Ed Davey (Liberal Democrat)

The European Commission’s decision represents another important step forward in progression of the state aid case for Hinkley. Alongside Royal Assent, today, of the Energy Bill and my Department’s publication tomorrow of the electricity market reform (EMR) delivery plan and revised version of the contracts for difference (CfDs) terms, this opening decision for Hinkley demonstrates excellent progress in delivering the Government’s EMR programme. Investment contracts, such as those proposed for Hinkley, are in effect early CfDs and, like CfDs, they are a market-oriented instrument designed to incentivise investment in new low-carbon generation while ensuring an appropriate allocation of risks between generators and consumers. This investment is needed at scale if the UK is to play its part in meeting the EU’s common security and diversity of supply and decarbonisation objectives, all at least cost to the consumer. EMR, taken together with our other energy interventions, for example in relation to energy efficiency and the pursuit of interconnectors with other member states, will help ensure that the UK is able to make its fullest contribution to achieving a single EU energy market.

The UK’s electricity market reforms are groundbreaking, with much of Europe following our progress with close interest. This is particularly so in the case of CfDs. CfDs are necessary given the current market failures and are an innovative intervention, with impacts on competition and trade limited to the very minimum required to ensure that security of supply and decarbonisation objectives can be achieved. For example, as set out in the commercial agreement on key terms for the proposed Hinkley Point C investment contract that I announced on 21 October this year, any contract awarded to EDF for Hinkley would include in-built mechanisms to prevent overcompensation. These include construction and refinancing gain shares and operating cost reviews taking place at 15 and 25 years into the contract term. Indeed, CfDs are less distortive and less generous to generators than some other interventions, which have previously been approved by the Commission.

[Source]