European Commission announces investigation into possible state aid for the Hinkley point nuclear new build project

5 minute read
11 February 2014

The European Commission has announced that it intends to open a detailed investigation into possible state aid for the Hinkley point nuclear new build project.

It stated in its announcement that it doubts the project suffers from a genuine market failure. It is also quite negative regarding the project's prospects of being found to constitute "services of general economic interest" (SGEI).

So, what is the legal headline here?

The main point to keep in mind is that a key feature of the Commission's investigation will be to decide whether the project represents an SGEI. The expression "SGEI" is not defined by community law but essentially comprises an economic activity which public authorities define as being of particular importance to citizens, and which either would not be supplied, or would be supplied under different conditions, if there were no public intervention.

And SGEI tends, by its nature, to be a service directed at citizens. So, for example, the provision of hospital or health care services by entities entrusted with that function has been regarded as an SGEI. Energy security of supply has also been held to constitute an SGEI.

The European Commission has produced helpful guidance as to what constitutes an SGEI. To be classified as an SGEI, a service will generally have special, citizen-oriented characteristics compared to other economic activities, which cannot be satisfactorily provided by the market "under conditions such as price, objective quality characteristics, continuity and access to the service, consistent with the public interest, as defined by the State".

It is probably easier to clarify when a particular service will not amount to an SGEI. If the service can, under all the conditions required by the member state, be provided by the market, then there will be no reason why state intervention in the provision of the service is necessary, and accordingly the service will not be an SGEI.

In the case of Hinkley Point, the Commission has said it is about to launch a detailed, critical look at the project in order to determine whether this is a service which the market could quite happily provide under ordinary commercial conditions.

Nuclear new build can provide a stable low carbon base-load electricity supply into the future, ticking a number of boxes in the long term energy equation for the UK. It acts as a useful foil to electricity generated from wind with its tendency towards intermittency. For those close to the UK nuclear industry it may be clear that, without the ability to attract deep pocketed investors, making headway with new build could be very hard.

The incentive regime which the Commission wishes to investigate has been developed in the UK to provide the very comfort needed by those investors which have responded by coming forward to take part in our nuclear industry. A big problem is that there is not really the luxury of time to delay preparations for construction while the Commission conducts an in-depth state aid investigation.

Our electricity supply is far from being as secure as it once was. Buffer margins - the difference between peak demand and available supply - have recently been tighter than we have seen - historically. Equally the importing of gas to balance energy needs runs counter to the aim of achieving European carbon reduction targets. It is important that a break point is not brought nearer by a state aid investigation. Perhaps something can be done - either to speed the investigation along, or to persuade the Commission to close its file?

Politics and diplomacy will, of course, play their usual part in the debate, and different views are likely to be taken on the situation. However, one thing seems clear: there may not be time to reconcile the views as quickly as we might wish to, before we find our supply of power to the nation becoming uncomfortably erratic.

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