EU to revise state aid rules, including compensation for coal-fired power plants

The European Commission is to review its rules for granting state aid by 2021 so that they better meet the current requirements set out in the European Green Deal (European Green Deal). The rules are intended to facilitate support for the early closure of coal-fired power plants or district heating systems. However, the Commission communication makes no mention of nuclear energy.

As preparations for the transformation of the energy sector in the coming decade continue, it is becoming increasingly clear that the transition will not be cheap for Europe. This is also evidenced by a recent document from the European Commission dated 15 January, which sets specific tasks for the European Commission relating, among other things, to state aid.

The European Commission appears to recognise that if it were to rely solely on market forces, it would be unlikely to meet the new climate commitments, and must therefore create an appropriate system to achieve climate neutrality by 2050.

Under current market conditions, coal-fired power plants continue to operate in the electricity market despite the substantial increase in the price of emissions allowances. However, their generation is the least desirable from the perspective of the European Green Deal, and the new state aid rules should therefore allow compensation for coal plant operators, without resulting in overcompensation.

However, the document does not mention possible state aid for the construction of new nuclear units. While these are not generally excluded from state aid (see the construction of the Hinkley Point C or Paks nuclear power plants), they are unlikely to receive exceptional benefits under the new rules.

This is evidenced by the European Union's current, rather reserved (even negative) approach to supporting the construction of nuclear power plants. Although the European Union ultimately did not entirely exclude nuclear power (together with natural gas) as a possible source of electricity in the European Green Deal, it will not be possible to obtain support for it from the Just Transition Fund.

Given that the construction of a nuclear power plant is not a profitable investment under current market conditions, Czechia is also considering some form of state aid. This may take many forms, from direct guarantees of purchase prices and loan guarantees to some form of put or call option under predetermined conditions. In the current climate, state aid notification may therefore become a significant obstacle.