is agreed will then require EU state aid clearance. Mr de Rivaz said: “It is very important that we clarify this clearance to make our final investment decision.” He believed clearance would be granted but declined to say whether the process could further delay the plant. EDF will also need to attract other investors to help fund the project before it decides to invest. Some in the industry doubt these are forthcoming, with interest from one Chinese nuclear corporation that had been seen as a probable partner now said to have waned.

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Posted: 20 March 2013

19 March 2013

Nuclear Subsidies

Ian Marchant: Negotiations between EdF, the state-owned French energy company, and the Government over the proposed new nuclear power station at Hinkley Point in Somerset are at a crucial stage. The sticking point appears to be the “strike price” — what we will all end up paying for power from the new reactor. If it is set too high or the contract is too long, consumers will foot an unnecessarily expensive bill for decades to come. Onshore wind already costs less than this (about £90/MWh) and that industry is striving to get costs down even more. The technology we are buying, the European Pressurised Reactor (EPR), is a 1960s retread. We are buying French technology from a French provider and French developer. People say that nuclear will ease concerns over security of supply. But those concerns are about the next five years and no one expects a new nuclear station to be available before 2020. Finally, some might argue that, as an established technology, nuclear power is predictable and robust. But experience of the only two EPRs being built in Europe, at Flamanville, in France, and Olkiluoto, in Finland, suggests exactly the opposite. I struggle to see why we should all pay a premium over the other options. I see no reason why a combination of new gas, renewables and energy efficiency cannot bridge the energy gap for the next five to ten years while we let the nuclear industry get its costs down and improve its track record on delivery.

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Posted: 19 March 2013

18 March 2013

New Nukes

Talks with French energy giant EDF over how much the Treasury will pay for nuclear electricity have become bogged down and are now expected to run to the end of this month. On Tuesday, planning permission is expected to be granted for two new reactors at Hinkley Point in Somerset. However, a deal on the price for the power they will generate originally expected on the same day is still far away.

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Posted: 18 March 2013

17 March 2013

Nuclear Subsidies

PLANS to build Britain’s first nuclear power station for two decades could collapse in a fortnight unless the government agrees to provide tens of billions of pounds in subsidies. EDF Energy, the French power giant, wants to build two reactors at Hinkley Point, Somerset. The eight-year, £14bn infrastructure project will be the largest in Britain. The Olympics, by comparison, cost £9bn. EDF says it cannot proceed until it receives a government guarantee that it will be able sell power at roughly twice the current price for up to 40 years. The exact figure has been the subject of fraught negotiations with ministers. Talks have dragged on for more than a year and EDF has told the government that it needs to know by the end of the month or it could walk away from the project. EDF has launched a worldwide search for investors to take up to a 50% stake. China Guandong Nuclear Power, the state-owned group, is seen as a likely candidate. The French are also talking to pension funds and infrastructure investors. Sources close to the company said it would prefer to bring in a mix of financial and operation partners.

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Posted: 17 March 2013

16 March 2013

Nuclear Subsidies

Perhaps EDF’s latest media offensive in favour of their 35 year contract for nearly £100 per MWh is a sign of desperation rather than strength. Certainly the Government is under great pressure not to give into EDF. As discussed in the Guardian, the Government faces a choice about whether it wants to face a long wait for approval from the EU Commission to be given ‘state aid’ approval for the nuclear subsidies or whether it will achieve a quick decision. The UK’s case for state aid approval is based on a claim that its ‘low carbon subisdies’ are equally available to other energy generators. Or at least, that is how it will be seen in Brussels. The Government might get away with things more easily if there were no objections from other actors in the generation business. But renewable energy generators, let alone anyone else, are not going to receive 35 year contracts (no more than 20 years), so the Government case looks very shaky if wants to obtain state aid under EDF’s preferred terms.

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Posted: 16 March 2013

15 March 2013

Nuclear Subsidies

Britain’s planned nuclear reactor programme could be delayed for years, and the nation’s long-term energy policy thrown into turmoil, as European commission officials launch the first stage of a formal investigation into the use of taxpayer subsidies to support the development. Sources in Brussels have indicated that Britain hopes to win approval for a multibillion-pound deal with French energy giant EDF at the initial stage, which usually takes two months. But if after a preliminary investigation the EC’s competition directorate decides to launch a full-scale investigation that would last at least 18 months and probably two years or more. Such an outcome is made more likely by reports that ministers and EDF are discussing a minimum or “strike” price for the nuclear-generated electricity of a little under £100 per megawatt hour – nearly double the current market rate. However ministers will be hoping that their regular meetings with EC officials will make it more likely that a full inquiry will be avoided.

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Posted: 15 March 2013

14 March 2013

Nuclear subsidy

Ed Davey will soon sign a long term investment contract to buy electricity for 30-40 years at twice today’s price from an EDF nuclear power station that will not produce any electricity in this decade. This decision is a £50 billion bet that DECC knows what the wholesale price of electricity will be in 2050. That would be like having asked Tony Benn, Harold Wilson’s Energy Minister, in 1976 if he knew what the wholesale price of electricity would be in 2013. To raise the £14 billion capital needed for Hinkley C, EDF will require an investment contract that is unbreakable. It is therefore vital that its provisions be thoroughly examined before it is signed.

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Posted: 14 March 2013

13 March 2013

Nuclear Subsidy

A number of well-sourced reports over the past two days suggest that, as predicted, we are on the edge of a deal for the construction of new nuclear power stations in the UK. The champagne corks however are not quite popping either in Whitehall or in Paris. On both sides of the Channel there is great nervousness about the details of the deal. A price of about £95 per MWh is high particularly given the reported length of the contract – 35 or 40 years depending on which report you believe. Many questions will be asked about the details behind these headline numbers. How can either side claim that this is not a subsidy and indeed a state aid under European rules. Can the French really manage the Brussels system to the extent that the state aid element of this goes unquestioned?

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Posted: 13 March 2013