State aid SA. 34947 - European Commission - Europa EU

Dec 18, 2013 - 2013 by electronic notification, registered by the Commission on the same day. 2. .... Advanced Gas-cooled Reactor, of which 8 stations were built between ..... Consumer Price Index from the date of signature of the contract.
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EUROPEAN COMMISSION

Brussels, 18.12.2013 C(2013) 9073 final

In the published version of this decision, some information has been omitted, pursuant to articles 24 and 25 of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, concerning non-disclosure of information covered by professional secrecy. The omissions are shown thus […].

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State aid SA. 34947 (2013/C) (ex 2013/N) – United Kingdom Investment Contract (early Contract for Difference) for the Hinkley Point C New Nuclear Power Station

Sir, The Commission wishes to inform the United Kingdom that, having examined the notification supplied by your authorities on the measure referred to above, it has decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union in respect of the notified measure. 1.

PROCEDURE

(1)

Following pre-notification contacts, the UK notified its proposed measure on 22 October 2013 by electronic notification, registered by the Commission on the same day.

2.

DESCRIPTION OF THE CONTEXT

2.1. Background and objectives (2)

Under the umbrella of the Electricity Market Reform (‘EMR’), the UK government envisages implementing a diverse range of measures with three explicit objectives: (i) decarbonising the electricity sector by 2050; (ii) safeguarding security of supply; and (iii) ensuring diversity and affordability of electricity supply.

(3)

The EMR is a plan to restructure the UK energy sector, which aims to assist with the switch to low-carbon electricity generation, decrease reliance on fossil fuels and ensure adequate supply of electricity.

(4)

The notified measures are part of a government initiative to facilitate investment in new nuclear energy plants in the UK, in particular by implementing Contracts for Difference

1

('CfDs'), i.e. a mechanism similar to a feed-in tariff allowing for payments to generators to guarantee them a fixed level of revenues. The UK intends to set CfDs to support a range of electricity-generating technologies, notably nuclear energy and renewable energy sources. The notification relates to an early form of a Contract for Difference (the "Investment Contract", see also Section 3.1) and to a credit guarantee by HM Treasury under its UK Infrastructure Guarantees scheme. (5)

The economic and business reality in which the EMR situates itself is complex. Like many other Member States, the UK is going through a challenging transition from a carbonintensive to a low-carbon economy, among other things by adopting policies in support of renewable energy sources.

(6)

The UK electricity sector is currently reliant on a high-carbon energy mix. There are around 100GW of installed electricity generation capacity. Of these and in 2011, 40 per cent comprise installations using gas and 30 per cent installations using coal.

(7)

About 8.1 GW of current capacity is scheduled to close by 2020, including 3.9GW of nuclear-produced electricity. By the end of 2023 all but one of the existing nuclear power stations (i.e. Sizewell B) are due to close. About 4.2 GW of mainly coal-produced electricity are due to retire by 2015.

(8)

The difficulty of this transition is compounded, from the UK government’s point of view, by the trend volatility of energy fuel prices, and has led over time to shrinking levels of supplied capacity. Private investors are currently not deploying enough generation installations to cope with predicted demand at the same time when older, carbon-intensive power stations are due to be phased out.

(9)

This means that the UK is forecasting t