Friday, 21 February 2025
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The context
Under a plan announced by Belgium’s coalition government in December 2021, Doel 3 was shut down in September 2022, while Tihange 2 shut down at the end of January 2023. The newer Doel 4 and Tihange 3 would be shut down by 2025. However, following the start of the Russia-Ukraine conflict in February 2022 the government and Electrabel began negotiating the feasibility and terms for the operation of the reactors for a further 10 years, with a final agreement reached in December, with a balanced risk allocation
Belgium finalised plans in December 2023 to extend the lifetimes of Doel 4 and Tihange 3 by 10 years, providing capacity of 2 GWe from the reactors, which will be 89.8% owned by a joint venture between Engie’s Electrabel and the Belgian state, and 10.2% by EDF’s subsidiary Luminus. The decision to extend their lifetimes was designed to boost the country’s energy security while keeping carbon emissions as low as possible.
The European Union’s concerns
In July 2024 the European Commission launched its inquiry to “assess the need, appropriateness and proportionality of the measure” because of “doubts regarding the Contract for-Difference design and the proportionality of the (combination of) the financial arrangements, which might have relieved the beneficiaries from a too big share of the risk, as well as regarding the proportionality of the amount of the transferred nuclear waste liabilities”.
A Contract for Difference is essentially where there is a future fixed price guaranteed for electricity generated, with the government either paying the difference between the market price and the agreed sale price, or receiving payment if the market price is higher.
The support being investigated was the creation of the joint venture to cover the necessary capital expenditure – Electrabel alone owns 89.8% of the units prior to the start of the lifetime extensions – a Contract for Difference aimed at ensuring stable revenues for 10 years and “financial protective mechanisms, such as a loan and an operating cashflow guarantee”. There was also a transfer of liabilities from Electrabel to the Belgian state relating to nuclear waste and used fuel, against a lumpsum payment of EUR15 billion (USD 15.7 billion).
The investigation’s conclusions
In announcing its decision, the European Commission said that Belgium had clarified that “the nuclear reactors are based on an old technology whereby it is not secure nor technically feasible to often ramp up and down the power (‘modulate’). The number of modulations is therefore capped by the Belgian nuclear safety authority, which limits the flexibility of the reactors and the capacity of the nuclear operator to respond to market signals”.
The EC also said Belgium had clarified that the financial support measures beyond the Contract for Difference “are complementary, covering different risks related to the project, thus necessary to ensure its long-term financial viability”.
The commission said that to avoid undue distortion of the electricity market an independent energy manager would sell the joint venture’s “share of the nuclear electricity on the market, and who will have the appropriate financial incentives, which are subject to re-evaluation after 3.5 years, to guarantee an efficient use of the stock of modulations”.
It said that Belgium would set the strike price of the Contract for Difference “on the basis of a discounted cash flow model ensuring that the total aid amount is limited to the funding gap of the project” in a financial model which ensures the shareholders will get a market rate of return on their investment. There will also be an “intensified … Market Price Risk Adjustment mechanism, whereby the pain (or gain) of lower (or higher) than expected market prices is shared between the Belgian State and the beneficiaries”.
The commission said: “Following the additional evidence and modifications of the measure, the commission concluded that the aid is necessary and appropriate to achieve the objective pursued, as well as proportionate as it is limited to the minimum necessary, while competition distortions caused by the measure are minimised. On this basis, the Commission approved the Belgian measure under EU State aid rules.”
Engie said the operation of these two reactors and the dismantling work under way of its other units will maintain around 4000 direct, indirect and induced jobs.
