The proposal is that new nuclear projects could be funded using the regulated asset base (RAB) model to reduce their financing costs. The aspiration is that this would make proposed new projects at Sizewell and Wylfa less prohibitive expensive.
The consultation paper* explains how the RAB model is typically used in the UK for monopoly infrastructure assets such as water, gas and electricity network. Under this system, the company receives a licence from an economic regulator, which grants it the right to charge a regulated price to users in exchange for provision of the infrastructure.
In 2016 the model was applied for the first time to a single asset construction project – the £4.2bn Thames Tideway Tunnel sewerage project. Much of the £1bn of private sector equity finance that was raised to deliver the project came from UK pension funds, representing 1.7 million pensioners, or a quarter of the UK’s largest 25 pension funds.
RAB-funded infrastructure has received significant quantities of investment from private sector players over the last 20-30 years. As of 2018 the total RAB value across the UK electricity, gas, water and airport sectors is £160bn (2018 prices), the consultation paper says.
“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,” the consultation paper says. “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.”
EDF Energy, one of the developers of Hinkley Point C, said: “Alongside a big expansion of renewables, reliable nuclear power is needed to help us switch from polluting fossil fuels and reach net zero emissions. Nuclear’s proven technology reduces the difficulties and cost of trying to decarbonise the electricity supply we all use and depend on. Lower costs for financing nuclear will benefit consumers through their bills and today’s consultation shows a way this can happen at Sizewell C in Suffolk.
“As a near replica of Hinkley Point C – Sizewell C will be cheaper to construct and finance. It will benefit from the experience of Hinkley Point C’s engineers, contractors and suppliers and lessons from other nuclear projects, including operational EPR plants. It can also repeat the huge boost for industry, jobs and skills already happening due to Hinkley Point C’s construction, which is on schedule.”