UPDATE 2-EU to launch probe into British nuclear state aid next week -sources

Thu Dec 12, 2013 9:00pm IST

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* Investigation to focus on length, value, loan

* Uncertain how long process will take

By Foo Yun Chee and Karolin Schaps

BRUSSELS/LONDON, Dec 12 (Reuters) - The European Commission will open an investigation next week into planned British support for a new nuclear power plant, three people familiar with the matter said, in a precedent-setting case for future nuclear funding in Europe.

Britain has offered EDF a price guarantee lasting 35 years on power from a plant which the French utility plans to build in southwest England.

The European Commission's competition directorate will investigate the length of the contract, the agreed minimum electricity price and a government loan guarantee, one of the sources said.

"Britain says this (assistance) is necessary because it's a nuclear project," the source said.

Britain is the first European member state to request approval for government support for nuclear power. The Commission's verdict is expected to determine how other states regulate nuclear support in future.

The Czech Republic is also debating whether to guarantee a minimum power price for state-owned utility CEZ to help it expand its Temelin nuclear plant.

The British government in October agreed commercial terms with EDF for the firm to build a nuclear plant at Hinkley Point expected to cost 16 billion pounds ($26.2 billion).

One hurdle that remains before EDF makes a final investment decision is the Commission's state aid approval.

"Looking at the overall timetable, we are confident it can be done by the summer," a UK government source said.

Other sources said the timing was difficult to predict because it is without precedent, but added that the Commission had beefed up its staff dedicated to the case to speed up the process.

If the Commission refuses state aid approval, the Hinkley Point project could fail, threatening the British government's long-term energy and environmental plans which call for nuclear power.

"The project could not proceed," an EU diplomatic source said when asked what would happen if the Commission rules against the plan.

Another possibility is the directorate could call for modification of the government's planned support, involving the guaranteed price or the contract's length.

"I have no reason to believe the Commission will block it," British Energy Minister Michael Fallon said at a conference in London earlier this month.

In October the Commission ruled out including a reference to nuclear power in pending revised state aid rules in an indication the British request could be difficult.

"Decisions like these are technical but also political," said Antony Froggatt, senior research fellow on energy at London think tank Chatham House, hinting at political lobbying from anti-nuclear nations, such as Germany and Austria, that is likely to play a role in the Commission's decision-making.

After the Commission's investigation is launched next week it will hold a public consultation and then present its decision to the EU's commissioners.

Brussels-based lawyers have questioned whether Britain's nuclear support scheme falls under current EU state aid guidelines.

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