The Legal Case Against Hinkley - Molly Scott Cato€¦ · German-UK renewable energy challenge •Set of key German and UK renewable energy companies and associations impacted by

UCL ENERGY INSTITUTE UCL ENERGY INSTITUTE UCL ENERGY INSTITUTE UCL ENERGY INSTITUTE UCL ENERGY INSTITUTE

The Legal Case Against Hinkley

From Fukushima to Hinkley: Dismantling the

nuclear argument for a sustainable energy future

Dr Paul Dorfman

Energy Institute

University College London (UCL)

UCL ENERGY INSTITUTE UCL ENERGY INSTITUTE

The deal

• UK have guaranteed EDF a price of £92.50 - twice

the current market price of electricity - for each

megawatt-hour over a 35-year locked-in contract

period.

• Subsidies will be funded through levies on all

consumer energy bills.

• Treasury has offered a credit guarantee to

underwrite up to £10bn of debt on the project.


EC decision on UK state aid

• Commission concluded that the ‘modified’ UK

measures for Hinkley Point nuclear power plant

are compatible with EU rules.

• Interesting - as there have been no real

‘modifications’.


Why is is it so important?

• EC decision sets an important precedent and will

have significant consequences across Europe.

• Directly informs the future direction of EU energy

policy.

• Annually, billions of euros rest on the result of this

policy appraisal.

• Sends important signals internationally.


International impact

• Europe can underestimate its role in setting global

norms - but many countries still look to Europe as

a laboratory for low-carbon transition.

• EU structural energy reform inform the kind of

robust international energy regimes needed to

combat ramping climate change.


Austrian legal challenge

• Austria, quite properly and transparently, signals

and declares a clear intention to challenge

through the EC Courts.


UK Threatens Austria

• The UK will take ‘every opportunity to sue or

damage Austria’ if Vienna does not drop a legal

challenge.

• ‘The U.K. will take every future opportunity to sue

Austria in areas that harm or that have strong

domestic political implications’.

Vijay Rangarajan, UK Senior Foreign Office official


Sending an offer they cant refuse

• Austrian challenge will have ‘negative effects on

bilateral relations, because there would be

strength of feeling, right up to the PM’.


Austrian response to UK

• ‘We won’t let ourselves be intimidated’.

• ‘No subsidies for atomic power.’

Austrian Environment Minister Andrae Rupprechter


Eton rifles play cricket

• ‘The UK has obviously started, including the use

of the UK Embassy in Vienna… with systematic

preparation of counter measures to damage

Austria’.

• UK has threatened to ‘sue or hurt’ Austria in areas

that would have a ‘strong domestic political

impact’.

Martin Eichtinger, Austrian Ambassador in London


DECC refuses access to

information on key reports

• Reports by KPMG on potential distortions to

competition; by Oxera on market failures,

proportionality and potential distortions of

competition; a study by Pöyry on potential

distortions to the internal market and alternatives

to new nuclear; report by Redpoint on the

evolution of the UK electricity sector; & details of

the Cost Discovery and Verification process,

compiled by KPMG and LeighFisher


German-UK renewable

energy challenge

• Set of key German and UK renewable energy

companies and associations impacted by the

decision.


Meanwhile…

• Areva, the French nuclear corporation, has just

issued its fifth profit warning in seven months,

saying it expected to report a €4.9bn loss for 2014

as cost overruns ballooned on key European

projects.


Areva

• Cuts wage bill 15% as prospects worsen.

• Weighed down by heavy debt and suffering from

an industry slowdown, a lack of orders, and legal

troubles over huge costs over-runs and delays at

the EPR nuclear build in Finland.

• Shareholders equity is ‘close to zero’.


EDF

• Denies plans to take a stake in Areva.

• Hinkley Point talks can take ‘considerable’ amount

of time.

• EPR nuclear build in Flammanville - very

significant cost and time over-runs.

• Shares down 4% as market worries about outlook.

• Plans to catch up on renewables investment.


EDF ‘renouvelables’

• EDF ‘behind the beat in renewable energy and

would do its best to catch up’.

• ‘EDF maybe was a bit reluctant at the beginning to

become an important player in renewables’.

Jean-Bernard Levy, new EDF chief executive


Back to the case…


EC DG Competitions initial view

• Deal provides utmost certainty of a stable revenue

stream under lenient conditions by eliminating

market risks from the commercial activity of

nuclear electricity generation for the very long 35-

year Contract length.

• Seems incompatible with EU State Aid rules, and

the proposed Investment Contract will provide

EDF with a clear selective advantage.


So what happened?

• Maybe EC don’t want to be seen to be

determining UK energy policy.

• Have EC made the decision because of

Eurosceptic undercurrents in the Coalition -

knowing that their decision has substantial flaws,

especially in terms of ‘energy market distortion’?

• EC inviting a legal challenge?


Market distortion

• Nuclear power projects inherently distort electricity

markets - because vendors require large-scale

pre-emption of the wholesale market in order to

accept the commercial risks of construction.


Targeted State Aid

• Investment Contract and Loan Guarantees

specifically designed to develop nuclear at the

expense of other low carbon investments.

• This level of financial support and length of

contract are not available to other low-carbon

technologies.

• Substantial repercussions on pan-EU trade and

competition and state aid regimes.


Nuclear risk

• Given the risk profile of this project, the fees for

the Loan Guarantees being offered to EDF by the

UK government are well below the commercial

rates - given the scale of risk in the light of current

experience of constructing an EPR.


Market competition failure

• UK plans to provide operating State Aid through

price support mechanism to guarantee profitability

are not compatible with EU State Aid rules.

• The proposed Investment Contract will provide

EDF with a clear selective advantage.


And remember…


Fukushima


Global warming

• ‘Nuclear sites, based on the coastline, may need

considerable investment to protect them against

rising sea levels, or even abandonment or

relocation in the long term.’

UK Institute of Mechanical Engineers


Rad-waste

• UK has 1,420 cubic metres of high-level

radioactive waste, 364,000 cubic metres of

intermediate-level radioactive waste, 3,470,000

cubic metres of low-level radioactive waste.

• Time-frame between 10,000 - 1,000,000 years.

• UK Govt estimate costs around £80-100 billion

and rising.

• No secure estimates for ‘deep disposal’.


Liability

• Nuclear is uninsurable.

• Currently, UK nuclear accident liability is capped

at £134 million.

• The EC aims to raise this to £1.2 billion per major

accident.

• Starting estimates for Fukushima stand at £100

billion and rising.


If nuclear is not part of the

solution, then…


• Solar will become the dominant electricity source

around the world as it beats conventional fuels.

• Generating $5 trillion in revenue over the next 15

years, and displaces large amounts of fossil fuels.


Wind power

• Worldwide wind power added 51GW in 2014.

• New additions represented 44% year-on-year

growth.

• Wind's cumulative installations to 369.55GW at

the end of 2014.

• Majority of the development came from China,

with 23.35GW of new wind power installed.


German Energiewende

• ‘As the first big industrialized nation, we can

achieve a transformation toward efficient and

renewable energy - with all the opportunities that

brings for exports, developing new technologies

and jobs’.

Angela Merkel







Thank You

www.ucl.ac.uk/energy

Documents

The Legal Case Against Hinkley - Molly Scott Cato€¦ · German-UK renewable energy challenge •Set of key German and UK renewable energy companies and associations impacted by