The European commission has started an investigation into UK plans to subsidise the construction and operation of Hinkley Point C nuclear power station in Somerset, in a challenge to the government's plans to overhaul Britain's creaking energy infrastructure.
On the day royal assent was finally given to the coalition's controversial Energy Act, the EU's executive arm expressed doubts that British ministers could justify state aid to nuclear which it estimated could reach £17bn.
The EC warned of the risk of a "subsidy race" between member states and Joaquín Almunia, vice-president for competition policy, described the aid package as a complex measure of an unprecedented nature and scale.
"The commission therefore needs to investigate thoroughly its impact on the UK and the EU internal energy markets, and is requesting all interested parties to submit their observations."
The British government has always denied that the financial support is a subsidy and said it was needed for the proposed nuclear plant because the market is faced with an unprecedented situation, the aims of combating climate change and assuring energy security.
But there has been speculation in Brussels that the commission has made up its mind that the Hinkley move is in effect an unfair subsidy, with the only question being what kind of changes or sanctions it may demand or impose on Britain.
Günther Oettinger, the European union's energy commissioner, warned last month that the 35-year subsidy regime "may be a problem" while earlier describing the UK nuclear project in an unguarded moment as "Soviet" in style.
The financial support for EDF and its Chinese partners includes a £10bn loan guarantee plus an inflation-linked "strike price" of £92.50 per megawatt hour for 35 years – twice the current price for electricity in Britain.
Ed Davey, energy and climate change secretary, shrugged off the commission announcement, saying it was standard for large investment projects and was always part of the process for Hinkley.
"We will use this period to demonstrate how the project meets state aid rules and provides good value for consumers while cutting carbon in the energy sector."
EDF, the French state-owned company that will operate Hinkley Point C, said it was looking forward to putting its case direct to Brussels.
"This investigation gives the government and others the opportunity to show that electricity market reform in the UK is essential to deliver the investment needed for the country's low carbon energy future at a price that is fair for customers," it said a statement."Without this reform, the investment will not take place.
The Hinkley Point C agreement is proof that this reform works to attract the investment needed to secure Britain's future electricity supply."
The Energy Act not only underpins the Hinkley strike price but also provides a range of incentives including support for wind power and biomass to attract £110bn needed to replace current generating capacity and upgrade the national grid.
Critics have attacked it for being too complex and expensive to implement. The UK energy regulator, Ofgem, appointed Dermot Nolan as its next chief executive.
Nolan will join Ofgem in March from the Commission for Energy Regulation in Ireland and comes at a time of unprecedented political heat around soaring bills and alleged power market malfunction.
theguardian.com
On the day royal assent was finally given to the coalition's controversial Energy Act, the EU's executive arm expressed doubts that British ministers could justify state aid to nuclear which it estimated could reach £17bn.
The EC warned of the risk of a "subsidy race" between member states and Joaquín Almunia, vice-president for competition policy, described the aid package as a complex measure of an unprecedented nature and scale.
"The commission therefore needs to investigate thoroughly its impact on the UK and the EU internal energy markets, and is requesting all interested parties to submit their observations."
The British government has always denied that the financial support is a subsidy and said it was needed for the proposed nuclear plant because the market is faced with an unprecedented situation, the aims of combating climate change and assuring energy security.
But there has been speculation in Brussels that the commission has made up its mind that the Hinkley move is in effect an unfair subsidy, with the only question being what kind of changes or sanctions it may demand or impose on Britain.
Günther Oettinger, the European union's energy commissioner, warned last month that the 35-year subsidy regime "may be a problem" while earlier describing the UK nuclear project in an unguarded moment as "Soviet" in style.
The financial support for EDF and its Chinese partners includes a £10bn loan guarantee plus an inflation-linked "strike price" of £92.50 per megawatt hour for 35 years – twice the current price for electricity in Britain.
Ed Davey, energy and climate change secretary, shrugged off the commission announcement, saying it was standard for large investment projects and was always part of the process for Hinkley.
"We will use this period to demonstrate how the project meets state aid rules and provides good value for consumers while cutting carbon in the energy sector."
EDF, the French state-owned company that will operate Hinkley Point C, said it was looking forward to putting its case direct to Brussels.
"This investigation gives the government and others the opportunity to show that electricity market reform in the UK is essential to deliver the investment needed for the country's low carbon energy future at a price that is fair for customers," it said a statement."Without this reform, the investment will not take place.
The Hinkley Point C agreement is proof that this reform works to attract the investment needed to secure Britain's future electricity supply."
The Energy Act not only underpins the Hinkley strike price but also provides a range of incentives including support for wind power and biomass to attract £110bn needed to replace current generating capacity and upgrade the national grid.
Critics have attacked it for being too complex and expensive to implement. The UK energy regulator, Ofgem, appointed Dermot Nolan as its next chief executive.
Nolan will join Ofgem in March from the Commission for Energy Regulation in Ireland and comes at a time of unprecedented political heat around soaring bills and alleged power market malfunction.
theguardian.com
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