Sunday, 27 October 2013

Hinkley C to be paid more than twice as much as German solar pv arrays

Looming large over the UK Government's EU state aid application for Hinkley C is the charge that this deal will distort the EU's internal market, in particular to undercut solar pv arrays in Germany over 10 MW in size. Such arrays are no longer eligible to receive premium prices under the German feed-in tariff system. Such plant will only receive the wholesale electricity price, which is less than half the rates to be paid to Hinkley C.

Even the German feed-in rates for smaller solar pv arrays have been reduced to well below the contract price being offered to EDF etc in the UK (see link at the bottom of this post). In addition, even in the UK the value of the incentives for British community wind power are in practice much lower than what is being offered to Hinkley C. See previous post on http://realfeed-intariffs.blogspot.co.uk/2013/10/give-community-wind-power-same-emr.html

The fact that the Hinkley C deal distorts the EU's internal market to give a state aid to nuclear power that is not available to renewable energy directly flies in the face of the EU's state aid regulations. Under these rules it is permissable to give premium price incentives to renewable energy, subject to clearance by the EU Commission that they have been applied according to the correct procedure. However, state aid for non-renewable energy, while not necessarily illegal under EU rules, has to be the subject of a special application. The issue that arises here is that the UK Government, in effect, is wanting to give priority state aid in the EU electricity market to a fuel which has no exemption over and above a fuel which does have an exemption.

There has been disquiet among the EU about the distorting effect of feed-in tariffs for renewables themselves.  See http://realfeed-intariffs.blogspot.co.uk/2013/01/european-commission-threatens-feed-in.html
But at least these renewable energy feed-in tariffs are in keeping with EU state aid law, which is more than can be said for the Hinkley C proposal.

The issue of maintaining competition rules for the internal market is a serious one since a major priority of EU energy policy is to increase the possibilities for cross border trading in electricity. Pursuant to the EU's 'third' internal energy market package, since 2009 a body called the European Network of Transmission System Operators - Electricity (ENTSO-E) has been established under EU law. It is working with the Commission and industry stakeholders to develop a pan-EU electricity trading model and ensconce this in regulations. A key reason for this is to improve the prospects for trading the increased cross border electricity flows that are associated with a build up in variable renewable electricity.

The UK is going to be increasing trade in electricity along with the others, with increased electricity interconnector capacity helping this. But what is going to be happening now? British policy will be giving a state-aided competitive advantage to nuclear power in this cross border trade over and above renewable energy. This threatens to directly contradict EU competition and internal market policy and law.

This issue will be a prominent factor in the European Commission's investigations in the UK Government's application for state aid for Hinkley C (for which it has recently notified the Commission). Renewable generators across the EU will be pointing out how the UK policy may be contravening EU law. Analysts will remember that it took a case at the European Court of Justice (ECJ) to establish the right of the German state to give premium prices to renewable energy. What would the ECJ say about a case where nuclear power was being given priority premiums in the EU electricity market against renewable energy? I can see no basis in law for this, as discussed above.

The British Government has its plans that the Hinkley C state aid consent will be given by the Commission in a year's time. Well, nuclear interests may control the British Government so that they can plan how they like, but they do not have quite the same leverage at the EU level. The EU Commission has already rejected an attempt by the UK Government to get EU state aid rules changed to allow state aid for nuclear to be included on the same basis as renewables. Added to this of course are the politics. David Cameron's Government loves regailing the Commission with talk of incompetence, waste etc, so he can expect to have no particular favour on this issue. The British Government may be lucky to obtain state-aid approval for the Hinkley C deal in just a year!

See some details on feed-in tariff rates in Germany and the UK:

http://www.renewablesinternational.net/new-solar-fits-in-germany-and-uk/150/510/71782/

In the UK solar arrays of this size will continue to be eligible for the Renewables Obligation and the so-called feed-in tariff under Electricity Market Reform. Except of course that under EMR the 'feed-in tariff' is only accessible to the major electricity companies, and, as things look at the time being at least,  independent generators will only be offered power purchase contracts by the 'Big Six' electricity companies on the basis of them taking a significant  'cut' of the 'feed-in tariff' income stream . This is the opposite of the German system where wind, solar, biomass and hydro generators have direct access to the feed-in tariff, which was originally introduced precisely to give the independent generators freedom from reliance on the utilities.

See some discussion of German wholesale electricity prices at:
http://www.carbonbrief.org/blog/2013/07/the-energiewende-and-energy-prices-public-support-and-germany%E2%80%99s-long-term-vision/

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