State aid: Commission approves UK pricing methodology for nuclear waste transfer contracts

The European Commission has found that the pricing methodology for waste transfer contracts to be concluded between the UK Government and operators of new nuclear power plants is compatible with EU state aid rules.

This methodology establishes the price that operators of new nuclear plants in the UK will have to pay for the underground disposal of their spent fuel and intermediate level waste in a planned UK geological disposal site. It aims at ensuring that it will be the nuclear power operators – and not taxpayers – who bear the cost of disposing their nuclear waste and that they set aside sufficient funds to cover their future liabilities...

Under the EU Treaty each Member State is free to determine its energy mix. The Commission's role is to ensure that when public funds are used to support companies, this is done in line with EU state aid rules, which aim to preserve competition in the Single Market.

The Commission's assessment showed that the UK pricing methodology makes sure that operators of new power plants will bear the disposal costs for their spent fuel and intermediate level waste.

The methodology will establish a waste transfer price that reflects actual disposal costs: It will be determined only when most of the currently unknown cost factors of the disposal facility have become clear (around 30 years after the start of electricity generation by the nuclear power operator). In particular, the price will cover all projected variable and fixed costs linked to the disposal of the spent fuel and intermediate level waste, as well as an appropriate risk premium to reflect possible cost increases after the setting of the price. The pricing methodology therefore involves no state aid within the meaning of the EU rules. Until the final price is determined, nuclear power operators will be periodically updated on expected costs and are under an obligation to set aside sufficient funds to cover their future liabilities.

Given the uncertainties at this stage concerning the waste transfer price to be paid, the UK considered it necessary to set a price cap, to provide some visibility of future liabilities to secure investors and financing. The Commission was able to conclude that the actual disposal costs are very unlikely to exceed the cap level. This is because the cap was set by UK authorities on the basis of very conservative projections for the maximum costs of waste disposal. In addition, operators will also have to pay a proportionate risk fee to benefit from the cap. Therefore, any potential state aid and distortions of competition due to the cap, if any, would remain very limited.