Come back CEGB

If the government wants new nuclear, it's going to have to build it itself. Enter a remodelled CEGB... by Nigel Robinson

Energy secretary Ed Davey announced with great gusto on 19 March that the government had granted approval to EDF Energy to proceed with its new nuclear plant, the 3,260MW Hinkley Point C in Somerset. Two weeks later, the government issued its Nuclear Industry Plan (NIP) wherein it boldly stated that by 2030, 16,000MW of our power needs would be supplied by nuclear power plants, around 30 per cent of our daily power demand. It acknowledged that all existing nuclear plants except Sizewell B would be decommissioned by 2023, so almost all that nuclear power will have to come from new plants.

The government seems to have sidestepped the issue of cost and funding. Hinkley Point C is estimated to require £14 billion to build, and this is just 20 per cent of the total new nuclear capacity envisaged. The total capital expenditure required, therefore, will be around £70 billion. This is an eye-watering sum. Where is all this money going to come from?

Chinese utilities, Middle Eastern sovereign wealth funds and UK pension funds will not want to take the construction risk, even with a generous government-guaranteed tariff for the output. It is also clear that UK and European utilities’ balance sheets are unable to fund this on their own, given all the other capital needs they have.

Like it or not, the government will have to write the cheque, so financing this new-build programme will have to come from the UK taxpayer. Just as we are indirect owners of our high street banks, so we are destined to become owners of our new nuclear power plants.

It is time to revive a nuclear-specific Central Electricity Generating Board, the entity that handled all generation and supply of power prior to privatisation of the sector in the 1980s.

How could it work? A Nuclear Electricity Generating Board (NEGB), initially wholly owned and managed by the state, would provide the construction equity for new nuclear power stations, together with an industry operator – EDF Energy in the case of Hinkley Point C, or Hitachi in the case of Horizon/Wylfa – with the NEGB owning most of the equity.

The NEGB would also develop the nuclear power project bond market to fund the debt component of the project finance, by guaranteeing – effectively providing a UK sovereign guarantee – the issuance of project bonds for the construction of each of the power plants. Once the plants were operating, these construction bonds would be repaid by issuing a new class of bonds – operating bonds. The government guarantee would be held by our yield-hungry institutions – our pension funds and insurers. Both classes of bonds could be rated, listed and traded.

The final play is that the NEGB would be listed on the London Stock Exchange, with us, the UK taxpayers and electricity customers, becoming shareholders in a power company we have financed indirectly anyway, and one which provides power for future generations to come.

Has this been done before? The good news is it sort of has… with British Energy (the previous owner of our nuclear power plants), which was floated on the stock exchange and was subsequently bought by EDF and Centrica. The government has been bold enough to establish the Green Investment Bank to support the development of our renewables, and particularly the offshore wind industry – the NEGB is the inevitable next step in building our other key source of low carbon power.

Nigel Robinson is head power advisory, corporate and institutional banking, at Investec Bank

This article first appeared in Utility Week’s print edition of 5th July 2013.

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