Out-Law News | 24 Jan 2012 | 9:31 am | 3 min. read
Lawyers working on behalf of campaigning organisation Energy Fair have written to the EU Commission's Director-General for Competition alleging that new incentives which will be introduced to nuclear operators as part of the Government's current electricity market reform programme, in addition to seven 'subsidies' already in operation, amount to "unlawful state aid for nuclear power and constraint on trade".
However, a spokesman for the Department of Energy and Climate Change (DECC) told Out-Law.com that he was "confident" that the Department's proposals to reform the UK electricity market to incentivise low carbon electricity generation were "entirely consistent" with the Government's policy of no subsidies for new nuclear power.
Energy Fair claimed that a £140 million cap on liabilities for nuclear accidents contained in international treaties gives nuclear operators an unfair advantage. The group said that if operators had to be fully insured against the cost of disasters like Chernobyl and Fukushima, the price of nuclear electricity would rise by at least 14 euro cents per kilowatt hour (kWh).
Other unfair cost savings it said were granted to nuclear power include that uranium is exempted from a tax on fuels used to generate electricity, and that the UK government is proposing to provide support for the disposal of nuclear waste.
The Government's White Paper on Energy Market Reform (EMR) (142-page / 1.8MB PDF), which was published in July 2011, proposed a number of changes that the Government estimates will save the UK economy £9 billion between 2010 and 2030 while promoting decarbonisation and ensuring the continuity of electricity supplies. Among its proposed reforms are the introduction of a 'price floor' on carbon emissions and the introduction of an annual Emissions Performance Standard.
EMR will also introduce a system of feed-in tariffs with contracts for difference (FiT CfDs), which will offer nuclear power stations and renewable energy sources a fixed price for their electricity. FiT CfDs will be set up between energy providers and a central counterparty based at the National Grid, and payments will be made by reference to a technology-dependent 'strike price' and a market reference price. The payments will replace existing subsidies and incentives such as the Renewables Obligation.
Legislation reflecting the contents of the EMR is due to be approved in 2013, although much of the detail of the reforms is not expected to be in force until 2014. Energy law expert Chris White of Pinsent Masons, the law firm behind Out-Law.com, said that the Government had recognised that this implementation date was "too late" for the developers of the first wave of new nuclear power stations in the UK.
He added that it was likely that the Government would also consider making applications in relation to liability caps and funded decommissioning plans and waste arrangements for the same reasons.
The Commission generally prevents governments from granting advantages or incentives to selected businesses to ensure fair competition inside the EU. However, so-called 'state aid' may be approved on a case by case basis.
In its complaint Energy Fair alleged that the carbon price floor was a "de facto tax" on fuels used for the generation of electricity. Exempting uranium from that tax was therefore incompatible with state aid rules. In addition the existing cap on liabilities for nuclear accidents and a proposed cap on liabilities for nuclear waste disposal also amounted to state aid.
It added that the new FiT CfDs, as applied to nuclear power, would have the equivalent effect of an illegal 'quantitative restriction on imports'.
Lawyers for Energy Fair said that the EU was "vigilant" about ensuring fair competition in the energy sector.
"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. This complaint aims to shed some light on the recent shift in the energy policy of the UK where strong signals point to yet another set of subsidies to the nuclear power plant operators," said Dr Dörte Fouquet, who prepared the complaint.
The complaint is being backed by politicians including Caroline Lucas, MP for Brighton Pavilion and leader of the Green Party in England and Wales.
"The Government's planned Electricity Market Reform is set to rig the energy market in favour of nuclear – with the introduction of a carbon price floor likely to result in huge windfall handouts of around £50 million a year to existing nuclear generators," said Lucas. "Despite persistent denials by ministers, it's clear that this is a subsidy by another name which makes a mockery of the coalition pledge not to gift public money to this already established industry. If these subsidies are found to be unlawful, I trust the European Commission will take action and prevent the UK's nuclear plans from seriously undermining the shift towards new green energy."