Market News

 January 20, 2012
Legal challenge threatens UK's new nuclear plans

 The European Commission could prevent new nuclear plants being built in the UK if it upholds a complaint over alleged unfair subsidies submitted to Brussels by a pro-renewables campaign group.

The Energy Fair group, which comprises high-profile anti-nuclear politicians, lawyers, and environmentalists, argues that the cap on liabilities for nuclear accidents is technically a subsidy, and as such illegal under EU law.

The legal action could ultimately block the UK's plans to deliver 16GW of new nuclear power over the next 15 years, disrupting plans for new reactors currently being pursued by energy firms such as EDF, RWE and E.ON.

However, the government insisted it does not provide subsidies to the nuclear sector and will contest any legal action designed to block or delay its plans.

A spokesman for DECC said: "The secretary of state set out the government's policy of no subsidy for new nuclear power in October 2010. We are confident our proposals to reform the electricity market to incentivise all low-carbon generation are entirely consistent with that policy of no subsidy."

The complaint also argues that if the cost of insuring against disasters similar to Chernobyl or Fukushima were factored in, the cost of nuclear power would rise by at least €0.14 per kWh and perhaps as much as €2.36, making it relatively uncompetitive.

Energy Fair claims to have identified several other nuclear subsidies it says are incompatible with EU laws. These include the fact that uranium is exempt from the carbon floor price and that the government is offering support for the disposal of nuclear waste, both of which it says breach state aid rules.

In May, the then economic secretary Justine Greening admitted in Parliament that the introduction of the carbon floor price was likely to benefit the nuclear sector "by an average of £50m per annum to 2030 due to higher wholesale electricity prices".

The group also argues that the proposed feed-in tariffs with contracts for difference incentive mechanism has an effect equivalent to "quantitative restrictions on imports" and is thus contrary to the Treaty on the Functioning of the European Union (TFEU).

"The EU has opted for opening up the energy market and is vigilant about creating a level playing field. In this regard, the commission, over the last years, repeatedly underlined that distortion of the market is, to a large extent, caused by subsidies to the incumbents in the energy sector," said Dr Dörte Fouquet, director of the European Renewable Energies Federation, who has been leading the complaint.

"This complaint aims to shed some light on the recent shift in the energy policy of the United Kingdom, where strong signals point to yet another set of subsidies to the nuclear power plant operators."

Green campaign group WWF has previously claimed the UK could meet almost all its electricity demand through renewables alone by 2050, but will need to raise its target from 35 per cent renewable electricity by 2030 to 60 per cent.

It argues that better interconnectivity with continental energy sources, such as geothermal in Iceland or solar power from southern Europe, would provide the base load that proponents of nuclear argue will be needed to support an expansion of renewables.