Government introduces RAB funding bill for new nuclear

The government has introduced a new bill to parliament to implement the regulated asset base (RAB) funding model for new nuclear power stations.

The Department for Business, Energy and Industrial Strategy (BEIS) said the “tried and tested” model has already been successfully used to finance major infrastructure projects such as the Thames Tideway Tunnel and will save consumers more than £30 billion on each new large-scale nuclear plant.

The existing support mechanism for nuclear plants – the Contracts for Difference scheme – only allows developers to start receiving revenues once the power station starts generating electricity. BEIS this has led to the cancellation of multiple potential projects such as Hitachi’s Wylfa Newydd in Anglesey and Toshiba’s Moorside in Cumbria.

Under the RAB model, consumers will begin contributing to the costs of new nuclear projects during the construction phase. BEIS said this will give greater certainty to investors during the early stages, lowering financing costs, and widen the pool of potential investors to include pension funds, insurers and other institutional investors, leaving the UK less reliant on financing from overseas developers.

The department said the RAB model could also be used to fund new nuclear technologies such as small modular reactors.

Business and energy secretary Kwasi Kwarteng said: “In light of rising global gas prices, we need to ensure Britain’s electricity grid of the future is bolstered by reliable and affordable nuclear power that’s generated in this country.

“The existing financing scheme led to too many overseas nuclear developers walking away from projects, setting Britain back years. We urgently need a new approach to attract British funds and other private investors to back new large-scale nuclear power stations in the UK.

“Our new model is a win-win for nuclear in our country. Not only will we be able to encourage a greater diversity of private investment, but this will ultimately lower the cost of financing new nuclear power and reduce the costs to consumers and businesses.”

Energy minister Greg Hands added: “This legislation will help us build the new nuclear power stations we need to ensure a resilient, low-carbon electricity system for future generations. The only way to strengthen energy security is to generate clean power in this country, for this country.

“This finance model will also support the UK’s thriving civil nuclear industry, which currently employs 60,000 in high skilled jobs and help create thousands more as we level up opportunities across the whole country.”

BEIS said a large-scale nuclear project funded under this model will “at most” add a few pounds per year to the typical household energy bill during the early stages of construction and less than £1 per month during the full construction phase. It said the lower financing costs will ultimately save consumers £10 per year over the full 60-year lifetime of the power station.

Ofgem said in a statement: “We welcome the introduction of the Nuclear Finance Bill and will continue to keep consumers at the heart of our work as we take on economic regulation of nuclear projects delivered under the regulatory asset base model.

“The government has made clear that large-scale nuclear projects will play an important role in decarbonising the grid in Britain. Ofgem will continue to work to deliver the greatest value for money for customers, making sure their interests are considered in every decision.”

The first project expected to benefit from the new funding model is the Sizewell C nuclear plant in Suffolk being developed by EDF in partnership with the Chinese firm CGN. The Planning Inspectorate completed its public examination of the project earlier this month and is due to send recommendations to the business and energy secretary by 14 January 2022.

A spokesperson for Sizewell C said: “This legislation is a big step forward and will allow us to fund Sizewell C so that it delivers reliable low carbon nuclear power at a lower cost to consumers. With the appropriate consents in place, Sizewell C will be ready to begin construction in this Parliament. It is a once-in-a-generation opportunity to create thousands of jobs and training opportunities in East Suffolk.

“Building on the success of Hinkley Point C, it will also deliver another big boost to thousands of supply chain companies up and down the country. 70% of the construction value will go to British companies and the legislation means Sizewell C could be majority owned by British investors.”

They are also developing plans for the Bradwell B nuclear project in Essex, with CGN as the lead partner.

Tom Greatrex, chief executive of the Nuclear Industry Association, commented: “This bill is exactly what we need to cut financing costs and get on with building stations. Consumers will save money, businesses will get more predictable electricity costs, and the UK will save carbon.

“This is also a clear signal to investors that the UK believes in nuclear as a green technology which is essential to our energy transition. We hope the legislation will proceed swiftly as investment is urgently needed.”

Tom Thackray, decarbonisation programme director at the CBI, said: “Agreeing a new financing model for new nuclear power is a crucial step in building a secure, affordable and greener energy system in the years ahead.

“The RAB model has been used successfully across UK infrastructure and has the potential to secure backing from a wide range of investors. Getting new projects off the ground will be a huge boost to supply chains and can deliver jobs right across the UK.”