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The British government’s Regulated Asset Base – the test case for reviving its nuclear power dream

After years of false dawns, can Britain realise its nuclear ambitions? FT, 19 Jan 23 “…………………………………………………………………………………. Nuclear test case

Fresh hopes of encouraging the development of a new fleet of nuclear reactors — both large and small — now rest on a complex hybrid public-private partnership financing model known as the Regulated Asset Base. Already used for other infrastructure projects such as energy networks and airport terminals, RAB promises potential investors an “allowed revenue” — overseen by a regulator — from the start of construction, funded via a surcharge on consumer energy bills.

Supporters of the model, such as EDF, argue it significantly cuts the cost of financing because it lowers the interest that builds up during the construction phase and reduces the amount of compounded debt that needs to be serviced and paid off during the station’s lifespan. Financing costs account for roughly two-thirds of the overall cost of a nuclear plant. The allowed revenue payments continue after the plant is operational. Rather than paying a price for every unit of electricity produced, the model essentially pays for new nuclear power stations to be available.

But the RAB model is also divisive. Critics argue it would saddle bill payers with high additional costs if projects run over time and over budget.

The UK government intends for that risk to be shared between the project’s owners and consumers, according to people familiar with the discussions, although it is yet to reveal how that would work in the case of Sizewell C, which is unlikely to be connected to the electricity grid before the 2030s.

“If the cost of overruns and delays cannot just be lumped on to consumers, I think it would be implausible any investor would look at the deal,” says Steve Thomas, emeritus professor of energy policy at the University of Greenwich. “How would you feel if your pension fund was taking the risk of a nuclear project not being built to time and cost?”

For long-running nuclear sceptics, the latest attempt at ushering in a new civil nuclear golden age in Britain risks diverting attention and investment away from other technologies, such as wind, solar and storage, which could be delivered sooner to achieve the country’s near-term emissions targets.

The UK government is working towards a fivefold increase in offshore wind to 50GW by 2030 — which it claims would be enough to “power every home” — and to raise solar deployment to 70GW from 14GW by 2035. Renewables supporters claim these could still meet a lot of demand even on calmer, less bright days.

“If you want to hit your 2035 target and Sizewell C is not going to get you there [in time] then you have got to do something else . . . so why do Sizewell C as well if you are going to get there without it?” says Alison Downes, a former head of direct actions at Greenpeace UK who is now spearheading a campaign to stop Sizewell C being built.

Among longstanding nuclear proponents, there are still nerves about whether Britain’s latest attempt to revive an industry will come to fruition, even if they feel the politics are now on their side.

If a final investment decision is taken by the end of 2024 as hoped, Sizewell C will be the first test of the financing model for nuclear projects and only the second nuclear power station to enter construction since 1995, when the last of the current fleet opened. The other, Hinkley Point C, began construction in 2016 but is running over-time and over-budget. It is not currently envisaged to generate any electricity before mid-2027.

Nuclear industry executives have also been pushing ministers to confirm a new nuclear reactor construction programme beyond Sizewell C as part of GBN’s launch.

This should, in the short-term, include a commitment to take final investment decisions on two further nuclear projects in the next parliament.

But to get to that stage and avoid adding to the roster of failed nuclear projects, the impasse within government must first be resolved.

Graham Stuart, energy and climate minister at the BEIS, alluded on Wednesday to the tussle between departments, saying a date for the launch of GBN would be set once it had “a resolved and finalised agreement with His Majesty’s Treasury”.

A government insider confirmed the rollout was being held up by chancellor Jeremy Hunt who “wants to do due diligence on GBN before approving it”.

“Is there haggling over money?” the person says. “There always is.”  https://www.ft.com/content/c4c481d3-99e0-4c2f-8d4e-96b4c9a3bd59

January 18, 2023 Posted by Christina Macpherson | business and costs, UK | Leave a comment