New finance model to ‘cut cost of new nuclear power stations’

Building a new station at Sizewell looks more likely under a regime where consumers would pay early costs.

The prospects of more nuclear power stations being built in the UK have been boosted significantly by two government initiatives on financing. Business Secretary Kwasi Kwarteng has set out a new funding model – the Regulated Asset Base (RAB) – to fund future nuclear power stations, while the government is also backing a design for new, small modular reactors (SMRs) – see page 12.

The RAB model is a tried and tested method that successfully financed infrastructure projects such as the Thames Tideway Tunnel and Heathrow Terminal 5, according to the government. And its use would reduce the UK’s reliance on overseas developers for financing new nuclear projects by increasing the pool of private investors to include British pension funds, insurers and other institutional investors.

Meanwhile, in October’s Budget, the government announced funding of £1.7bn for the proposed Sizewell C nuclear power station project. The government is committed to bringing at least one new large-scale nuclear project to final investment decision during this Parliament, and has been negotiating on Sizewell C for a year.

Most of the UK’s existing fleet of 13 reactors, which supply about 15% of the country’s electricity, are being retired this decade, with the last one due to close in 2035, reports NucNet. France’s state-backed EDF is currently building Hinkley Point C in Somerset and also wants to build two EPR units at Sizewell C.

Under the proposed RAB model, consumers would contribute to the cost of new nuclear power projects during the construction phase for the first time, but are also expected to save more than £30bn over the lifetime on each new large-scale nuclear power station project, compared with existing funding mechanisms, says the government. 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.

Business and Energy Secretary, Kwasi Kwarteng, said: ‘The existing financing scheme led to too many overseas nuclear developers walking away from projects, setting Britain back years. We urgently need a new approach to attract British funds and other private investors to back new large-scale nuclear power stations in the UK. Our new model is a win-win for nuclear in our country.’

The government says that nuclear power has a key role to play in Britain’s future electricity mix as the UK works to reduce its reliance on fossil fuels and exposure to volatile global gas prices. It claims that a large-scale project funded under the new scheme will add at most a few pounds a year to typical household energy bills during the early stages of construction and, on average, less than £1 per month during the full construction phase of the project.

While the announcement was welcomed by the nuclear industry and trade unions, not everyone is convinced of the advantages of RAB. Dr Simon Cran-McGreehin, Head of Analysis at the Energy and Climate Intelligence Unit (ECIU) said: ‘Whilst experts agree the UK will require some low-carbon generation that can run all the time, nuclear power is historically costly and there are risks in construction whichever way you fund it. Using this RAB model means consumers may be drawn into paying for the plant even during the ten or so years of construction and well before the plant has generated any power, while bearing the risks of delays and cost over-runs.’

Cran-McGreehin continued: ‘The high cost of nuclear technology combined with long build times means it isn’t a quick fix to our current energy challenges. Huge offshore windfarms are being built in just three years, and renewables are the cheapest form of electricity generation – where consumers only start paying once they start receiving power.’