Wolf Theiss


In its decision made last October but published only last week, the European Commission approved the state aid intended by the United Kingdom to be provided for the implementation of the "Hinkley Point C" nuclear power plant project planned by the international energy concern EDF. Some points of the Commission`s reasoning indicate important changes as compared to its previous position which, in essence, rejected state aids provided for nuclear power plant investments. Dr. Máté Tóth, lawyer at the energy group of Faludi Wolf Theiss Attorneys at Law, believes that the decision may bear significance in terms of the scheduled expansion of the Paks nuclear power plant, too; moreover, it raises interesting questions in relation to other energy aids as well.

The financing package considered as state aid approved by the decision is composed of three main elements: the United Kingdom, on the one hand, ensures the off-take of electricity, generated in the power station unit to be installed, at a guaranteed price in the framework of a so-called CfD (`Contracts for Difference`) contractual structure. On the other hand, it provides state guarantee for the financing of the investment in respect of the bonds issued by the investor. Thirdly, it undertakes to reimburse any damages sustained by the investor if the nuclear power plant investment comes to naught for political reasons. In accordance with the CfD mentioned first, the state undertakes under a long-term civil law contract to repay to the power plant the difference between the strike price and the reference price should the reference price calculated on the basis of certain market sales figures drop below a fixed price (the strike price). At the same time, if the wholesale reference price is above the strike price, then the power plant is obliged to pay the difference to the State1.

The decision of the Commission sets forth that that the conditions arising in the course of large-scale (nuclear) energy projects, such as particularly large capital requirements and long payback periods, technical and political risks and the lack of adequate financing on the market, are problems to which market mechanisms do not provide a proper solution; therefore, in order to avoid such problems, state aid may be provided.

It may be significant in relation to Hungary that, rather than indicating a specific objective which has been approved in similar cases before, the decision contains abstract priorities, such as the goals to be found in the general introductory part of the EURATOM Treaty, as the Community objective constituting a key element of the permissibility of the state aid and laying the foundation for the provision of the aid.

"It is almost certain that the provisions of the "Hinkley Point C" decision will play a significant role if and when the financing of the Paks II project is examined by the Commission, as the Commission seems to have departed from its previous position at number of points. Brussels has insisted consistently for a long time on a market-based energy market, free from any financial intervention by the state, and, in the case of nuclear projects, it qualified state aid as expressly undesirable in its previous documents. Thus, the decision in the matter of the case of Hinkley Point C now may indicate a turn in the attitude of the Commission as far as state aids provided for electricity production and nuclear power plant investments are concerned, and for this reason the decision may be of great significance to the Paks II project" – says Dr. Máté Tóth.

On the basis of published data, it is already obvious at this point that there may be differences between the English and the Hungarian projects: for example, there are differences in the extent of the government’s role and function; therefore, the decision of the Commission published now does not make it possible at this time to draw general conclusions as to how the Paks investment will be judged by Brussels. It is certain, however, that the details of the decision of the Commission published last week may be relevant to the Paks investment, not to mention other large energy investments not necessarily related to nuclear energy; thus, in any case, it is worth keeping an eye on the events in England from this point of view as well.

1 - In reality the “strike price” is set in a way to ensure that the investment returns in the long run: if the price at which the power plant is able to sell electricity falls below the strike price, then the
power plant receives compensation; if it goes above the strike price, then the power plant is under the obligation to make repayment.

For further information please contact

Barbara Fürchtegott
Public Relations & Communications Manager
T. +43 1 51510 3808
Schubertring 6
1010 Vienna

Find a Lawyer