UK government adopts new financing model for nuclear projects

Under the existing mechanism to support new nuclear projects - the Contracts for Difference (CfD) scheme - developers have to finance the construction of a nuclear project and only begin receiving revenue when the station starts generating electricity. The CfD approach was used to finance Hinkley Point C, with the developer agreeing to pay the entire cost of constructing the plant, in return for an agreed fixed price for electricity output once the plant is online. However, this approach places the entire construction risk on developers and led to the cancellation of other potential new build projects, such as Hitachi's project at Wylfa Newydd in Wales and Toshiba's at Moorside in Cumbria.

The Department for Business, Energy and Industrial Strategy (BEIS) announced in June 2018 that the government would review the viability of a RAB model for new nuclear projects and committed in January 2019 to publishing an assessment of this model by the summer. Under this model a company receives a licence from an economic regulator to charge a regulated price to consumers in exchange for providing the infrastructure in question. Most recently, the RAB model was used to successfully finance the construction and operation of the Thames Tideway Tunnel and Heathrow's Terminal 5. In December 2020, the UK government announced it would begin talks with EDF to enable investment in the planned Sizewell C nuclear power plant project.

New financing approach

Announcing the new RAB model for nuclear projects today, BEIS said consumers will contribute to the cost of new nuclear power projects during the construction phase - but overall consumers are expected to save more than GBP30 billion (USD41 billion) over the project's lifetime on each new large-scale nuclear power station compared with existing funding mechanisms. It said initial contributions will give private investors greater certainty through a lower and more reliable rate of return in the early stages of a project, lowering the cost of financing it, and ultimately helping reduce consumer electricity bills.

"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," BEIS said.

"The existing financing scheme led to too many overseas nuclear developers walking away from projects, setting Britain back years," Kwarteng said. "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."

In addition to financing large-scale nuclear projects, BEIS noted the RAB model could also be used on "new nuclear technologies, including small modular reactors designed and manufactured in the UK."

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

Industry approval

The Nuclear Industry Association (NIA) welcomed the new financing bill, saying it is essential to mobilise investment in new nuclear capacity.

"This bill is exactly what we need to cut financing costs and get on with building stations," said NIA Chief Executive Tom Greatrex. "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."

The Sizewell C Consortium - a group of over 200 leading UK nuclear suppliers - also welcomed the announcement. Cameron Gilmour, spokesperson for the consortium, said: "The government has made a welcome and significant step forward in addressing our future energy needs, by outlining a framework for investment for nuclear in the UK. Sizewell C is a project that can start construction in this parliament - delivering jobs and apprenticeships, and much needed certainty for thousands of suppliers up and down the country."

Memorandums of Understanding signed by the consortium have committed nearly GBP8 billion of investment to date, which will be deployed directly to the nuclear supply chain if Sizewell C is given the go-ahead.