EU regulators have opened an investigation to examine whether UK support for a new nuclear power station breaks state aid rules.
French energy giant EDF is leading a consortium building a £16bn nuclear power plant at Hinkley Point in Somerset, but the European Commission has queried whether a “strike price” – a 35-year price guarantee for power from the plant – agreed by the government meets EU state subsidy rules.
Alongside an investigation into Germany's multi-billion euro exemption of heavy industry from green energy charges, also announced today, the competition has said it will assess whether the nuclear plant can be built without government support and also investigate Britain's plan to back EDF's loans with a state guarantee and the electricity price level agreed in the contract.
The UK has informed the EU of the strike price as the support mechanism needs state aid approval from the commission, but the executive says it is unsure if the project needed the help.
"The Commission has doubts that the project suffers from a genuine market failure," the executive said in a statement, adding it would seek public feedback on the case because of its unprecedented nature and scale.
The EU's Competition Commissioner Joaquin Almunia said: "The UK has notified a mechanism which is explicitly aimed at attracting investment in nuclear energy. It is a complex measure of an unprecedented nature and scale.
"The Commission therefore needs to investigate thoroughly its impact on the UK and the EU internal energy markets, and is requesting all interested parties to submit their observations."
The government is hopeful that the investigation could be resolved by next summer, but Almunia told reporters today that the executive was not under any legal time pressure to complete the investigation.
"The investigation depends on how complicated it is. This is not exactly the simplest investigation," he said.
Secretary of State for Energy and Climate Change, Edward Davey said that opening investigations was standard procedure for the Commission when assessing large investment projects and that it was always expected as part of Hinkley Point's approval process.
"We will use this period to demonstrate how the project meets state aid rules and provides good value for consumers while cutting carbon in the energy sector," he added.
EDF said the announcement showed that the inquiry was proceeding as expected and in time for a decision in the summer of 2014.
The Commission will also investigate Germany's heavy industry green levy exemption to see whether it is against competition rules.
Around 2,000 German heavy energy users such as BASF and ThyssenKrupp have been exempt from a surcharge ordinary consumers have to pay, but now face the possibility of having to pay back discounts totalling some €5bn (£4.2bn) a year.
The Commission said Germany's industrial discounts on green surcharges designed to subsidise the development of renewable energy sources might sometimes be justified to keep energy-intensive firms in Europe, but it still had concerns that aspects of Germany's law distorted competition.
German Chancellor Angela Merkel, speaking on Wednesday before the Commission's announcement, said Germany was seeking to remain a strong centre for industry and she did not see how the discounts could be unfair.
"This is about companies and when it's about companies, it's about jobs," Merkel said in parliament. "As long as there are countries in Europe where electricity is cheaper for industry than it is in Germany, I cannot see how we are distorting competition."