Commission approves restructuring of British Energy and £4 billion subsidy
The European Commission has approved restructuring plans for British Energy which would allow up to £4 billion of state aid to pay for reactor decommissioning costs over the next 100 years.
British Energy is the only private operator of nuclear power stations in the UK. The need for a state sponsored restructuring plan arose out of a substantial fall in electricity prices in the UK in 2002, leading to a decrease in British Energy's revenues.
The Commission claimed to be satisfied that the new structure of the company would ensure that the subsidies were used exclusively for the decommissioning of nuclear power plants in the future, and not to subsidise competitive activities such as the operation of a fossil fuel power plant or energy trading with large business customers.
Adrian Montague, Chairman of British Energy said: "The compensatory measures are stringent but workable, and the decision allows us to continue with our core objective of rebuilding the Company, operationally and financially. Our focus remains on improving the performance and reliability of our nuclear power stations and improving our energy trading and risk management capability."
Friends of the Earth Scotland's Chief Executive, Duncan McLaren, however, condemned the plan: "Once again Britain's nuclear industry is to be bailed out at the taxpayer's expense enabling this failed technology to go limping on until the next crisis. If renewables and energy efficiency had received anywhere near the billions wasted on nuclear then things could have been so much different."
Under the terms of the restructuring plan British Energy will ring-fence the nuclear generation capacities which are the only branch of its activities that are entitled to benefit from State aid. In this case ring-fencing means that British Energy will create three separate businesses which have their own separate accounts. There will be one business dealing with nuclear generation, another, dealing with non-nuclear generation, and a third unit dealing with direct sales to large business customers.
The nuclear generation business will run British Energy's eight nuclear power plants in the UK and Scotland. The non-nuclear generation business will operate the coal fired plant at Eggborough and the sales unit will manage sales to large business customers, also known as direct supply to business, or DSB.
Apart from the strict rules on ring-fencing, British Energy must cap its production capacity, including nuclear capacity, for a period of six years. It is also not allowed to extend its fossil fuel activities outside the UK and is prevented from acquiring large hydro power plants from its competitors in the UK. In addition, British Energy will not be allowed to undercut prices that its non-aided competitors are unable to afford.
The news of the subsidy has aroused outrage from the environmental community. Friends of the Earth criticised the bail out and warned that, without the introduction of legal controls, this case could influence many similar cases from other nuclear firms who are not putting aside adequate funding to cover decommissioning and waste management liabilities.
Campaigner Mark Johnston said: "British Energy should meet its own decommissioning costs by increasing its prices. It should not off-load its radioactive legacy on to British taxpayers. The Commission has failed to uphold the polluter pays principle, and basic principles of a market economy. The exploitation of the Euratom treaty is particularly outrageous. Safety needs to be met through proper regulations and not direct subsidies. Euratom is an outdated relic that must be scrapped so the British Energy scandal is not repeated."
By David Hopkins