nuclear-news

A layman’s guide to the ‘Regulated Asset Base’ that will fund Sizewell C nuclear power plant.

Dave Toke’s green energy blog,   https://realfeed-intariffs.blogspot.com/2019/07/a-laymans-guide-to-regulated-asset-base.html, 23 July 2019 The Government’s proposed new ‘Regulated Asset Base’ (RAB) means of funding nuclear has just been published, and it is living as far down to its expectations as could be expected. I’ve ploughed through the sometimes (deliberately?) convoluted description of the scheme and translated a few key passages to help you understand it all. The Government failed to learn from the days when nuclear power were constructed from the 1950s to the 1990s. In those days nuclear power was very expensive, but the Government was able to con the public into believing that it was cheap. They did this by making sure the public could not understand the vaguaries of nuclear power funding and by putting all of the cost overruns that building the power stations involved onto consumer bills without them noticing. Basically, we are reurning to these days when the public was kept in the dark about the cost of building nuclear power plant and the same public will be paying for the cost overruns resulting from the project. The Government made the mistake of giving a contract price for Hinkley C. Although it featherbedded the developers EDF by giving an ultra long premium price contract (35 years) and the promise of Government lending to cover the bulk of the costs, the contract (CfD) allowed some sort of comparison to be made with competitior sources. Solar and wind power’s costs have fallen well below the price given to Hinkley C (£92.50 in 2012 prices). So now the Government, having learned this mistake, has produced the RAB. This will allow the Government, though an appointed ‘Regulator’ to launder electricity consumer’s money to pay for the inevitable cost overruns, whilst the Regulator assures the public that this all represents ‘value for money’. The project that is earmarked for RAB funding is Sizewll C, involving the same reactor type (EPR) as is being constructed at Hinkley C. What some key passages mean: 1. ‘Despite the progress at HPC, the challenges facing the global nuclear industry have meant that replicating a CfD model for further new nuclear projects has proved very challenging. Few project developers have a balance sheet that can accommodate the £15-20bn cost of delivering a new nuclear project, and financial investors have been unwilling to invest during the construction phase given the long construction period and risk of cost increases and delays. We are therefore looking to work with the sector to develop an alternative funding model for new nuclear projects that can attract private finance at a cost that represents value for money to consumers and are considering its wider applicability to other firm low carbon technologies’ (page 9) Translation: The Hinkley C contract (CfD) was a big boobie by the UK Government since it showed just how expensive nuclear power could be even if we believe the developers own (French Government backed) hopes that the project works out as planned. The nuclear industry around the world has tanked – all the projects in the West this century have been monumental disasters and even the French EPR model built in China took twice as long to build as planned.  (As a rule of thumb the cost is more or less directly proportional to its construction time). So no private investor in their right minds would invest in nuclear power. So, essentially, we’ve got to give the next nuclear project a state-backed blank cheque and cover this up by having a Regulator publish a lot of accountancy jargon that will fool the public into thinking they’re getting a reasonable deal 2. ‘A large-scale new nuclear project bears some similarities with the Thames Tideway Tunnel (TTT) project, in that it is a complex single asset construction project with a significant upfront capital expenditure requirement, long construction period and a long asset life. In developing a potential nuclear RAB model, we have taken the model used for TTT, which was also developed under a RAB, as a starting point, whilst recognising that new nuclear projects are greater in scale and face specific challenges that were not relevant to TTT’ (page 11) Translation: Nuclear power stations are not real power plant, but rather they are giant civil engineering projects involving lots of radiation when they get switched on, and thus complex measures to protect the public. However, this great complexity means they are much more prone to cost overruns compared to projects like the TTT, so we have to make sure that the consumer picks up the tab for the cost overruns, whilst pretending that this is a normal well run civil engineering project, which it isn’t of course.    3. ‘A target total construction cost would be set for the project company which would be used as the Baseline for incentivisation and risk sharing. If construction costs increased above the Baseline, a portion of the additional costs would be added to the RAB, such that the impact would be shared between investors and suppliers (and through them, their consumers) (page 14)…(this approach will) ‘provide clarity and certainty to investors, suppliers and consumers, which is particularly important for a large single-asset project with a complex and relatively long construction period’ (page 15) Translation: The Regulator will produce lots of impenetrable accountancy jargon based on hilariously optimistic projections about construction times and costs which the regulator will swallow whole. When the inevitable happens and costs overrun the investors will still get a reasonable rate of return on their investments and the electricity consumers will pay for most of the cost overruns.  4. ‘Role of the Regulator We currently consider that the Regulator should have responsibility for protecting the interests of consumers, whilst having regard to the ability of the project company to finance the project i.e. construction and operation of the plant’ (page 19) Translation: The Regulator will have no choice but to adopt the ridiculously optimistic cost projections and construction time estimates made by the developers (EDF). They will declare the whole project great value for money for the consumer, whilst in practice allowing the developer to run up whatever bills they want and pass most of them onto the consumer. A facade of an auditing system will be set up, but since EDF have all the information anyway, the Regulator will not be able to make more than token adjustments even if they wanted to.When the time comes for the consumer to shell out for cost overruns the Regulator will not want to point this out too much as they will get the blame. ‘The EPR technology has now started commercial operations in China’ (pages 8-9) Translation: So far the constructions of the EPR have been disastrous in all cases, in Finland, France and even in China. The last one is a bit of a shocker. It took twice as long as planned to get the first reactor at Taishan generating electricity – that’s despite the fact that the Chinese have a massive reserve of workers and engineers compared to us, and, as our Office for Nuclear Regulation has put it, a different approach to health and safety compared to what is practiced in the UK. Of course EDF are announcing a ‘triumph’ of early construction at Hinkley C – yet they have only just started seriously constructing the project in March this year having spent a lot of money since 2013 acheving remarkably little. But EDF have the French Government to rely upon to fund its own (French state owned) reactor model at Hinkley. In the case of Sizewell C, through the aegis of the so-called RAB mechanism, it will be the British electricity consumer who will be paying for the cost overruns. You can read the Government’s RAB consultation and make a response at https://www.gov.uk/government/consultations/regulated-asset-base-rab-model-for-nuclear

July 25, 2019 Posted by Christina Macpherson | business and costs, politics, UK | Leave a comment

UK’s love-in with “an innovative funding model” does not hide the hideous expense of nuclear power

Guardian 23rd July 2019 Let’s face it: nuclear power is hideously dear and far from ideal. The
government should be backing renewables, not tying itself to an expensive
nuclear future. That bill-payers got stuffed in the deal that brought the
Hinkley Point C project into existence is beyond dispute these days.

Even government ministers barely quibble with the National Audit Office’s
assessment that consumers will be paying through the nose for 35 years.

Instead, the defence has tended to run along these lines: don’t worry,
we’ve triggered a “resurgence” in the nuclear industry in the UK and
the next reactors will be relative bargains.

Now here’s the government’s latest effort to resurrect the show – “an innovative
funding model”. Of course, it’s not really innovative. The “regulated
asset base” (RAB) approach, which could be used at Sizewell B in Suffolk,
and is intended to copy the design of Hinkley, is common in other parts of
the utility world.

Aside from exposing consumers to the cost of overruns,
RAB in effect also requires them to provide financing at zero interest, a
point made by the National Infrastructure Commission last year. Little
wonder, then, that the juice should be cheaper than Hinkley’s – some of
the costs will be hidden from view.

The same NIC report said: “There is limited experience of using the RAB model for anything as complex and risky as nuclear.” Second, no financing model can disguise the core truth about
nuclear – the technology is hideously expensive. Even after recognising
the need to have secure “baseload” supplies, it recommended
commissioning only one more nuclear plant, on top of Hinkley, before 2025.

That remains a commonsense analysis. Renewables are winning the price race.
Let us pray, then, that a love-in with RAB does not reignite ministerial
fantasies about a “resurgence” in nuclear. We don’t want a
resurgence. We want to build as few new reactors as possible.

https://www.theguardian.com/business/nils-pratley-on-finance/2019/jul/23/lets-face-it-nuclear-power-is-hideously-dear-and-far-from-ideal

July 25, 2019 Posted by Christina Macpherson | business and costs, politics, UK | Leave a comment

UK consumers to start paying for nuclear reactors before they are built

Guardian 23rd July 2019 The government has confirmed plans for consumers to begin paying for new nuclear reactors before they are built, and for taxpayers to pay a share of
any cost overruns or construction delays. In a consultation document
launched on Monday night, officials said the model is “essential” to
attract private investors to back the UK’s new nuclear ambitions at a
price that is affordable for bill payers. The public purse would also
compensate nuclear investors if the project was scrapped. The new funding
structure could be used to prop up EDF Energy’s £16bn plans for a new
nuclear reactor at Sizewell B in Suffolk, which was left in doubt after
fierce criticism of the costs surrounding the Hinkley Point C project in
Somerset.

https://www.theguardian.com/business/2019/jul/23/new-uk-nuclear-plants-government-cost

July 25, 2019 Posted by Christina Macpherson | business and costs, politics, UK | Leave a comment

Nuclear developer Horizon says UK government funding essential for restarting Wylfa

Nuclear funding proposal ‘essential’ for restarting Wylfa, BBC, 23 July 2019  

New ways to fund nuclear projects could be an “essential step” to restarting the shelved Wylfa Newydd scheme, developer Horizon has said.

Proposals announced by the UK government include electricity customers paying for part of nuclear schemes’ costs upfront through bills.

The £15bn scheme on Anglesey was suspended in January because of rising costs.

A Horizon spokesman said it “warmly welcomed” the announcement. He added: “As we said when we announced the suspension of our projects, a new funding and financing model is one of the essential steps if we are to potentially restart our development activities.

“We will now look in detail at what the government has set out and continue our engagement with them on this issue.”

The suggested model, known as RAB (Regulated Asset Base), has already been used to finance some large infrastructure projects, including the £4.2bn Thames Tideway “super-sewer”.

It allows investors to receive returns before the projects have been completed. The government said RAB had “the potential to attract significant investment for new nuclear projects at a lower cost to customers.”

But it said “significant challenges” remained, including raising capital and creating appropriate risk sharing arrangements.

The government has invited responses to the proposals, set out in a consultation paper. A White Paper on energy is expected later in the year……https://www.bbc.com/news/uk-wales-49085776

July 25, 2019 Posted by Christina Macpherson | business and costs, politics, UK | Leave a comment

In UK, consumers on hook for cost overruns at nuclear plants

Consumers on hook for cost overruns at nuclear plants, Emily Gosden, Times 23rd July 2019 ,Energy consumers and taxpayers could have to pay for cost overruns at new nuclear plants after the government backed a funding model proposed by EDF.

The business department said last night it believed the “regulated asset
base” model that the French energy giant wants for its proposed Sizewell
plant in Suffolk could reduce consumer bills compared with the subsidy
contract used to back the £20 billion Hinkley Point plant EDF is building
in Somerset.

A consultation document published last night confirms that
consumers would, however, be asked to start paying for the plants on energy
bills while they were still under construction and to share in the risks of
cost overruns.

In the case of an extreme overrun, the government –
effectively the taxpayer – could either have to step in and pay the extra
cost or scrap the project and pay compensation to investors. Under the
regulated asset base model, the developer would receive a regulated price
to give it a return on its investment expenditure, including during the
construction period, and this would be levied on energy bills.

https://www.thetimes.co.uk/article/17cbe1b8-acbd-11e9-b657-11944f524f2a

July 25, 2019 Posted by Christina Macpherson | business and costs, politics, UK | Leave a comment

UK Consumers face financial burden of future nuclear projects even before they are built

New UK nuclear plants could be paid for upfront through energy bills, Consumers face financial burden of future projects even before they are built Ft.com, David Sheppard and Harry Dempsey, 22 July 19, 

 The UK government has thrown its backing behind proposals to finance new nuclear plants by having taxpayers pay upfront through their energy bills as it looks to reinvigorate a sector beset by cancellations and high costs. The consultation on the new financing model, which aims to lower overall costs by having consumers fund future nuclear projects before they are built, comes as the government targets cutting carbon emissions to net zero by 2050.

Half of all new nuclear projects planned in the UK have collapsed in the past year after failing to secure the necessary private financing, including Hitachi’s decision to suspend the £20bn Wylfa plant in north Wales and Toshiba’s cancellation of its development in Moorside, Cumbria. Seven of the UK’s eight existing nuclear plants are set to close by 2030.

But the proposal is likely to face criticism for loading risks on to consumers and the government at a time when renewable alternatives to nuclear like wind and solar are rapidly becoming cheaper. Boris Johnson, who is widely expected to become prime minister later this week, has in the past supported nuclear projects but also criticised their high costs.

The Department for Business, Energy and Industrial Strategy, which is launching a three-month consultation on the proposals, said it believed the new financing model had the “potential to reduce the cost of raising private finance . . . thereby reducing consumer bills”.

France’s state-backed EDF Energy has been a vocal champion for the proposed model, known as Regulated Asset Base or RAB, after the cost of its Hinkley Point project in Somerset was heavily criticised for its cost to consumers.

BEIS said using an RAB model for future projects was suitable as companies such as EDF would look to replicate the Hinkley Point design in future plants. EDF said on Monday that its proposed Sizewell C plant would be a “near replica” and therefore “cheaper to construct and finance”. …..

Greenpeace UK’s chief scientist Doug Parr criticised the proposal saying it would shift liabilities from private investors to taxpayers. “The nuclear industry has gone in just 10 years from saying they need no subsidies to asking bill payers to fork out for expensive power plants that don’t even exist yet, and may never,” Mr Parr said.

The government is expected to release its highly anticipated energy white paper in summer, which will indicate future electricity generation plans, with the UK’s 2013 energy strategy widely seen as defunct due to the faltering nuclear projects. https://www.ft.com/content/e2cf07ae-acaa-11e9-8030-530adfa879c2

July 23, 2019 Posted by Christina Macpherson | business and costs, politics, UK | Leave a comment