Part 1 of 3 Parts
Members of the U.K. House of Commons gave their approval last month for a new approach to funding new nuclear projects. The new method is called a regulated asset base (RAB) funding model. The U.K. government believes that the new approach will lower the cost of financing and means investors share some of the project’s risks with consumers. The bill also seeks to remove barriers to private investment. Pension funds are one possible source. They seek to "reduce the UK’s reliance on overseas developers for finance." The members of the U.K. Parliament’s second chamber, the House of Lords, are now debating the Nuclear Energy (Financing) Bill.
Lord Callanan is a business and energy minister for the governing Conservative Party. He said, “This legislation is vital in getting new nuclear projects off the ground and will help the UK meet its decarbonization targets. With all but one of the UK’s current nuclear reactors scheduled to close by 2028, representing 85% of our existing nuclear capacity, the need for new nuclear projects is more urgent than ever.”
The U.K. government intends to bring at least one large-scale nuclear project to a final investment decision by the end of this Parliamentary session by the end of 2024. They have also been supporting the development work for small modular reactors (SMRs).
Callanan also said that by bringing in private investors, the U.K. would be able to “widen the pool of available finance for new projects”. He went on to say that it would “take us away from reliance on single developers financing new projects at their own risk, something which has contributed to the cancellation of recent projects at Wylfa and Moorside. Nuclear power will need to play a significant role in the UK’s future energy mix to ensure reliable, low-cost, low-carbon power as we transition towards net zero”.
The current mechanism to support new nuclear projects is called the Contract for Difference (CfD) scheme. Developers have to finance the construction of a nuclear project and they only begin receiving revenue when the power plant starts generating electricity.
This CfD approach was used to finance Hinkley Point C. The developers agreed to pay the entire cost of constructing the two new reactors at the Hinkley nuclear power plant. In return for covering the cost of construction, they will be able to sell electricity for an agreed fixed price once the reactors come online.
This approach places the entire construction cost risk on developers. It has led to the cancellation of other potential new nuclear build projects such as Hitachi’s project at Wylfa Newydd in Wales and Toshiba’s project at Moorside in Cumbria.
Under the RAB approach to financing, a company receives a license from an economic regulator to charge a regulated price to customers in exchange for providing the new infrastructure. More recently, the RAB model was used to successfully finance the construction and operation of the Thames Tideway Tunnel and Heathrow’s Terminal 5.
Please read Part 2 next.