The UK government has thrown its backing behind proposals to finance new nuclear plants by having taxpayers pay upfront through their energy bills as it looks to reinvigorate a sector beset by cancellations and high costs.
The consultation on the new financing model, which aims to lower overall costs by having consumers fund future nuclear projects before they are built, comes as the government targets cutting carbon emissions to net zero by 2050.
Half of all new nuclear projects planned in the UK have collapsed in the past year after failing to secure the necessary private financing, including Hitachi’s decision to suspend the £20bn Wylfa plant in north Wales and Toshiba’s cancellation of its development in Moorside, Cumbria. Seven of the UK’s eight existing nuclear plants are set to close by 2030.
But the proposal is likely to face criticism for loading risks on to consumers and the government at a time when renewable alternatives to nuclear like wind and solar are rapidly becoming cheaper. Boris Johnson, who is widely expected to become prime minister later this week, has in the past supported nuclear projects but also criticised their high costs.
The Department for Business, Energy and Industrial Strategy, which is launching a three-month consultation on the proposals, said it believed the new financing model had the “potential to reduce the cost of raising private finance . . . thereby reducing consumer bills”.
France’s state-backed EDF Energy has been a vocal champion for the proposed model, known as Regulated Asset Base or RAB, after the cost of its Hinkley Point project in Somerset was heavily criticised for its cost to consumers.
BEIS said using an RAB model for future projects was suitable as companies such as EDF would look to replicate the Hinkley Point design in future plants. EDF said on Monday that its proposed Sizewell C plant would be a “near replica” and therefore “cheaper to construct and finance”.
The RAB model has been used in the past to help water or power distribution utilities finance large infrastructure projects, allowing developers to charge customers in advance through an add-on to their existing bills. Supporters argue this sharply lowers the overall financing cost for projects and ultimately leads to lower bills for customers.
The government said on Monday that while renewable costs were falling it believed it would still need nuclear as part of its future energy mix, with electricity demand predicted to rise sharply as cars and heating shift away from more fossil fuels, with nuclear being less dependent on weather conditions.
“As the cost of renewable technologies such as offshore wind and solar continues to fall, it is becoming clear that they are likely to provide the majority of our low-carbon generating capacity in 2050,” BEIS said.
“However, there will still be a crucial role for low-carbon ‘firm’ [ie always available] power in 2050.”
The Committee on Climate Change, which recommended earlier this year the government adopt a target of cutting emissions to net zero by 2050, said it expected “firm” low-carbon power to provide 38 per cent of future electricity supplies. Nuclear currently generates approximately 20 per cent of power in the UK.
Under the proposal, developers could secure better borrowing terms from infrastructure and pension funds because it would offer an upfront regulated return on investment at each new project phase.
BEIS said the RAB model would require the establishment of a regulator to set how much companies could charge, while the government would need to provide guarantees to cover “low-probability but high-impact risks”.
Greenpeace UK’s chief scientist Doug Parr criticised the proposal saying it would shift liabilities from private investors to taxpayers.
“The nuclear industry has gone in just 10 years from saying they need no subsidies to asking bill payers to fork out for expensive power plants that don’t even exist yet, and may never,” Mr Parr said.
The government is expected to release its highly anticipated energy white paper in summer, which will indicate future electricity generation plans, with the UK’s 2013 energy strategy widely seen as defunct due to the faltering nuclear projects.