EU State aid rules and the UK's nuclear future

by King & Spalding

EU law states that the granting of aid by an EU Member State in favour of a particular undertaking is prohibited if it distorts or threatens to distort competition and affects trade between EU Member States.

On 9 April 2014, following comments from Member States, public authorities and other stakeholders, the European Commission published its revised Environmental and Energy Aid Guidelines (the "Guidelines"). These Guidelines replace those that were introduced in 2008 and include provisions concerning the energy field as well as the environmental field. The Guidelines will come into force on 1 July 2014.

The Guidelines list "common assessment principles" and the specific conditions under which certain categories of aid may be granted by Member States. The Guidelines are intended to provide a transparent reference point for Member States seeking to grant State aid until 2020. It is hoped that the Guidelines will enable Member States to react to climate change and reach energy sustainability whilst, from a competition point of view, create a level playing field for companies operating in the EU.

The Guidelines have been widely anticipated due to the potential impact that they will have on companies wanting to apply for State aid in the future as well as those that have benefitted from it previously. As Members States are prohibited from granting support that amounts to State aid without prior approval from the Commission, the Guidelines will have a direct bearing on Member States' energy strategy, direction and future profile.

The concern in some Member States, including the UK, is that the Guidelines could prevent planned energy transitions. Principally, some observers believe that the new rules will make it harder for the UK and other governments to subsidise energy strategies, such as nuclear energy products and any move towards less mature energy based systems. These people want to ensure that EU State aid policy does not prejudice national or EU energy policy choices regarding renewable energy generation.

The Guidelines do not provide specific dispensations or support measures for the nuclear industry or specifically cover how State aid to nuclear projects will be managed. For some, this is seen as a victory for the anti-nuclear lobby, particularly in the UK where a new generation of reactors is proposed. Others disagree that this is a serious blow for the UK's energy plan as it is possible that the nuclear industry may actually benefit from falling outside of the scope of the Guidelines, by retaining flexibility for future individual nuclear cases.

A State aid probe into the Hinkley Point nuclear power station in the UK is ongoing and relates to the UK's plan to spend approximately £16 billion to build a new nuclear facility with EDF Energy. The UK government wants to grant large subsidies and disproportionately favourable conditions that are not present elsewhere in the energy sector to the mainly state owned French energy giant EDF. This investigation is regarded as a test case that should set a major precedent for future nuclear investments in the EU.

At Hinkley Point, the UK Government has agreed a minimum "strike" price for the nuclear power of £92.50 (US$ 153) a megawatt hour which is roughly double the existing price of electricity in Britain. The objection is that renewables would have to compete in an unfair market place where one generator, nuclear, is guaranteed to be able to sell all of its electricity at a stable price with a built in profit until 2058. The UK Government has also guaranteed loans for construction, provided insurance and compensation payments if policies change for any reason.

Anthony Long
+44 20 7551 7571

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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