ENERGY & NATURAL RESOURCES: An Introduction to UK-wide

Will We See a Nuclear Renaissance in the EU in the Near Future?

In his speech earlier this year at the Nuclear Energy Summit in Brussels Fatih Birol, the head of the International Energy Agency, emphasised that “without the support of nuclear power, we have no chance to reach our climate targets on time”. At the summit, twelve EU countries (Belgium, Bulgaria, Croatia, Czechia, Finland, France, Hungary, Italy, the Netherlands, Poland, Slovenia signed a declaration in support of nuclear energy aiming to win the backing of development banks to finance the construction of new nuclear power stations and small modular reactors in the EU. The summit came in the wake of the historic inclusion of nuclear energy in the Global Stocktake as agreed at the UN Climate Change Conference (COP28) in Dubai in December 2023, which called for accelerating its deployment along with other low carbon energy sources. Many now expect a nuclear renaissance in the EU is be a done deal.

There has been a Shift Away from an Anti-nuclear Position

It is true that a shift away from the highly anti-nuclear position of the European Commission and the European Parliament earlier this year would suggest that things are looking up for the nuclear industry in the EU. The Commission’s anti-nuclear stance was evident from its draft of the Regulation on the establishment of a framework to facilitate sustainable investment of 2020, which did not include nuclear energy. It was only after seven large energy companies put pressure on the Commission that it reluctantly agreed that the Joint Research Centre (“JRC”) undertake “a do no significant harm report” for nuclear. Even after the JRC issued a positive report in August 2021, the Commission continued to drag its feet. It was only on 15 July 2022, that it published its amended Delegated Regulation2022/1214setting out the specific criteria and standards which a limited lists of nuclear activities have to fulfil in order to be regarded as contributing to the EU’s climate and environmental goals. The first big victory for nuclear proponents was achieved only earlier this year when low-carbon hydrogen produced from nuclear electricity was included in the EU’s new rulebook on green hydrogen.

Challenge to nuclear inclusion in climate targets remain

However, the challenge remains of nuclear being included when calculating EU member states’ climate targets by moving from a 2040 renewable target to a low-carbon target. One must also not forget that Austria’s challenge, together with a number of non-governmental organisations, to the Delegated Regulation as incompatible with EU law is pending before the Court of Justice of the European Union.  And Germany continues its anti-nuclear stance.

For these reasons, it is fair to say that the role of nuclear as a sustainable source of energy in the EU remains unclear for the time being. An active monitoring of EU political landscape now that the new Commission is being formed will be key for nuclear builders and their financial backers.

Importance of State Aid and the pivotal role of the Commission

As most pro-nuclear EU countries are looking at using contracts for differences (CFDs) to finance part or all of the construction of new nuclear the pivotal role of the European Commission in approving CFDs as a matter of EU state aid law should not be underestimated.  Engaging early with the Commission will be key for the timing and structuring of any new-build project.

Lessons learned from investment treaty

The lessons learned from the EU’s support when numerous member states backtracked on the regulatory support for renewables, whether in the form of feed-in tariffs, green certificates or similar mechanisms, should be at the forefront of nuclear investors’ minds. In particular, after offering generous feed in tariff schemes and/or green certificates schemes in the early 2000s, Spain, Italy, Romania, and Slovakia to name just a few, amended their regulatory framework just a few years later in some cases retrospectively. The courts in most of these jurisdictions found against the solar panel companies who sought to sue the state for the changes in the regulatory regime. The majority of investors who had resorted to investment treaty arbitration were more successful and were awarded damages for breach of their fair and equitable rights under those treaties, whether under bilateral investment treaties or the Energy Charter Treaty. However, they soon found that the Commission declared the arbitral awards as illegal state aid thereby prohibiting the states from paying out the arbitral awards and complying with their obligations under international law. The lessons from these cases must be heeded by investors in nuclear for whom operating in a stable legal and regulatory environment given its 60-100 year investment cycle is key. Accordingly, taking steps to minimise these risks including by negotiating stabilisation clauses and the like will also be important for investors and any renaissance of nuclear in the EU.

Keeping Costs Down

How to keep the costs associated with nuclear down is also key to nuclear renaissance in the EU. It is a concern for both investors and for the governments promoting nuclear. The delay and cost overruns facing EDF and the UK in completing Hinkley Point C, as well as the challenges facing the financial structuring of Sizewell C are often given as examples of why nuclear is not good value for money. Given the gap between the rate of return sought by equity and debt private investors of 12 - 14% and the rate the UK government is prepared to offer of 9% for Sizewell C, it clear that nuclear projects cannot and should not be developed without government support. The high cost of capital sought by investors was no doubt one of the key reasons why Czechia decided to finance the construction of all four new nuclear power plants by itself. 

Addressing Public Concern

Finally, another important factor for the nuclear renaissance in EU is addressing the concerns of the public about the environmental impact and safety of new builds. The timely implementation of EU environmental law relating to  environmental impact assessment and well conducted public consultations including cross border consultations will be key.