Brussels opens probe into UK state aid for new nuclear plant

(BRUSSELS) - The European Commission on Wednesday said it had opened "an in-depth investigation" to see whether plans by the British government to subsidise a new nuclear plant comply with EU state aid rules.

"The Commission has doubts that the project suffers from a genuine market failure," it said in a statement.

Britain's coalition government in October signed a GBP 16-billion ($26-billion, 18.9-billion-euro) deal with French energy giant EDF to build two reactors at Hinkley Point C, southwestern England, to meet future energy needs.

Also involved in the contract are French group Areva -- the world's leading nuclear power company -- and Chinese nuclear firms CGN and CNNC.

Under the accord for Britain's first nuclear plant in a generation, the plant operator is guaranteed a fixed price for the electricity over 35 years, "despite the volatility of the wholesale electricity price", the Commission said.

Crucially, the government will pay the difference if the market price for electricity falls underneath the guaranteed level, with the overpayments funded by levies on domestic energy bills.

"The nuclear plant operator... will therefore not be exposed to market risks for the duration of the scheme," the Commission said.

"The Commission will assess whether the construction of a nuclear power station could not be achieved by market forces alone, without state intervention."

The opening of the probe allows interested parties to comment, the statement added.

Britain has placed nuclear power at the heart of its low-carbon energy policy, in stark contrast to Europe's biggest economy Germany, which vowed to phase it out in the wake of Japan's 2011 Fukushima disaster.

The British government has said that the Hinkley Point project is aimed at providing the country with secure and reliable low-carbon electricity, and will create thousands of jobs.

Britain currently has 16 nuclear reactors which provide about 20 percent of the country's energy needs.

At full capacity, the two new reactors will be able to produce seven percent of Britain's electricity, enough to power five million homes.