* EU's Almunia wants final decision by year-end
* EU letter to UK says proposed deal involves state aid
* Lawyers see little chance of deal as is
By Huw Jones and Geert De Clercq
LONDON/PARIS, Feb 7 European Union antitrust
chief Joaquin Almunia said on Friday Britain must clarify why
state aid is needed to build a 19 billion euro ($26 billion)
nuclear plant with French state-controlled utility EDF.
"We need the UK authorities' cooperation. My intention is to
be able to adopt a final decision on this before the end of the
year," he told reporters in London.
The European Commission has challenged the British
government's assertion that power price guarantees and
state-backed loans for the Hinkley Point project are legitimate
In a 68-page letter to the British government dated Dec. 18
and released last week it said the Hinkley Point contract
between EDF and the government has the "potential to distort
competition and affect trade between Member States".
Specifically, it said a proposed "Contract for Difference"
guaranteeing prices for power the plant produces "effectively
insulates" EDF and its investment partners from the market.
The government proposes guaranteeing a power price of 92.50
pounds ($150) per megawatt-hour for 35 years, which is more than
twice the current market rate.
The Commission asked Britain to reply and submit any
additional information within a month.
"From a market investor's point of view, it would be safer
to give up hope that the UK government can convince the European
Commission and to opt for a realistic assumption that the deal
is off," said Doerte Fouquet, a Brussels-based lawyer at Becker
Buettner Held who specialises in EU energy policy.
The legal discussion partly hinges on whether the two
planned reactors can be considered to provide a "service of
general economic interest". The Commission said it would not be
appropriate to attach public service obligations to an activity
already provided by operators under normal market conditions.
It points to British nuclear plants which operate
commercially without state support, as well as to two
Areva-designed EPR reactors - similar to the ones
being planned for Hinkley Point - being built in Olkiluoto,
Finland and Flamanville, France, without state support.
The Commission also questioned the nuclear project's
While certain generation technologies emit less carbon
emissions, their impact on the environment might nonetheless be
considered substantial, it said, citing storage of radioactive
waste and the potential for accidents.
For Britain, the Hinkley Point C project is important as it
looks to replace 20 percent of its ageing coal and nuclear power
plants over the coming decade. For France, the project offers an
important export contract for the country's nuclear sector.
A compromise is likely, according to specialists who expect
the European Commission and the UK government to engage in
negotiations. Yet the question is to whether the contract, after
possible changes, would remain economically realistic for EDF.
If the EU wants to decarbonise electricity production, it
must help low-carbon technologies, said IEA analyst Manuel
Baritaud. "Governments will have to find ways to boost the net
present value of low-carbon investments and mitigate the market
risks for investors," he said.