Brussels approves Hinkley Point financing
8 Oct 2014
The European Commission today cleared the financing of EDF’s proposed Hinkley Point C nuclear plant of breaching EU competition rules.
Following a lengthy investigation that began in December last year, the Commission today confirmed the project could go ahead.
The investigation centred on EU rules over state aid, examining whether the UK government’s price support of the project through its Contract for Difference (CfD) mechanism and its state guarantee for the project’s debt financing gave EDF an unfair advantage over competitors in the market.
The UK measures in favour of Hinkley Point nuclear power station have been significantly modified
EC vice-president Joaquín Almunia
To receive the Commission’s approval, the Department of Energy and Climate Change (DECC) was forced to agree a number of revisions to its deal with EDF, most notably increasing the amount of profit it could claw back from Hinkley Point C’s operations and taking a share in any savings made on construction costs.
“After the Commission’s intervention, the UK measures in favour of Hinkley Point nuclear power station have been significantly modified, limiting any distortions of competition in the Single Market,” said Commission vice-president in charge of competition policy Joaquín Almunia.
“These modifications will also achieve significant savings for UK taxpayers. On this basis and after a thorough investigation, the Commission can now conclude that the support is compatible with EU state aid rules.”
The government first agreed terms with EDF in October last year, confirming it would provide a debt guarantee covering 65% of the project’s construction costs, which EDF estimates to be £16 billion but the Commission today said could be as high as £24.5 billion.
Following negotiations with the Commission, the government has agreed to charge EDF £1 billion for the privilege of securing this state guarantee.
EDF and DECC last October also agreed an initial CfD “strike price” of £92.50 per MWh. This strike price, which will run for 35 years and is roughly double the current price of electricity, will ensure EDF receives a top-up payment from government should the wholesale electricity price fall below it, and pay money back to government when the price rises above it.
The strike price for Hinkley Point C may be lowered to £89.50/MWh if EDF also builds its planned Sizewell C nuclear plant, with Sizewell C paying Hinkley the additional £3/MWh.
Hinkley Point C will be built on a 176ha site in Somerset adjacent to the existing Hinkley Point A and B nuclear plants.
The project will comprise chiefly of two Areva 1,630MW European Pressurised Reactors (EPR), two turbine halls, cooling water infrastructure, and waste and fuel facilities including storage. The first of the reactors is expected to come online in 2023.
Following today’s ruling EDF must now make a final investment decision on the project.
However, the Commision’s state aid approval could be subject to a legal challenge, with Austrian politicians having already told the press that they are considering tabling an objection on the basis that the financial support offered to the nuclear plant is harmful to investment in renewable energy.
