The NIA warmly welcomed the bill, which it said is essential to mobilise investment in new nuclear capacity.
Setting out the bill, business secretary Kwasi Kwarteng said it will use the RAB model to fund future nuclear power stations in Britain – a tried and tested method that successfully financed other infrastructure projects, such as the Thames Tideway Tunnel and Heathrow Terminal 5.
Under the existing mechanism to support new nuclear projects – the contracts for difference (CfD) scheme – developers have to finance the construction of a nuclear project and only begin receiving revenue when the station starts generating electricity. This led to the cancellation of recent potential projects, such as Hitachi’s project at Wylfa Newydd in Wales and Toshiba’s at Moorside in Cumbria.
Under the new RAB model, consumers will contribute to the cost of new nuclear power projects during the construction phase – but overall consumers are expected to save more than £30bn over the project’s lifetime on each new large-scale nuclear power station compared with existing funding mechanisms.
Initial contributions will give private investors greater certainty through a lower and more reliable rate of return in the early stages of a project, lowering the cost of financing it, and ultimately helping reduce consumer electricity bills.
Apart from saving consumers around £30bn on bills over the lifetime of each project the RAB model would also cut around £10 per year from the typical bill, according to estimates published by the government.
A large-scale nuclear project financed using RAB would add a small levy to bills of no more than a few pounds during the early phase of construction and less than £1 per month over the course of a project.
The income generated would allow project developers to finance the project at cheaper rates, which would substantially cut the ultimate cost to consumers.
The government said a large-scale nuclear project such as the two EPR units planned for Sizewell C would also save CO2 emissions worth £526m per year at today’s carbon prices, or £18 per year for every UK household.
A project like Sizewell C would further displace around 5.4 billion cubic metres of gas use, enough to fill 1.4 million Olympic size swimming pools. This would substantially reduce the UK’s dependence of volatile fossil fuel markets, which have pushed up daily electricity prices to an average of £180/MWh for the last two months.
Additional nuclear capacity will make the UK energy system cheaper and more resilient by providing clean, reliable power to the grid. The cost of balancing the UK grid is running at record levels of more than £200m per month. New nuclear stations, enabled by RAB, would cut the UK’s need for expensive fossil fuels to cover gaps in generation, and provide a backbone of firm, clean power.
France’s state-owned power company EDF, which is leading the Hinkley Point C and Sizewell C projects, has been lobbying intensively for a RAB mechanism, arguing that it could slash the “strike price” – the guaranteed price for Sizewell’s electricity – to between £30 and £60 per megawatt hour. Hinkley Point C’s £92.50/MWh strike price has been criticised as excessive at a time when offshore wind costs are falling.
Two EPR units under construction at Hinkley Point C are the only commercial nuclear plants being built in the UK. Sizewell C is the only new-build project in the country for which planning permission is being sought.
NIA chief executive Tom Greatrex said the RAB bill is “exactly what we need to cut financing costs and get on with building stations”.
He said: “Consumers will save money, businesses will get more predictable electricity costs, and the UK will save carbon. This is also a clear signal to investors that the UK believes in nuclear as a green technology which is essential to our energy transition. We hope the legislation will proceed swiftly as investment is urgently needed.”