The UK’s entire energy strategy is in danger of being derailed after the European Union’s antitrust chief Joaquin Almunia commented that he wants the British government to clarify why state aid is needed to build the Hinkley Point nuclear power project in southwest England.

“We need the UK authorities’ cooperation. My intention is to be able to adopt a final decision on this before the end of the year,” he told reporters in London on Friday.

Mr Almunia’s comments have come shortly after the European Commission challenged the UK government’s plans with regard to the $26bn nuclear plant deal with EDF and there appears to be serious doubt about whether the deal will be allowed to progress under its present terms.

The European Commission has challenged the British government’s assertion that power price guarantees and state-backed loans for the Hinkley Point project are legitimate aid.

In a 68-page letter to the British government dated Dec. 18 and released last week it said the Hinkley Point contract between EDF and the government has the “potential to distort competition and affect trade between Member States”.

Specifically, it said a proposed “Contract for Difference” guaranteeing prices for power the plant produces “effectively insulates” EDF and its investment partners from the market .

The government proposes guaranteeing a power price of 92.50 pounds ($150) per megawatt-hour for 35 years, which is more than twice the current market rate.

The Commission asked Britain to reply and submit any additional information within a month.

The legal discussion partly hinges on whether the two planned reactors can be considered to provide a “service of general economic interest”. The Commission said it would not be appropriate to attach public service obligations to an activity already provided by operators under normal market conditions.

It points to British nuclear plants which operate commercially without state support, as well as to two Areva-designed EPR reactors – similar to the ones being planned for Hinkley Point – being built in Olkiluoto, Finland and Flamanville, France, without state support.

The Commission also questioned the nuclear project’s decarbonisation claims.

A compromise is likely, according to specialists who expect the European Commission and the UK government to engage in negotiations. Yet the question is to whether the contract, after possible changes, would remain economically realistic for EDF.

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