November 13, 2015 / 1:47 PM / 5 years ago

UPDATE 1-EU investigates French capacity mechanism plan, Brittany plant

(Adds details on French compliance)

BRUSSELS, Nov 13 (Reuters) - European Union state aid regulators opened a full investigation on Friday into a French plan to offer state subsidies to avoid power blackouts, concerned this may favour some energy companies and stifle new competitors.

As part of its investigation, the European Commission will also examine a tender for a gas-fired power plant in Brittany, worried that public support for just one type of technology may create a subsidy-dependent market.

European Competition Commissioner Margrethe Vestager said France’s plan to ensure secure energy supply and protect against the risk of blackouts must comply with EU state aid rules.

“It’s our role to ensure that this is done in a cost-effective and competitive way, so that electricity prices are kept in check,” she said in a statement.

Capacity mechanisms are used to fund electricity generation that may not be cost-effective but can guarantee supply during peak demand.

The European Commission will vet the French capacity mechanism - set to go live early next year - for compliance with EU state aid regulations, a French power market specialist said.

Given the dominant market position of state-controlled utility EDF, the EU Commission may want to verify the mechanism provides equal access for all participants, he said.

In order for the new mechanism not to be qualified as illegal state aid, France will also have to prove it addresses a genuine need in terms of security of supply, that it does not discriminate against certain parties, that it is technology-neutral, and that it is proportionate - meaning it does not bring costs that are greater than its supposed benefits.

With about one third of French households relying on electric radiators for heating, the French power system is highly vulnerable to periods of intense winter cold and France needs to rely on power imports to secure adequate supply. (Reporting by Foo Yun Chee and Barbara Lewis in Brussels and Geert De Clercq in Paris, editing by David Evans)

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