EU state aid challenge follows Treasury 'hint' at nuclear underwriting

A leading EU lawyer, backed by the Vice Chair of the European Group of Green MEPs, has declared the British plan to subsidise nuclear power as 'illegal'.
See:

http://uk.reuters.com/article/2013/03/21/uk-eu-uk-nuclear-idUKBRE92K0WL20130321

This challenge follows 'hints' in the Treasury's budget statement that nuclear power could receive underwriting of its costs under the Treasury Infrastructure Finance programme. This presages a battle over whether the European Commission will give state aid clearance to the British plans to subsidise nuclear power. Under existing EU law, while renewable energy has a state aid exemption on the basis that it is an environmental measure, nuclear power does not.

The UK Government has so far justified its 'contracts for difference' (CfD) proposals on the basis that these are open to all 'low carbon' generators and thus not a subsidy. However the grossly uneconomic nature of nuclear power (in reality) has meant that the Government is being pressed by EDF's well-resourced media machine and civil service supporters in DECC to grant much higher subsidies to nuclear power than will be offered to most renewable energy sources. Now, a new watershed has been breached with the suggestion, in the Treasury Budget statement, that nuclear schemes such as the proposed nuclear plants at Hinkley, Sizewell and Wylfa may have at least part of their costs 'underwritten'. These power stations have been included in a map of candidate 'infrastructure' projects. See
http://cdn.hm-treasury.gov.uk/budget2013_complete.pdf See map on page 37

The Daily Telegraph has been enthusing about this prospect. See
http://www.telegraph.co.uk/finance/budget/9944695/Budget-2013-40bn-infrastructure-scheme-could-help-underwrite-nuclear-projects.html


Yet, as late as last Tuesday, 19th March, in answer to a point made by Paul Flynn MP, Ed Davey said:

'The hon. Gentleman is right to say that my concerns on nuclear power for some time have related to the price, because the history of nuclear power in this country and elsewhere is that it has turned out to be expensive. That is why this coalition Government—and, indeed, the previous Labour Government—have gone about the third generation of nuclear power stations very differently from how Government’s went about things in the past to ensure that the consumer, business and the taxpayer are protected. That is why the coalition agreement says that there will be no public subsidy'

How much credence should we place on anything the Secretary of State says in view of the prospect of his agreeing to EDF's terms? We have seen, to use Tom Burke's words a process of 'salami slicing' demands, so that bit by bit EDF moves towards enjoying what would be (I suspect) ultimately a full blown blank cheque (full underwriting of construction risk) passed on by the Government with British taxpayers as the donors.

'Partial' underwriting', given the (apparent) application to the Treasury Infrastructure fund would involve the Treasury agreeing to accept an proportion of debt risk. So, the
Treasury would agree to guarantee the repayment of loans to the value of, say, £2 billion (out of a total £14 billion estimated cost of Hinkley C). Hence, whatever happened the lenders would get their £2bn repaid, as and when the loan and interest repayments fell due. The trouble with this, of course, is that EDF could conceivably go ahead and build £2bn worth of plant (which would have to be funded by the Treasury) and then say: Err, sorry, but we can't do any more without more underwriting.... Then the Government would be faced with a partially built nuclear plant with people saying 'why can't this be completed?', and, the Government may then be induced to underwrite the lot (whatever it will end up costing)  to ensure construction and avoid the embarrassment of having a
part completed white elephant on their hands.

This scenario actually is not totally dissimilar to what actually happened to Sizewell B which was half built when privatisation took place in 1990 and the electricity companies said thet they could not finance completion. So the 'non-fossil fuel obligation' and the 'fossil fuel levy' was invented, essentially to finish construction of Sizewell B. The 'blank cheque' was issued by the Government.

A much touted advantage of the Treasury programme of guarantees for infrastructure projects is that it will not cost the taxpayer anything - I am sure that will be the case in usual cases, but nuclear, my friends, is not usual. It is an industry that stealthily, over a period of years, draws the state into a series of increasing concessions when first it promised to be so cheap (in 2006). There will assuredly be no end to this process until the state has issued a blank cheque upon which will ultimately be written truly enormous sums of money that could be much more cost-effectively be spent on renewable energy and energy efficiency.........or indeed, schools, hospitals etc etc etc.

Even not counting underwriting, EDF's (desired) subsidies will look gargantuan compared to what premium subsidies will be offered to both onshore and ofshore wind under the CfD arrangements. Onshore wind will get no more than around £80 per MWh for a 15 year contract, so EDF's payment of, say, £95 per MWh for 35 years would mean that they would get well in excess of twice the subsidy paid to onshore wind. Offshore wind may get offered around £100 a year according to Government plans, but only for a 15 year contract. So EDF will be getting around twice the subsidy for Hinkley C compared even to offshore wind! And they would still need the taxpayer to 'underwrite' their construction costs! Who can seriously justify this? Well, according to what evidence we see at the moment, the Government may actually be heading in this direction.

But even if the British body politic remains supine before the blandishments of the nuclear-civil service complex  the nuclear industry may be assured of resistance at the level of the European Union. This resistance has already begun.