Nuclear Politics

UK New Build / Gov’t Announces Plans To Explore New Financing Model

By David Dalton
23 July 2019

Officials say  RAB model is essential to attract private investors to back the UK’s new nuclear ambitions
Gov’t Announces Plans To Explore New Financing Model
A computer generated image of the planned Sizewell C nuclear plant in England. Photo courtesy EDF Energy.
New nuclear power plants could be rolled out under a new financing model and government investment to decarbonise the UK’s energy sector, the British government announced.

The government today set out proposals to explore the use of the regulated asset base (RAB) approach to attract “significant private investment” for future nuclear power in the UK.

The government said the RAB financing approach, already used in major UK infrastructure projects like the Thames Tideway Tunnel sewer project, could reduce the cost of financing infrastructure and risk for developers while limiting the impact on consumers’ bills in the long-term.

In a consultation document published on Monday night, officials said the RAB model is “essential” to attract private investors to back the UK’s new nuclear ambitions at a price that is affordable for bill payers. The public purse would also compensate nuclear investors if the project was scrapped.

The new funding structure could be used for EDF Energy’s plans for a new EPR plant at Sizewell C in Suffolk, which was left in doubt after criticism of the costs surrounding the Hinkley Point C project in Somerset.

It could also resurrect plans to build two UK Advanced Boiling Water Reactors at the Wylfa project in North Wales, which were shelved last year because of rising construction costs and a failure to reach an agreement on financing with the UK government.

EDF Energy said today that nuclear power is needed to help the UK switch from polluting fossil fuels and reach net zero emissions. “Lower costs for financing nuclear will benefit consumers through their bills and today’s proposals show a way this can happen at Sizewell C in Suffolk,” the company said.

As a near replica of Hinkley Point C, which is under construction in Somerset, Sizewell C will be cheaper to construct and finance, EDF Energy said. It will benefit from the experience of Hinkley Point C’s engineers, contractors and suppliers and lessons from other nuclear projects, including operational EPR plants.

RAB is essentially a type of contract drawn up with the backing of government which calculates the costs and profits of a project before it is started, and allocates an investor’s profits from day one.

A government regulator sets a fixed number, the RAB, which attempts to account for all the future costs involved in the completion of a project. The regulator then also sets a fixed rate of return for the investors based on those costs.

Dieter Helm, the British economist and academic, has said RAB would solve the problem for nuclear developers risks to the developer that the government will renege on its part of the deal and that the plant will be forced off the system by the investment decisions of others, in particular where low-carbon investment is decided by and subsidised by government.

“The RAB mechanism is honoured by the regulator and the regulator is itself backed by statute, so ultimately this duty is backed by the government,” Mr Helm wrote in a recent paper.

Tom Greatrex, chief executive of the UK Nuclear Industry Association, said today that the RAB model promises to make a substantial contribution to reducing the cost of building new nuclear capacity.

He said the UK needs new nuclear plants if it is to meet its climate change targets of reducing reliance on fossil fuels while maintaining a secure, reliable system of power generation.

“This approach is already well established with investors in large infrastructure projects, and will reduce the cost to consumers as we replace our ageing fleet,” he said.

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