Tweeting, twittering, blogging ... people these days so often seem to find that an unguarded comment spreads like wildfire, with such consequences that maybe they wish they had controlled their tongue or kept their fingers off the keypad.  At a meeting of the European Energy Forum earlier this year, European Commissioner for Energy Günther Oettinger apparently used the term “Soviet” when referring to the UK Government’s proposals for up to a 40 year agreement on a strike price for energy supplies from new nuclear power stations.  The comment was it appears made as a light-hearted response to a robust question by a UKIP MEP, and was one of a number of what were apparently colourful, jokey and irreverent remarks by the Commissioner during what must by all accounts have been a fun evening.  The comment was tweeted (it is said in breach of the Chatham House rules which applied to the meeting) and then predictably re-tweeted and commented upon, including by the editor of World Nuclear News, the industry organ supported by the World Nuclear Association.

The heat generated by Mr Oettinger’s remark illustrates the controversial nature of the delicate negotiations as to the price under contracts for difference, and indeed the very concept of providing a long-term guaranteed price to low-carbon generators for their electricity. 

The former Soviet Union was of course, in its day, the prime example of a planned and centrally controlled economy.  Its features were control of economic decisions by politicians, no control or influence by consumers, and high emphasis on science and technology.  As can be seen from the State Atomic Energy Corporation “Rosatom” website the Soviet civil nuclear programme, under the leadership of Professor Igor Kurchatov, advanced at an astonishing pace between 1955 when USSR’s first civil nuclear plant was opened, and the Chernobyl accident in 1986.[1]  If it was true that the UK’s approach to nuclear power was “Soviet”, we would probably have a number of new nuclear power plants already well under construction. 

As it is, the system is of course far from Soviet, it is a market based system, with electricity producers competing against each other in terms of price, and with decisions on whether to invest in new plant being based on commercial factors.  The issue is one of competition, which is of course where the EU rules on state aid come in.  There have been a number of mutterings as to how the advantage of a long-term guaranteed price and any other forms of support for new nuclear generators can be reconciled with these rules, in that plainly they will have a distorting effect on future competition, all be it the financial consequences will fall on electricity customers rather than the government.  The General Block Exemption Regulations (Art 23) allows for some state support for investment in the promotion of energy from renewable sources, but nuclear is not a renewable energy resource in these terms.  Any change to these rules would not be a swift process and whether there would be sufficient political support at EU level to add nuclear as a supported category must be open to serious doubts.  Hopefully there are constructive discussions going on behind the scenes between DECC and the Commission, because no investor is going to proceed with a scheme involving financial support mechanisms which may be open to attack under state aid rules.  Back in July 2012 in evidence to the Energy and Climate Change Committee on pre-legislative scrutiny of the Bill, the government were sanguine about the prospects of convincing the Commission of the merits of the EMR system in terms of state aid (para. 142 of the Report):

“The EMR is designed to secure new investment in low carbon generation, while maintaining energy security and diversity. EMR will minimise costs to the consumer, and the specific instruments under EMR are designed to minimise distortions of competition. So long as the balance of assessment is positive, any aid should be compatible with the Treaty.”

Some commentators have noted that the draft CFD heads of terms documentation issued in November 2012 by DECC appears to throw the risk of clawback under state aid rules on to the generator, a position which seems commercially untenable.   Bespoke arrangements for new nuclear would face the same issues, but without the shelter of the general arguments of EMR which supports all forms of low carbon generation.   The allocation of the CFD arrangements to a single company by a process of negotiation, rather than by competitive auction is also an aspect which Commission competition lawyers may find problematic, the larger the proportion of electricity generation it covers, possible the bigger the problem.  Hopefully the elephant in the corner will not run amok.