nuclear-news

Regulated Asset Base – UK’s nuclear tax on electricity consumers – supposed to attract foreign investment

Energy costs and energy investment, Renew Extra Weekly,  January 15, 2022  ”………………………  Energy prices are accelerating seemingly out of control. But actually the way the Contracts for Difference (CFD)  is structured, with competition for capacity slots and a claw back of any excess income over strike price costs, it may not be too bad- it does seem to limit excess cost pass-though, unlike the old Renewables Obligation system, which some now see as much less attractive.    So, with the CfD apparently doing well, it might be thought to be a bit odd that the government has shifted away from using it for nuclear, to a new Regulatory Assets Base (RAB) system for new large plants. The CfD was used to finance Hinkley Point C  EPR, but it did so excessively, with a £92.5/MWh index linked contract being awarded to EDF without competitive bids being considered.

The CfD could in theory have been used again for the next big nuclear project, this time with a competition, but evidently the high project costs, and the high resultant strike prices likely, made it less attractive. So instead the government is going for Regulated Asset Base (RAB), basically a nuclear tax on electricity consumers, raising capital to fund construction of new plants, so that income starts flowing before construction starts. 

It’s claimed that this element of RAB will make it easier for companies to finance nuclear, so that they can eventually charge consumers less. Well, we will see.  But equally, if there’s a cost overshoot or delay, consumers will get hit hard, and, if the project is abandoned, their involuntary investment will be lost. Interestingly that includes Scottish consumers, despite anti-nuclear Scotland not being likely to allow any new plants to be built there. So Scots would be subsidising projects in England and Wales.

That won’t go down well with the SNP. 
The RAB plan, which, even if all goes well, will put some extra costs on power bills, does in any case look odd for all consumers, given that the government says it wants to remove energy taxes from electricity and impose them instead on domestic gas heating.  That may be sensible, but, with RAB, it’s going the wrong way.

A subsidy too far? 

So why is government adopting for RAB for new nuclear? Evidently it’s to attract foreign investors! The Regulated Asset Base nuclear finance bill has just got through a House of Commons vote unamended. 

During the debate, Business & Energy Secretary Kwasi Kwarteng said: ‘The existing financing scheme has led to too many foreign nuclear developers walking away from projects, setting our nuclear industry back a number of years. While the existing Contracts for Difference model was right for Hinkley Point C, the lack of alternative funding models has significantly contributed to the cancellation of recent potential large-scale projects. And this includes Hitachi’s project at Wylfa and Toshiba’s project at Moorside. We urgently need a new approach to attract capital into the sector.’

Somehow that seems to clash with what Energy and Climate Minister Greg Hands said: ‘The Bill will finance new nuclear power stations, making us less dependent on foreign-owned developers and bringing in the private sector and institutional funding.’ 

All of this, remember.. is because nuclear projects are too costly to win under normal competitive markets terms, whereas, increasingly, mainstream renewables like wind and solar can do that……….

 there are some urgent infrastructure projects that could help cut energy costs quite quickly, the most obvious being investment in energy efficiency. For example, the Energy Efficiency Infrastructure Group said that improving insulation on the UK’s least efficient homes would save households around £500 a year on  energy bills, totaling £8bn p.a. nationally. ……………

RAB funding might make it cheaper to build new gas stores rather than relying on imports…………

All of which seems to make more sense that using RAB for nuclear, which shows little sign of getting cheaper no matter how much money is chucked at it. Instead it seems to just soak up money, as with the much delayed EPR still being built at Flamanville in France, currently not scheduled for completion until 2023 and full operation in 2024, at an expected cost now put at Euro12.5bn. That is well over three times the original Euro 3.3bn estimate made when work started on it in 2007. And that assumes there are no further problems, like the fault that has shut down the Chinese version of the EPR, just at the point when China is desperate for power. An odd sort of asset that…and a problem that may rebound on the French EPRs.  https://renewextraweekly.blogspot.com/2022/01/energy-costs-and-energy-investment.html

January 17, 2022 - Posted by Christina Macpherson | politics, UK