Concerns raised over bill-payers’ exposure to nuclear cost overruns

Shadow climate change minister Matthew Pennycook has raised concerns over bill-payers exposure to cost overruns under the regulated asset base (RAB) funding model the government is planning to introduce for new nuclear power stations.

The Labour MP was responding in parliament after energy minister Greg Hands introduced new legislation to the House of Commons on Wednesday (3 November) to pave the way for its implementation.

The RAB model, which has already been utilised for other large infrastructure projects such as the Thames Tideway Tunnel, enables investors to receive income from a project before it starts operating and generating revenue. The aim of the mechanism is to cut the cost of capital by reducing interest payments.

While the Contracts for Difference (CfD) regime has helped to deliver the Hinkley Point C power station, Hands said a “lack of alternative funding models” has led to the cancellation of potential projects at Wylfa Newydd in Anglesey and Moorside in Cumbria.

However, Pennycook said the risks entailed by nuclear projects are of a “different order of magnitude” to other types of infrastructure to which the model has been applied.

He said: “We have concerns about the potential exposure of customers if costs rise significantly or if serious overruns take place.

“Most importantly, we want to work with the government to explore ways in which consumers might be better protected from escalating costs in the event that things go wrong.”

Pointing to Hinkley Point C, which secured a guaranteed price for the electricity it produces of £92.50/MWh (2012 prices), his colleague and shadow energy minister Alan Whitehead said the RAB funding model is preferable to CfDs, which would be “quite disastrous in terms of future prices” if they continued to be used for nuclear projects.

But he said the government’s reliance on private sector delivery of nuclear power is “highly flawed” and can only be achieved by using support mechanisms that “grossly inflate the cost of energy to the customer”.

Hands assured MPs that a project starting construction in 2023 will add only a “very small amount” to the average dual-fuel household bill before the next election.

On average, he said, each project financed using the RAB will add “less than £1 per month during the full construction phase of the project” and would be counterbalanced by savings compared with reliance on intermittent renewable power sources alone.

“These bill impacts are proportionate, given the benefits that nuclear offers our electricity system,” he explained. “Ultimately, nuclear power will deliver a lower-cost system for consumers compared with reliance on intermittent power sources alone. The RAB model will make new nuclear projects cheaper.”

He said the new legislation would give the business and energy secretary powers to designate a company to benefit from a RAB model.

The secretary of state would be able to insert new conditions into the company’s electricity generation licence to permit it to receive a regulated revenue in respect of the design, construction, commissioning and operation of a nuclear project.

The bill’s first reading was passed by 319 votes to 44, with Labour abstaining.