Comment & People

UK Needs To ‘Make Up Its Mind’ On Nuclear, Consider RAB Financing Model, Says Oxford Economist

By David Dalton
29 January 2019

29 Jan (NucNet): The UK government needs to make up its mind whether it is serious about nuclear and prepared to do it properly, which means it has to make key strategic decisions, stick to them over the long term and allow a supply chain to be developed and sustained over decades, an economist specialising in energy infrastructure has said.

In an article published on his website, Prof. Dieter Helm of the University of Oxford said Hitachi’s recent decision to suspend work on plans to build two UK Advanced Boiling Water Reactors at the Wylfa Newydd nuclear site in north Wales “has been a long time coming and is not at all surprising”. It comes at a crossroads for the energy sector, he said.

Hitachi said it had suspended the Wylfa project because of rising construction costs and a failure to reach an agreement on financing with the UK government

Prof. Helm said one option for nuclear policy is for the government to use the regulated asset base (RAB) model for EDF’s planned two-unit Sizewell C project.

RAB financing would transform nuclear economics because it is a well-tried model and should produce a lower cost of capital and a very different risk sharing profile, Prof. Helm said.

RAB financing 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.

Prof. Helm criticised the contract the contract for differences model used for Hinkley Point C, saying it assumed ministers knew what future fossil fuel prices would be and knew what the relation between fossil fuel prices and the wholesale electricity price would be.

The CfD, or “strike price, was set at £92.50 per MWh, indexed to inflation, for 35 years, but even with a Cfd it soon transpired that no private sector company and no pension or infrastructure funds would be prepared to fund the Hinckley project. In the end the only candidates were state-owned companies EDF and China General Nuclear, Prof. Helm said. The wholesale electricity price today stands at around £67 per MWh.

Critics said the guaranteed strike price – which was more than twice the wholesale cost of electricity when the Hinkley contract was signed in 2016 – will provide a windfall for EDF for decades to come.

Prof. Helm said nuclear offers large-scale low-carbon electricity, but renewables still need to meet this challenge and to cope with winters.

“The key question is whether renewables can, without nuclear, meet the carbon budgets and targets at reasonable cost, and whether the intermittency problem is going to get solved,” he said.

“Without more nuclear renewables would have to fill the capacity left by not only coal and gas, but also nuclear stations as they retire from the system. This is the choice government needs to make. It has to decide, one way or the other.”

The article is online:

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