The EU’s 27 energy ministers could not agree on extending state aid to investments in existing nuclear assets when they met on Monday (19 June), with Germany, Austria and Luxembourg warning this will heavily benefit France and distort the EU’s internal market.

Read the full French article here. 

The electricity market reform, tabled by the European Commission in March, seeks to avoid a repeat of last year’s energy crisis, which saw consumers faced with soaring energy bills following record-high gas prices.

While EU member states agree on the need to pass the reform before the end of the year, they diverge on whether to allow state support for the lifetime extension of existing nuclear power plants, using so-called contracts for difference (CfDs).

Under the Commission’s proposed reform, two-way CfDs – with a price ceiling and a floor – will become mandatory as soon as governments intervene in the market to support power generators.

With this mechanism, public authorities make up the difference when electricity prices go below an agreed threshold, while producers redistribute the potential surplus revenue to public authorities when prices go above the ceiling.

The new system is meant to replace the myriad of state support schemes that are currently in place across the 27-country bloc, bringing more clarity by streamlining the EU’s energy subsidies.

But EU countries are heavily divided on the matter.

While France wants to use the mechanism to support investments in the lifetime extension of its existing fleet of 56 nuclear reactors, other countries like Germany, Belgium, Spain, Austria and Luxembourg are opposed.

“If we are unable to find a mechanism that will enable us to extend power plants, we are going to run into major difficulties,” warned French Energy Transition Minister Agnès Pannier-Runacher during a public debate with fellow ministers on Monday.

Nuclear power accounts for 25% of Europe’s electricity production, she noted, warning that Europe will suffer consequences in terms of energy security and climate objectives if the reactors’ lifetime cannot be extended.

However, according to Luxembourg’s Energy Minister Claude Turmes, this would create an “enormous distortion in the EU’s internal energy market,” especially regarding nuclear assets whose initial investment costs have already been largely amortised.

Distorting competition?

Indeed, while the Commission’s initial proposal on CfDs applies to state support for new build – mostly renewables – it also applies to existing assets, including nuclear reactors.

This is a sticking point for Austrian Energy Minister Leonore Gewessler, who explained that using CfDs for existing facilities would chiefly benefit member states with large power generation capacity, particularly France.

According to her, such a measure would not comply with state aid rules, distort EU competition, and largely favour electricity giant EDF, which operates the country’s nuclear reactors.

German Economy and Climate Minister Robert Habeck, for his part, said that Germany is in favour of covering existing assets for CfDs, but not for nuclear.

Luxembourg’s Turmes went further, claiming that the measure was a political “gift from Ursula von der Leyen to Emmanuel Macron” in order to help the Commission President win a second term in Brussels after the EU elections in 2024.

“If there is no agreement with Luxembourg’s position, we should at least consider a clause to control the proportionality [of investments] of this instrument [CfD],” Turmes added.

Proportionality

A key sticking point in the debate relates to the “proportionality” principle, which determines the share of assets covered by a CfD.

According to some member states, only a portion of CfD revenues should be allocated to reinvestment in existing assets. Others argue that only part of an existing asset’s output should be covered by CfDs.

Otherwise, the use of CfDs on the entire output of an end-of-life nuclear plant “will reduce the incentives to invest in renewables”, argues Gewessler.

However, France cannot accept this, said Pannier-Runacher’s office.

Because of the substantial investments required to maintain or extend the life of existing reactors, not using surplus CfD revenues would spell the end of these assets, French officials explained.

As it stands, “we, therefore, find the CfD proportionality proposal unacceptable”, Pannier-Runacher told EU ministers on Monday.

“We cannot accept that the massive public efforts we are making should not be offset by the fact that our consumers are paying the real cost of [electricity] production,” she added.

Moreover, maintaining the principle as it stands would limit France’s ability to redistribute potential CfD revenues, her office added.

Income redistribution

According to the proposal discussed on Monday, potential revenues generated from CfDs will be “distributed to all final electricity customers based on their share of consumption” – including households, SMEs and industrial customers of electricity.

For Germany’s Habeck though, it would be preferable to redistribute revenues chiefly to large industrial consumers of electricity which suffer a competitive disadvantage from high power prices in Europe. This selective approach is also supported in principle by Spain’s Energy Minister, Teresa Ribera.

For her part, the EU’s Energy Commissioner Kadri Simson sought to play down differences, saying the European Commission had already addressed concerns about the proportionality of CfDs in its original proposal.

“There is a concern that this may lead to overcompensation for some companies,” she acknowledged. At the same time, “the repowering of existing installations or lifetime extension requires huge investments and we need to ensure sufficient incentives for this to happen,” she added.

Commenting at the end of the public debate, she said it was still possible to clarify the application of the rule to existing assets.

“I think we can find a landing zone,” she assured, adding that “there is room for clarifying the text on CfD rules for existing assets”. For instance, it could be made “more clear that there should be a link between the amount of revenue arising from CfDs on existing assets and the size and nature of the investment – so clarifying the general principle of proportionality” when applied to existing assets.

Discussions at yesterday’s Energy Council extended throughout the day but failed to reach a common position. Negotiations will now continue at the ambassador level in the Council’s committee of permanent representatives of EU member states (COREPER).

[Edited by Frédéric Simon and Nathalie Weatherald. Additional reporting by Frédéric Simon]

Source: Euractiv.com