“Atomic Vestager” strikes again: DG Comp approves State aid to Paks II

After raising doubts about the Hungarian Paks II nuclear project, the Juncker Commission gave Hungary the approval this week for this controversial Russian-backed power plant.

As it implies massive public support qualified as State aid, this project needed to be formally approved by the Commission’s DG Competition. In addition, Hungary has generated considerable controversy by handing the contract without conducting a tender, a potential infringement to the European law pertaining to public procurements. After waiving the project a first time by considering the absence of public procurement justified due to “technical specificities”, the Commission gave its final green light on 6 March by clearing the State aid scheme.

 

Paks II is not fit for purpose

Nuclear is not competitive

Considering the wholesale market prices of electricity today, nuclear power is non-viable in the absence of massive public subsidies. That was already demonstrated by the Hinkley Point C project in the UK. Paks II anticipates a totally unrealistic doubling of the wholesale electricity price to be profitable. However, prices on EU market will not increase significantly in the coming years, mostly thanks to better interconnections, more flexibility options such as demand-response and a high share of renewables in the system. The burden of Paks II for public finance will hence be enormous.

While the costs of renewables are becoming lower and lower, nuclear energy is no longer competitive and raises serious problem of profitability, despite the privileges it benefits from, notably the non-internalisation of all decommissioning and waste management costs and the absence of a harmonised liability regime.

Knowing that this power plant will generate between 40 and 50% of the Hungarian electricity when it is commissioned, the risk of market abuse is far from negligible.

As the EU electricity market is currently undergoing a transition, investing in a nuclear power plant is a signal of a lack of long-term vision. The market will become more flexible and decentralised. Rigid plants such as nuclear reactors are at odds with the new market design and should be progressively phased-out.

 

 Paks II goes against the Energy Union objectives

In terms of energy security, Paks II raises major concerns too. Russia will construct it, fuel it and finance it – Russia as provided a € 10 billion intergovernmental loan to Hungary. This is reinforcing the dependency of the EU towards Russia, adding up to the already difficult situation related to gas. Paks II will further open the European market to Russian nuclear technology, increasing the EU’s reliance of Russia for its energy supply contrary to the objectives of the Energy Union strategy

 As in the case of Nord Stream II, the construction of Paks II is a divisive project. It is obvious that a nuclear accident in one country would have some repercussions in neighbouring countries. In this respect, the construction of Paks II is seen as a provocation by Austria, who already announced its intention to challenge the Commission’s decision before courts.

 

 The Commission should stop hiding behind the Euratom treaty

 The first decision of the Commission approving the absence of public procurement was already doubtful. Hungary argued there was no need for a tender to build the new capacity as Rosatom is the only constructor able to build the plant. Even if this goes against European competition laws, the Commission has accepted the “technical exclusivity” argument. However, this justification is clearly abusive, as none of the designs provided by nuclear technology providers fully meets the requirements of any State. The winner of a tender should always modify its design according to the country’s individual specifications. Moreover, many cases of the European Court of Justice clearly demonstrated that any national regulation restricting fair competition on the internal market without a compelling reason should not be pursued. This is obviously the case of Paks II.

Regarding State aid clearance, commissioner Vestager is hiding behind the Euratom Treaty as she did for Hinkley Point C. She declared the Commission’s role is to ensure that the distortion of competition on the energy market as a result of the state support is limited to a minimum”. But as this new nuclear power plant will provide 40 to 50% of the Hungarian electricity production, the risk it disrupts the whole regional market is high. What’s more, additional state aids must be expected from the Hungarian side power price assumptions as underlying the project are unrealistic. Commissioner Vestager’s assessment of the case is narrow-minded. She decided to fully disconnect the case from the fact that Hungary recently passed a bill critically reducing the independence of the national regulatory authority when it comes to Paks II , leaving a significant part of the regulatory mission within the ministry of energy. This constitutes a breach of the “third package” on the internal electricity market. In addition, no proof have been shown to demonstrate the utility of a new nuclear power plant to solve current and future problems on Hungary’s electricity market. Alternative solutions such as renewable energy sources, demand-side management policies and interconnections have not been assessed despite their contribution to CO2 emissions reduction and security of supply.

Finally, by accepting this gigantic State aid without putting it in its political, social and economic context, commissioner Vestager is failing in her mission to ensure a fair competition on the internal energy market. She does not seem ready to launch any policy initiative to end the nuclear free-ride when it comes to State aid. This is all the more worrying that new sensitive nuclear cases are lining up, chiefly the large-scale bail-out of the French nuclear sector (EDF and Areva) currently under examination by DG Comp.

Image © Bence Jardany / Greenpeace


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