EU Competition Commissioner Joaquín Almunia has provoked a hot debate in Brussels this summer, by proposing to authorise state aid for nuclear power. This comes at the same time that the European Commission is reflecting on how to reduce subsidies for renewables, in line with their increasing maturity. Hughes Belin reports from Brussels.

It all began with EDF’s plans to build new nuclear reactors at Hinkley Point C in the UK. It seems these cannot be economically viable without financial support, just as required for wind or photovoltaic power. Hence, the UK wants to offer so-called Contracts for Difference (read: feed-in tariffs) – usually used to support renewables – to nuclear new-build, guaranteed and indexed for 35 to 40 years at around £100/MWh (€117/MWh).

The UK government is reportedly currently in discussion with the European Commission’s competition department to find a solution to get away with such subsidies for nuclear power.

According to a legal analysis by Professor of Energy Policy Steve Thomas at Greenwich University and a German lawyer, Dörte Fouquet, from Becker Büttner Held (BBH) law firm, this subsidy plan clearly counts as state aid since it involves: an advantage to nuclear operators, commitment of state resources, distortion of competition and an effect on cross-border trade.

Nuclear: renewables’ best friend?

The nuclear industry lobby in Brussels recently published justification for a support regime for nuclear power in its contribution to the debate on a future EU climate and energy framework for 2030. “A favourable investment environment should be created to foster the deployment of the low-carbon technologies that require higher capital investments” said Foratom, adding that “the electricity market should reflect the real cost of delivering each type of low-carbon electricity to the consumer”. By this it means the “full system cost”, including for transmission, distribution and back-up. In other words, Foratom wants the benefits of nuclear power to the grid to be better rewarded, for example through a capacity market based on auctions, where “dispatchable providers [would] be rewarded for the additional costs of being on stand-by for balancing intermittent output from variable resources” (read: renewables).

Nevertheless, Foratom acknowledges that a key issue for the economic future of nuclear power is how the relationship between the structure of electricity markets and commercial returns will develop. Nuclear new-build projects are more capital-intensive and these high project costs will require high load factors during operation to ensure timely payback of the initial investment. The trade association therefore advocates long-term contracts between nuclear energy suppliers and users, or even Contracts for Difference to facilitate investment decisions in nuclear new-build, “giving predictability for future electricity supplies and helping to mitigate the uncertainty for operators on future income streams”. However, Foratom adds that “they should be authorised as far as they comply with EU competition law”.

The legality of state aid

This is the core question for EDF’s new-build project in the UK, and indeed for the future of nuclear in Europe. “Nuclear has become too expensive, at least in Europe and the US. New capacity building is impossible without subsidies”, says Mycle Schneider, leading author of the recently published World nuclear industry status report 2013 and a nuclear skeptic.

State aid to renewables and energy efficiency is covered by an exemption in current guidelines for environmental state aid dating back to 2008, which are presently being revised. The 2009 EU directive on the internal electricity market also has provisions for state aid aimed at ensuring security of supply or subsidising infant technologies.

None of this seems applicable to the UK’s plans for Contracts for Difference for nuclear however, since the country has enough new generation projects underway to amply compensate for capacity closures in the near term. In any case, no new nuclear capacity would be connected to the system before the end of the decade.

According to the legal analysis from Greenwich University and BBH, “all in all, a thorough cost assessment would reveal that nuclear generators could not (and should not) benefit from State support, as the cost calculations are unclear and not transparent”. A state aid regime must be transparent and cost-based to avoid any overcompensation, they explain.

If current rules cannot make this state aid legal however, the solution could simply be to change the rules. The European Commission’s competition department has already shown itself capable of doing this when the rules didn’t fit. Back to July 2001, EU Competition Commissioner Mario Monti changed his own methodology for permitting state aid linked to stranded assets to let Spain grant more than €10bn in state aid to incumbent generators. This decision came after years of unfruitful discussions with the Spanish government.

Now the Commission’s competition department has proposed, in a draft of new environmental and energy state aid guidelines for 2014-20, to include state subsidies for new nuclear power plants.

Will nuclear finally break into the tight circle of energy technologies allowed to benefit from state aid? Some are challenging the form and substance of the proposals. For them, the debate is not even political (should we support nuclear?), but first and foremost a legal question.

Heated talks in Brussels

Accused of being too friendly towards nuclear, Competition Commissioner Almunia is trying to stay out of the limelight and rushed to his Twitter account on 23 July to quench the flames: “We are launching a consultation regarding public aid to nuclear, without taking an ex-ante position,” he wrote. His spokesperson had already prepared the ground in a Letter to the Editor of the Financial Times on the same day: “The commission has not yet taken a position on whether or not such specific rules are needed and will launch a public consultation in the autumn to gather the views of member states and stakeholders.”

Nevertheless, the fact remains that the competition department is launching its third public consultation on the new state aid guidelines in September, yet it will be the first time there is a proposal to authorise state aid for nuclear in them. For now, the Commission is still consulting on the document internally ahead of its summer break (starting on 1 August and lasting the whole month).

Almunia is working closely with EU Energy Commissioner Günther Oettinger on this issue. Quoted by German newspapers in early July, Oettinger faced off his critics: “The preparation of state aid guidelines in the fields of energy and environmental protection and the decision regarding the support for nuclear energy in Europe needs a decent and intensive discussion… We have received first requests from member states. We cannot ignore it,” he answered them. A much more moderate position indeed, than the one he expressed at a meeting of the European Energy Forum, a Brussels-based think tank, on the 19 February, where he described the British proposal for nuclear subsidies as “Soviet”.

In any case, the European Commission cannot adopt rules which contradict existing law (including European Court of Justice case law) already in place in the same field. The Commission, as “guardian” of the treaties therefore effectively guarantees the “constitutionality” of the law it produces.

According to Brussels-based environmental expert and lobbyist Mark Johnston, the “introduction of a new sectoral subsidy regime for nuclear power plants would in particular contradict key provisions of the 2009 third internal energy market package and first climate and energy package”. Furthermore “it would put at very significant risk the EU ETS [Emission Trading Scheme] as a harmonised and cost-effective instrument while at the same time not delivering any overall emissions reduction benefit”. This is because the UK government has no intention of withdrawing CO2 allowances corresponding to the avoided emissions from new nuclear reactors. These allowances would therefore simply be used elsewhere in Europe.

In any case, for Thomas and Fouquet, the problems of establishing the real costs of nuclear and the more general question of whether it can be justified as being in the “common interest” make it “unlikely that the envisioned Contracts for Difference for nuclear energy would pass any kind of test according to the future guidelines to be adopted by the European Commission”.

Even the French nuclear-friendly think tank Confrontations Europe advocates, in its European energy and climate strategy for 2030 that “research and deployment subsidies are given to energy technologies according to their technical and commercial maturity, and should be phased out for technologies which have become mature”.

This is the question nobody can answer today in Brussels: how can one justify phasing out subsidies to renewables in line with their maturity while considering at the same time subsidising a technology as mature as nuclear fission? In Germany, Angela Merkel has already given an answer: “nein” to nuclear subsidies.