The Hinkley Point C nuclear power station in Somerset has received the final approval from the European Commission following a funding investigation.
Commissioners approved revised plans to subsidise and operate the plant, which will be built by French energy giant EDF Energy at Hinkley Point in Somerset, despite fierce opposition from environmental groups and the prospect of a legal challenge.
The Commission, which has been examining funding for the power station under state aid rules since December, said the UK had agreed to "significantly modify" the terms of the project financing, which will achieve savings for taxpayers.
The £16bn project, the first new nuclear power station to be built in the UK in a generation, is expected to create 25,000 jobs and will start generating power in 2023.
"After the Commission's intervention, the UK measures in favour of Hinkley Point nuclear power station have been significantly modified, limiting any distortions of competition in the Single Market,” said European Commission Vice-President Joaquin Almunia, in charge of competition policy.
"These modifications will also achieve significant savings for UK taxpayers. On this basis and after a thorough investigation, the Commission can now conclude that the support is compatible with EU state aid rules."
The Department of Energy said Hinkley Point C represented the start of investment in a new fleet of nuclear power stations replacing old, polluting power plants, which could reduce household bills by around £95 in 2030.
Although the UK government, industry and unions welcomed the decision, environmental groups expressed disappointment, saying the scheme would drive investment away from cleaner renewable resources.
"This is a world record sell-out to the nuclear industry at the expense of taxpayers and the environment,” said Greenpeace EU legal adviser Andrea Carta.
"It's such a distortion of competition rules that the commission has left itself exposed to legal challenges. There is absolutely no legal, moral or environmental justification in turning taxes into guaranteed profits for a nuclear power company whose only legacy will be a pile of radioactive waste. This is a bad plan for everyone except EDF."
EDF Energy has been guaranteed a so-called "strike price", which will see the company selling energy generated at Hinkley Point C for £92.50 per megawatt-hour for the first 35 years of operation. The controversial strike price is twice as high as the current market rate.
Hinkley Point C, with a foreseen operating life of 60 years, will generate 3.3GW of electricity - the largest output produced by a single plant in the UK - which would represent about 7 per cent of UK electricity generation and would be enough to power six million households.
"While there is much work still to do before a final contract can be signed, today's announcement is a boost to our efforts to ensure Britain has secure, affordable, low-carbon electricity in the 2020s,” Energy and Climate Change Secretary Ed Davey said.
"After a thorough, detailed and independent analysis of our proposed project with EDF, this decision shows the European Commission agrees that this is a good deal for consumers and enables us now to proceed to the next stage."
The Hinkley Point nuclear power station will have Areva EPR pressurised-water reactors, which are not yet operational anywhere in the world. There are only three projects currently under construction, in France, Finland and China, which will rely on this technology.
"Now EDF and partners have to finalise the agreements needed to reach a final investment decision," EDF chairman Henri Proglio commented.
“Building EPR reactors in the UK will provide huge benefits for both countries in terms of job opportunities, economic growth and skills, further strengthening France and United Kingdom fruitful partnership."
The EC said that during its investigation, the UK authorities demonstrated that the support would address a genuine market failure, dispelling the Commission's initial doubts.
The Commission said it found that the initial guarantee fee which the operator would have paid to the UK Treasury was too low for a project with this risk profile
The guarantee fee was "significantly" raised, reducing the subsidy by more than 1bn and procuring the UK Treasury an equivalent gain.
After the Commission's intervention the gains generated by the project will be better shared with UK consumers, and if the construction costs turn out to be lower than expected, the gains will also be shared.
Austria, which strongly supports green energy, has opposed the decision and even threatened to take the European Commission to the European Court of Justice.