UK nuclear funding deal not 'blueprint', EU warns Czechs

By bne IntelliNews October 9, 2014

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The EU gave the UK the green light on public funding for its Hinkley Point nuclear plant on October 8, a decision that will be welcomed in the Czech Republic, which hopes to use a similar model to expand its Temelin facility. However, Brussels warned that the case is "not a blueprint" for the rest of Europe, and Austria instantly launched a legal case.

The European Commission was widely expected to pass the UK's "contracts for difference" funding model after London made concessions on the deal, which the EU previously challenged. Under the approved contract the UK will offer public guarantees to pay £92.50 (€118) per megawatt-hour over the next 35 years - double the current market rate - to EDF, the French operator of Britain's first new nuclear plant in a generation. 

Brussels announced today that the deal does not go against the EU's state aid regulations. That will cheer senior Czech officials and state-owned utility CEZ, which have been watching closely as they look for a precedent for the €10bn expansion of the Temelin plant in the south of the country. 

The European Commission's earlier challenge to the UK project was seen as a key element in the Czech government's announcement in April that it would not offer CEZ guarantees on Temelin. The company, having struggled throughout to win pledges of public support, promptly dropped the tender on the project, which had been fraught by controversy over the exclusion of France's Areva. Analysts welcomed the news, having complained for years that the project was economically unfeasible and would stretch CEZ's finances unreasonably.

However, the very same figures that helped kill the previous competition - President Milos Zeman, powerful Finance Minister Andrej Babis, who has since effectively taken control of the CEZ board, and Minister of Industry and Trade Jan Mladek - were back within months calling for the scheme to be resurrected. While apparently ruling out Russian state nuclear agency Rosatom - one of the two finalists in the abandoned tender - the Czech government says South Korean and Chinese companies have indicated that they intend to bid in the next hunt for a contractor.

While the government has remained tight-lipped in the run up to the October 8 decision from the European Commission - a finance ministry spokeswoman told bne on September 22 that "a decision ... cannot be anticipated at this point" - CEZ has not been so circumspect. CEO Daniel Benes told local press on September 30 that a green light for London would help relaunch the Temelin tender

"It is always good when some one big clears the way for you," he remarked to business daily Hospodarske Noviny. He also added: "I have tried to explain the contract-for-difference scheme ... to probably three governments and it was always difficult." He will clearly hope that with Brussels on board, Prague will find it easier to grasp.

Setting the tone?

However, European Commission officials were at pains to hold back the excitement in Prague. Noting that the deal raises the cost of Hinkley to GBP34bn (€43bn) - a breathtaking rise on the GBP16bn earlier quoted by EDF - Commission Vice-President Joaquin Almunia stressed that approval for Hinkley Point "will not set any precedents".

"The choice to promote nuclear is a choice by the UK", he said in a statement. "There is no change of energy policy in the EU," added the official, who is about to leave his post alongside the rest of the EU executive.

Kelvin Ross, editor of Power Engineering International, tweeted that European Energy Commissioner Gunther Oettinger sought to back his colleague up when speaking at a conference. Hinkley Point is "a special case, not a blueprint for other new build nuclear plants" in the EU, he is reported to have said.

However, the UK and nuclear industry were keen to stress the opposite. Edward Davey, the British secretary of state for energy and climate change, wrote in a blog that the approval is "a welcome endorsement of member states' rights to determine their own energy mix”. 

Lord Hutton of Furness, head of the UK's Nuclear Industry Association, said the approval "gives certainty to other European countries looking at the UK system of contracts for difference as a mechanism to secure their own supply”. Mark Stewart, partner at UK infrastructure consultancy EC Harris, said: "This will be the key that unlocks the UK nuclear industry and the wider watching European new build arena."

Yet there is another potential obstacle to reviving the Temelin tender closer to home than Brussels. Following up rising threats ahead of the Hinkley Point decision, Austria confirmed immediately following the announcement from the European Commission that it is launching a legal challenge. 

Chancellor Werner Faymann and Vice Chancellor Reinhold Mitterlehner released a statement saying Vienna is now preparing a case. We do "not accept" the decision, they declared, calling Hinkley Point a "bad precedent" for EU energy support. "We will prepare and bring an action before the European Court of Justice."

Officials and industry figures in the UK responded angrily, asking what right Austria has to poke its nose into Britain's business, but of course, the real focus for Vienna is on its doorstep in the Czech Republic.  Austria has bitterly fought Temelin, which sits close to the border, for years. Other neighbouring countries such as Slovakia are also working on plans to increase nuclear capacity.

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