Hinkley Point nuclear deal under threat from EU ruling

The European Commission is close to concluding that Britain’s nuclear programme at Hinkley Point breaches EU state aid rules and may have to be revised, a move that could lead to long delays and even cause the deal to collapse.

The EU competition police are examining a string of subsidies tied to the Government’s agreement with French groups EDF and Areva as well as a Chinese company to build two new generation EPR reactors. These would be the first reactors to be built in Britain since 1995, providing 7pc of the UK’s electricity.

Sources in Brussels say the main concern is a £10bn loan for the construction of the plants, insurance against a meltdown, help with decommissioning costs and the inflation-linked “strike price” of £92.50 per megawatt hour for 35 years.

The investigation by officials at the competition direct-orate under Joaquin Almunia. They are expected to issue an initial finding in January, paving the way for a broader inquiry. Any decision requires the backing of EU commissioners.

The team is looking at the broader shape of the Hinkley deal and whether state support on this scale is needed for the project to go ahead.

The EU’s energy commissioner warned last month that “35-year feed-in tariffs may be a problem”, adding that the EU might do better to invest more in wind and gas. He earlier described the UK nuclear deal as a throw-back to the “Soviet” era.

The Hinkley Point deal sets a precedent for new reactors in other countries. Le Monde said Paris is tracking the dispute closely, worried that any delay could threaten the future of France’s nuclear industry. The newspaper quoted an expert claiming Brussels has already reached a conclusion.

Any move to delay or unpick the deal could lead to a serious showdown between London and Brussels, adding to the tense mood as Britain’s referendum on EU membership approaches. The Government is relying on the two reactors to avert a power crunch in the early 2020s.

A Tory energy spokesman in Brussels said powerful lobbies were trying block the deal but insisted that the Government is on firm legal ground.

“We expect the Commission to be fair,” he said. “We have done our due diligence and are convinced that there is no public finance going into the project. It is essential that we build these two new power stations. Sadly, we have to rely on foreign expertise because of the shameful neglect of our nuclear industry over the last 30 years.”

The Government can appeal any decision at the European Court but this would drag on for years and leave the project in limbo. EDF made redundancies at the site earlier this year after claiming it was losing £1m for each day the project was delayed.

Britain suffered a blow in October when the Commission killed proposals that might have permitted EU governments to subsidise the nuclear industry as a “low carbon” source of energy in much the same way they can help wind and solar power. Twelve EU states have called for a “level playing field” between nuclear and renewables however Germany and Austria strongly oppose such a move.

The result is that Mr Almunia’s team has to make a judgment based on ordinary EU competition case law, whether they wish to or not. This raises the bar. The Department of Energy and Climate Change said it is working closely with Brussels to ensure that the deal does not breach state aid rules. “It would not be appropriate for the UK Government to comment on an ongoing process or on the timescales for approval,” said a spokesman.

The EU’s oversight powers in the energy field are ambiguous. It is largely up to the member states to choose their own energy mix but Article 176 of the Lisbon Treaty gives the EU a number of new but vague powers, to be decided under qualified majority vote. This means Britain does not have a veto.

Any use of Article 176 to stop Britain building nuclear reactors would set off a political storm. The EU is on safer ground evaluating the deal on state aid principles. The UK has always been a strong supporter of the EU’s competition directorate, seen as the spearhead of free-market reform in Europe.