Farage and Putin help Hinkley Point clear EU hurdle and put UK's nuclear programme back on track

Thursday, October 2, 2014

Fears over energy security raised by Ukraine and a potential in/out referendum on Europe may have helped the EU do a U-turn on new reactors

Anti-nuclear campaigners looking for someone to blame if Hinkley Point in Somerset finally gets the green light for two new reactors might point the finger at Nigel Farage. Vladimir Putin could also be a scapegoat for the European competition commissioner's decision to back the UK government's support for the first new atomic power stations in a generation. But others would say it is less about the politics of European togetherness or energy security and more about the EC commissioner himself, Joaquín Almunia.

The speculation is intense because the go-ahead he gave last week to the government's support regime for new nuclear power at Hinkley Point represents an abrupt U-turn for the European competition directorate, which barely eight months ago damned the UK government proposals outright. The reality is that, among others, UK energy secretary Ed Davey also helped turn the tables and has given the coalition a fighting chance of keeping its wider energy policy on the road before a tough general election.

Spending £16bn on new reactors in Somerset has always been a flagship project for ministers, who believe it will demonstrate how hard they are working to keep the lights on and tackle climate change. The decision is also a big relief for EDF, the company behind Hinkley, which is already spending £1m a day digging foundations and making other preparations for the two huge new reactors, which will provide one-fifteenth of the country's electricity.

Almunia, who steps down on 1 November, let it be known last week that he would "propose to the college of commissioners to take a positive decision, and in principle the decision should be taken during the mandate of the commission in October".

So while the first, and main, hurdle has been overcome, other commissioners – such as the energy tsar, Günther Oettinger, who not so long ago branded the Hinkley subsidy system "Soviet" – could yet stick a spanner in the works. Already Austria has warned it will issue a legal challenge to any final "yes".

The UK Department of Energy and Climate Change (Decc) is certainly not regarding it as a done deal. "The process is ongoing and the EC must still make a formal decision," said a spokesman.

EDF, the French state power company, whose government was also lobbying hard for Hinkley, declined to comment except to say: "We are hopeful."

Privately, officials at both EDF and Decc are no doubt delighted. Late in January the competition directorate published a scathing 68-page initial assessment, saying the combination of price guarantees and credit guarantees were potentially inappropriate, disproportionate and in breach of EU law.

"The Contract for Difference [the main support mechanism] seems to provide the utmost certainty of a stable revenue stream, under rather lenient conditions...[that] is conceived to entirely eliminate market risks from the commercial activity of electricity generation," warned Almunia's report.

The UK government had always denied that the "strike price" it was effectively agreeing to cover – of £92.50/MWh over a 35-year period, roughly twice the current wholesale price of power – would distort competition.

So what did change minds in Brussels? The Farage theory is that Almunia realised that refusing the financial support mechanism for Hinkley could be used by Ukip as a tool to promote its "let's leave Europe" policies. Farage could argue that the end of Hinkley would doom the 25,000 jobs it could have created, risk higher energy bills and undermine Britain's energy security just before the general election. This would give Ukip a boost and help pave the way for a vote to leave Europe at a referendum promised for 2017.

Almunia is unlikely to have been much swayed by this argument, but Putin's actions in Ukraine have forced Europe to confront its dependence on Russian gas. A new European energy security strategy published in May included references to the importance of nuclear power that had previously been omitted.

Sources in Brussels say the UK government used concerns about Putin turning the gas off to the Ukraine and potentially disrupting supplies elsewhere as a powerful argument for Hinkley. But others say Almunia was always reasonably well-disposed to atomic power and that the initial document attacking the proposed British subsidy scheme was just to demonstrate that scrutiny would be rigorous.

Decc officials have had to provide reams of extra information to Brussels over the past year, and at a key meeting 10 days ago, Davey went to Almunia's office to clear up the loose ends.

The importance of the decision goes well beyond Somerset. EDF, which has Chinese state companies as co-investors, is already talking of potential new reactors at Sizewell in Suffolk. The Chinese have also made it clear they would like to construct and operate some plants on their own, and recently brought in Rolls Royce as a strategic partner. Hitachi of Japan is looking at developing reactors at Wylfa in Anglesey and Oldbury in Gloucestershire, while Toshiba of Japan and GDF of France are keen on a scheme for three reactors at Sellafield, Cumbria.

Keith Parker, chief executive of the Nuclear Industries Association, a lobby group for atomic power, said: "The UK needs to start building new power stations now, as most of the UK's existing plants are due to retire in the next 15 years. Without new nuclear stations, we run the risk of losing a stable and low-carbon source of energy."

But Greenpeace insists the EC must stop the Hinkley programme. EU legal adviser Andrea Carta said: "The proposed deal pays no attention to either European law or the interests of the consumer. The UK government plan to subsidise Hinkley is not offering good value to UK citizens. We can decarbonise using cheaper technologies with fewer long-term liabilities.

"Furthermore, the government has failed to run a transparent tender procedure, which should lead the Commission to reject the plan. Instead of integrating renewable energy into the grid and creating a more competitive energy market, the UK wants to waste taxpayers' money to prop up a risky technology."

Davey insists the full nuclear programme could cut consumer bills by £77 by 2030, but rival energy firms have warned the deal could mean higher bills to subsidise the project. Other critics point out that projects similar to Hinkley in Finland and France are running massively behind schedule and over budget, although EDF insists it will be able to deliver the Somerset plant on time.

There are still unresolved issues such as plant safety and the disposal of Britain's high-level nuclear waste. Even if the EC does finally OK the financial support system, the arguments over new nuclear have only just begun.

Posted in |