RAB financing model will attract investors in new build, but full cost implications called for
The UK government has signalled its commitment to new nuclear power plants by setting up Great British Nuclear (GBN), an industry advisor told NucNet.
When GBN was launched in July, its mandate was to accelerate the expansion of nuclear power capacity and help the UK achieve its target for 24 GW of electricity to be generated by nuclear sources by 2050 – four times the current level.
However, more clarification is needed to prevent the country falling behind as it pushes towards its target of 24 GW, Meera Kotak, a UK-based energy advisor and associate principal at consulting firm Charles River Associates, said.
Ms Kotak said it is not clear if the 24 GW target is going to be met by large-scale nuclear plants or small modular reactors (SMRs) and other advanced reactors, with large nuclear stations such as Hinkley Point C and – potentially – more units at Sizewell C likely to “remain the backbone for a long time”.
She said whilst one of GBN’s core priorities is to manage and launch a competitive process to select the right SMR technology for the UK, “we don’t know what its commitments are beyond the [SMR] competition and beyond selecting projects that should be prioritised for funding”.
“Commitment for the full cost implications of new nuclear is needed, if we really want to deliver on energy security, net-zero lower bills and safe supply”, Ms Kotak said.
“We need to be progressing these mandates to make sure that we’re not falling behind, and opening the field for other countries to step in.
RAB Financing Model ‘Provides Confidence’
Asked about the financing of new nuclear in the UK, Ms Kotak said the regulated asset-base (RAB) model is a “robust regulatory mechanism that is widely understood and provides investors with confidence” for financing. “It should encourage developers to go to the UK as their primary market,” she said.
“Private equity (PE) funds, investors and investment banks are all interested in tapping into nuclear and engaging with the energy transition and pathway to net zero,” she said. “But they need signals from government that it is something that they should be putting their money behind.”
The RAB model, planned to be used for Sizewell C, enables developers and investors to secure returns on investment through a levy on utility bills during the construction, commissioning and operation phases of a nuclear plant. Crucially, it enables them to earn revenues before the plant begins generating electricity.
Under the UK’s previous mechanism to support new nuclear projects – the contracts for difference (CfD) scheme – developers had to finance the entire construction cost of a nuclear project up front, and only began receiving revenue when the station starts generating electricity. This model led to the cancellation of potential projects, such as Hitachi’s planned Wylfa Newydd nuclear station in Wales and Toshiba’s at Moorside in Cumbria.
Ms Kotak also warned of potential skills shortages in the nuclear industry as it gears up for ambitious new build.
She said the industry needs to recruit and train thousands more employees, especially as a relatively older workforce retires.
“I think sometimes the supply chain and skills element is forgotten when we think about what we need to do to hit these decarbonisation and new nuclear build goals.
“There’s a skills gap challenge globally, and across all sectors in the energy industry, coupled with global supply chain issues, so it’s a collective new industry to tap into,” she said. “But the UK has positioned itself well.”
