First New British Nuclear Plant in Decades Wins EU Funding Fight

• Approves a guaranteed price for power produced
• Precedent for other European nuclear funding deals
• Opponents see guarantee as state aid
• Austria has threatened legal action

A British plan to guarantee the price of power from its first new nuclear project in decades won European Union backing in a landmark ruling on Wednesday that now faces legal challenges.

Seen as market-distorting state aid by opponents, the price guarantee was approved in a 16-to-5 vote with one abstention in a tense meeting of the College of Commissioners, sources told Reuters. Not all 28 members were present.

The ruling clears the way for the 16-billion-pound ($26 billion) Hinkley Point C nuclear power station in southwest England to be operated by French utility EDF.

Britain pressed hard for approval, arguing that replacing its ageing nuclear reactors was vital to meeting its environmental goals.

The British government helped to secure the deal by agreeing to a lower subsidy and a smaller share of windfall profits for EDF, the European Commission said.

The case serves as a precedent for countries such as the Czech Republic, Lithuania and Poland that have sought guidance on the level of state aid allowed.

The Commission, the EU executive, has never before approved state aid for a new nuclear plant.

"We have concluded that a market failure exists. Without support, this investment would not take place," Competition Commissioner Joaquin Almunia told reporters.

Austria, which has ruled out the use of nuclear power in its own energy mix, plans to submit a legal challenge against the Commission's decision.

A group of academics, energy associations and corporations, led by UK-based academic Paul Dorfman, also intends to challenge the decision at the European Court of Justice.

Claude Turmes, Luxembourg Green Member of the European Parliament, deemed the decision "the most outrageous EU Commission decision of the last 15 years. It is economic nonsense."


Industry Backing
EDF will receive a guaranteed power price of 92.50 pounds($148.64) per megawatt-hour for 35 years, more than twice the current market rate, once the plant begins operations in 2023.

The Commission said British authorities had agreed to cut the subsidy by more than 1 billion pounds and that Britain's share of any windfall profits over the plant's lifetime would amount to billions of pounds.

The British government said further discussions with EDF were needed over full terms of the guaranteed power price contract and project financing.

"This decision shows the European Commission agrees that this is a good deal for consumers and enables us now to proceed to the next stage," said British Energy Secretary Edward Davey, adding new nuclear plants would help reduce household bills.

EDF said before it commits to the project it must still sign agreements with financial partners set to include China General Nuclear Corporation, China National Nuclear Corporation and French reactor builder Areva.

Britain relies on nuclear power for around a fifth of its yearly electricity output but needs to replace ageing reactors.

"Today's announcement will be welcomed not only by those involved in the Hinkley Point C project but also by the many other companies that are looking to invest in nuclear energy in the UK and more broadly in Europe," said Jonathan Cobb, senior adviser at the World Nuclear Association.

Analysts called it a boost for an industry in the doldrums since the 2011 Fukushima nuclear disaster in Japan and for France's Areva, which will deliver two 1,600-megawatt EPR pressurised water reactors for the plant.

Horizon Nuclear Power, a subsidiary of Japan's Hitachi Ltd which plans to build a nuclear plant at Wylfa in Wales, also welcomed the decision. That project will also face an EU review once terms are agreed with the British government.

Czech firm CEZ has also watched the British deal with interest as it looks to expand its own Temelin nuclear power station.

"One argument was that it would never go through because it is public support. Now, though, Brussels approved it for the British. It is always good when someone big clears the way for you," CEZ Chief Executive Daniel Benes told the Hospodarske Noviny newspaper last month after the EU gave initial backing to the plan.

($1 = 0.6223 British pound)

(By Barbara Lewis and Foo Yun Chee, Additional reporting by Karolin Schaps in London and Geert de Clercq in Paris; editing by Jason Neely)