UK Gov launches finance model to cut costs of new nuclear plants

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UK’s Business Secretary Kwasi Kwarteng has established the Nuclear Energy (Financing) Bill, a novel funding model for new nuclear power projects.

The model aims to attract a wider range of private investment, cut the cost of financing nuclear and reduce the cost to consumers.

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.

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“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.”

The bill will use a model known as the Regulated Asset Base (RAB) to fund future nuclear power stations in Britain, replacing the existing Contracts for Difference (CfD) mechanism.

According to the Department for Business, Energy & Industrial Strategy (BEIS), the RAB model will reduce the UK’s reliance on overseas developers for financing new nuclear projects by substantially increasing the pool of private investors to include British pension funds, insurers and other institutional investors.

Under this new model, consumers will contribute to the cost of new nuclear power projects during the construction phase – but overall consumers are expected to save more than £30 billion over the project’s lifetime on each new large-scale nuclear power station compared with existing funding mechanisms.

Kwarteng added: “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.

RAB could also be used on new nuclear technologies, including Small Modular Reactors designed and manufactured in the UK.

Nuclear power has a key role to play in Britain’s future electricity mix as the UK works to reduce its reliance on fossil fuels and exposure to volatile global gas prices, stated BEIS in the press release.

Energy Minister Greg Hands said: “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.”

Ultimately, having nuclear power will deliver an electricity system that is lower cost for consumers than if the UK relied on intermittent power sources alone. The RAB model will also make new nuclear projects cheaper.

According to BEIS, a large-scale project funded under this scheme will only add a few pounds a year to typical household energy bills during the early stages of construction and on average less than £1 ($1,4) per month during the full construction phase of the project.

Ultimately, this translates to a saving of more than £10 ($14) per year for an average domestic dual fuel bill throughout the life of the nuclear power station, which can operate for 60 years.

Tim Cooper, Client Development Director, Arcadis said in response: “The funding of high-risk projects has held back investment in UK infrastructure, and the adoption of the RAB model will make projects much more investable. RAB has successfully supported investment using well established technologies in UK water and energy networks. However, even using these technologies, regulators have found it challenging to ensure that providers deliver value to their customers.

“By extending the RAB model to nuclear, government will transfer a great deal of risk to the bill payer. This will undoubtedly reduce finance costs but paradoxically may result in less focus on the management of the initial construction costs.

“In a complex and high risk environment like nuclear power, ensuring the highest disciplines around the independent oversight of requirement and change management will be essential to protect the interests of the consumer. We believe that digital systems and deep asset class insight will play an essential role in provide this oversight and assurance.”

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