Nuclear restructuring

Secretary of State for Trade and Industry Patricia Hewitt has welcomed today’s decision by the European Commission to approve the UK Government’s restructuring aid to British Energy.

Under the terms of the restructuring plan, British Energy will ring-fence its nuclear generation capacities which are the only branch of its activities that are entitled to benefit from State aid.

The ring-fencing means that British Energy will have to create three separate businesses that have each their own separate accounts. One will deal with nuclear generation, another with non-nuclear generation and a third dealing with direct sales to large business customers.

The nuclear generation business will run British Energy’s eight nuclear power plants located in the UK and in Scotland. The non-nuclear generation business will operate the coal fired plant at Eggborough in the UK. 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 – as a condition for gaining EU approval for the restructuring plan – the approval contains other safeguard measures that the EU says maintain competition in UK energy markets.

First, British Energy has to cap its production capacity, including its nuclear capacity, for a period of six years. British Energy can also not extend its fossil fuel activities outside the UK and is prevented from acquiring large hydro power plants from its competitors in the UK. However, this ban does not apply to investments in renewable energy sources, as fostering of renewable energy sources is a stated goal of the EU’s environmental policy.

Secondly, British Energy will not be allowed to set its energy prices below the prices that prevail in the market. Adherence to this condition will be monitored by an independent entity, which the UK Government will designate via a ‘transparent tendering procedure’ under the auspices of the DTI.

Lastly, the UK State aid given to British Energy for future decommissioning liabilities may not be used to subsidise competitive activities, such as the operation of fossil fuel power plants or energy trading with large business customers.

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