Things aren’t quite what they seem (2)

And nor are they, apparently, in the offices of the officials beavering away in the State Aid Registry, part of the Competition Directorate in Brussels (seen above giving out the money at the end of the process).

We don’t hear much about their thinking in the UK, partially because like most things emanating from the Commission (directives, that sort of thing) we pay very little attention to them until they are way out of the stable door and down the road, and then we start thinking about whether the horse should have had a nosebag or not.

All is well with state aid and the Energy Bill, we are assured. Why, in a written answer to a question on State Aid (from me, as it happens) just a few weeks ago, new DECC minister John Hayes declared that:

 ‘We are working closely with European Commission officials regarding our proposals. In common with other policy areas, these discussions cover whether or not state aid may be present and, if there is state aid, whether it is approvable under the treaty. Once the Government make a formal notification of their arrangements, we expect the Commission to make a decision as soon as possible, consistent with the proper exercise of its responsibilities. We do not anticipate there being any impact on the timetable for the passage of the Energy Bill or secondary legislation’

But that, as a friend of a friend tells me,  is not quite how matters are being viewed from Brussels. They are worrying about three specific elements of the Bill as far as State Aid is concerned.

Firstly, the obvious one.  If the ‘strike price’ payment for generation per megawatt hour for new nuclear comes in substantially above that offered to other low carbon electricity generators, then the ‘protection’ that it is considered is provided by the conjoining of nuclear and renewables in the ‘contract for difference’ system could be regarded as being removed, and the UK Government could therefore be liable for state aid approval.

But then, the friend of a friend suggests, there are two other worries yet to surface publicly. These are:

  • New nuclear CfDs are not now, and will not for a long time hence, be auctioned. The EU state aid people look on auctioning as providing a substantial bulwark against ‘State Aid’ designation and are puzzling over how a single party ‘negotiation’ could avoid state aid designation where auctioning is not on the agenda for the foreseeable future.
  • If as a result of the elision of nuclear and renewables into one big cfd ‘pot’, the total proportion of electricity generation supplied through the CfD process exceeds – say – 40%, then that itself may be viewed as an outcome potentially liable for state aid permission. The Renewables Obligation was, of course, originally designated as ‘state aid’ but was given a derogation on the grounds that it is viewed a s ‘degressing’ as the technology develops, and in any event, only covers a small proportion of overall electrical generation.

Could it be, that in dumping the Renewables Obligation in favour of CfDs the Government has opened itself to a wider state aid problem than it has hitherto acknowledged or anticipated? My friend’s friend is tight-lipped. We shall see.

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