UK Energy Minister Charles Hendry has conceded that part of the government’s Electricity Market Reform plans could fall foul of European Commission state aid rules.

A cornerstone of the EMR – which is designed to stimulate growth in low carbon power generation – is a contracts-for-difference mechanism, by which operators of new plant get a guaranteed price for the electricity they generate. That price would differ between types of generation, be it nuclear, gas or a form of renewables.

But Hendry told the UK’s Energy and Climate Change Committee that the mechanism which the industry wanted was undeliverable under EU rules.

“We have put forward a package which we believe most complies with EU requirements, while industry has other thoughts, and we will try to find a balance that gives certainty and comfort to investors,” he said.

Committee chairman Tim Yeo was aghast: “There will be serious alarm politically if it appears that some interpretation of EU state aid rules prevents Britain from having the best market structure,” he said.

“Why on earth does this rather important aspect of our quite sensible market reform run foul of the European Commission?”

“We are putting it forward in a way in which we believe it won’t fall foul of those rules,” replied Hendry.

Earlier the minister had outlined how the race was on to find new backers to replace RWE and E.ON in the Horizon nuclear project. In March the companies bailed out of the programme to build two new nuclear reactors in the UK, citing financial constraints in their native Germany.

Hendry said the decision by the firm’s was “certainly disappointing, but I don’t think it derails the government’s nuclear programme”.

Charles Hendry

 He said the sale of Horizon “needs to happen soon” and it would not matter to the government if a buyer came from within or outside the EU.

 Any potential investor needs to meet al of our safety and security concern. They must have experience of nuclear generation.

“What we are looking for are companies with experience and expertise in the sector,” he said, adding that there was no objection in principle to players from Russia, Japan or China coming in to the UK market.

The committee, which was meeting to discuss the future of nuclear new build in Britain, heard evidence from Volker Beckers and Tony Cocker, the chief executives in the UK of RWE and E.ON respectively, and Beckers stressed that there was “no question of the decision being reversed”.

Cocker said that the decision to withdraw from Horizon was not influenced at all by any concerns over the UK government’s plans for electricity reform, stating: “We believe the investment framework in the UK is one of the best in Europe – or the best in Europe.”

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