U.K. Aid for EDF Atomic Deal May Distort Market, Europe Says

U.K. support for Electricite de France SA’s plan to build Britain’s first nuclear plant in a quarter century may distort the market, the European Commission said, in a threat to government plans for an atomic renaissance.

The U.K. offered a credit guarantee and so-called contract-for difference at a price of 92.50 pounds ($152) a megawatt-hour for 35 years, double today’s market rate.

“The Commission has doubts on the structure of the CfD for nuclear which, by its design, duration and scope, has the potential for distorting competitive conditions,” it said. “The Commission doubts whether the combination of aid measures, and in particular of a CfD with inflation indexation and a credit guarantee, is proportional to the potential benefits.”

The European Union decided in December to investigate the 16 billion-pound Hinkley Point project after a deal that included a state guarantee of 10 billion pounds of debt. New nuclear plants are central to government efforts to secure power supplies while meeting commitments on carbon emissions as all but one of the U.K.’s atomic plants are due to shut by 2023.

The EDF deal may be at odds with state aid rules, the Commission said in today’s 70-page report. A one-month consultation period will follow, EDF said in a statement.

Low-Carbon Energy

“The contract for Hinkley Point C is the first example of a new kind of agreement to unlock investment in low-carbon energy,” EDF said in the statement. “It is right that the Commission should investigate the far-reaching market reform which makes this and future contracts possible.”

French Environment Minister Philippe Martin said he was confident the deal would be approved despite the report.

“We are not particularly worried,” Martin, who holds the energy portfolio, said today in Oxford on the sidelines of a meeting between French President Francois Hollande and U.K. Prime Minister David Cameron. “I don’t see why it would stop the project going through.”

The investigation is a normal part of the development process and has been accounted for in government plans, Energy Secretary Michael Fallon said today in an e-mailed statement.

“We’ll be using the consultation period to show that this project meets state aid rules, that it will cut carbon in Britain’s energy sector and improve our energy security in a way that’s good value for money,” he said.

‘Blown a Hole’

The project, which would be the U.K.’s first new nuclear power plant since 1995, will probably begin generating in 2023.

Environmental group Greenpeace said the investigation has “blown a hole” in the nuclear deal. “By questioning whether the huge subsidies promised to EDF are justified, the Commission is casting a shadow over the whole project,” Greenpeace U.K. Chief Scientist Doug Parr said.

Building atomic reactors in the U.K. requires “an investment climate that takes into account the long-term nature of nuclear infrastructure projects,” the French and U.K. governments said today in a joint statement following the talks between Cameron and Hollande.

The countries back a “competitive” Franco-British nuclear industry that will be able to take advantage of national and international commercial opportunities, it said.

About 8.1 gigawatts of the U.K.’s current capacity will shut by 2020, including 3.9 gigawatts of nuclear-generated electricity, according to the Commission’s report.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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