New UK government funding plan could pave way for Sizewell C nuclear plant
25 October 2021
The UK’s Business and Energy Secretary, Kwasi Kwarteng, has announced a new funding model that could pave the way for the construction of the planned Sizewell C nuclear power plant project in Suffolk, east England. The £20bn project will still require planning permission, but the new funding model could help cut the cost of new nuclear power projects, the government said.
Artist's impression of Sizewell C - Image: EDF
In a release explaining the new Regulated Asset Base (RAB) model option, the UK government said that the RAB model is a tried and tested method, typically used in the UK to finance large scale infrastructure assets such as water, gas and electricity networks.
Under the 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. The model enables investors to share some of the project’s construction and operating risks with consumers, significantly lowering the cost of capital which is the main driver of a nuclear project’s cost to consumers, the government said.
This charge is set by the independent regulator, who will ensure that any money spent is done in the interest of users. For a nuclear RAB, suppliers will be charged as the users of the electricity system toward the cost of the construction of the nuclear project, and the economic regulator will be Ofgem. The funding model could lead to savings for consumers of at least £30 billion on each new project.
The RAB model differs from the Contract for Difference (CfD) approach that was used to finance Hinkley Point C. With the Hinkley CfD, the developer agreed to pay the entire cost of constructing the plant, in return for an agreed fixed price (often referred to as the ‘strike price’) for electricity output once the plant is online. This is ultimately funded by consumers, who will pay the difference between the wholesale electricity price and the final strike price, but consumers will not start paying until the power station is up and running.
In contrast, the RAB model shares the cost with consumers from the start, reducing the amount of interest owed on loans. This ensures the burden on consumers is much lower over the life of the plant whilst helping to attract private sector investment into nuclear projects.
Unlike a CfD where construction risk sits with the developer, a RAB model will enable some level of risk-sharing between investors and consumers, while also maintaining the incentive on the private sector to minimise the risk of cost and schedule overruns. This will help to lower the cost of capital – a key driver of overall project costs, the government said.
In response to the announcement, 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. Sizewell C will provide home-grown low carbon electricity to 6 million households and will help to reduce our reliance on energy imports. It will play a key role in helping the UK achieve net zero."
Further details about the RAB model can be found by clicking here.