Kwarteng advances plans for funding new nuclear projects, including Sizewell C

Today (14 June) the government has published documents which show significant progress towards implementing a new funding model which will give nuclear projects the financial support they need and attract private investment.

The new Regulated Asset Base (RAB) model will see projects receive a regulated payment from electricity suppliers, helping these large infrastructure projects come to fruition. The Sizewell C project in Suffolk could be the first nuclear project to use this model, subject to the outcome of current negotiations.

Under the 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 recent potential projects, such as Hitachi's project at Wylfa Newydd in Wales and Toshiba's at Moorside in Cumbria.

Under the new RAB scheme, private investors receive 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.

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.

This new method of funding nuclear projects will help the government realise its ambitions for a British nuclear renaissance, with plans to approve up to 8 new nuclear reactors by 2030, boosting UK nuclear power capacity up to 24 GW by 2050.

Draft reasons for designation of NNB Generation Company (SZC) Limited

Sizewell C in Suffolk is a proposed new nuclear power plant which, if built after obtaining all necessary approvals, could power 6 million UK homes, boosting the country's energy security and potentially reducing bills for households by providing clean, homegrown electricity.

Draft reasons for designating the company operating Sizewell C, NNB Generation Company (SZC) Limited, to receive money through the RAB have been published today. They set out the case for the Sizewell C project meeting the criteria of Nuclear Energy (Financing) Act, introduced earlier this year. Their publication brings the government a step closer to deciding on its commercial negotiations with the project developer.

As required by the Act, the document is currently being consulted on with the Environment Agency, Office for Nuclear Regulation, Ofgem and the NNB Generation Company (SZC) Limited. The consultation will close on 4 July 2022 and is the first step in potentially allowing the nuclear company to receive funding under the RAB model.

Sizewell C is also subject to an ongoing application for development consent, which is entirely separate to commercial negotiations on the project.

Consultation on revenue regulations

The government is today also consulting on the detail of how nuclear projects would receive their funding under the new RAB model.

The consultation launched today seeks views on the proposals to inform the policy behind the regulations, ahead of laying them in draft before Parliament. The revenue regulations will shape how large nuclear projects like Sizewell C receive funding in the future.

It is expected the consultation will be of particular interest to the statutory consultees named in section 25 of the Act, which includes energy companies, the National System Operator and Scottish and Welsh government ministers. Other interested groups include nuclear developers and those directly impacted by the proposals.

The documents are an important step in implementing a RAB model, bringing private investment into new nuclear and cutting the cost of financing new projects.

A large-scale project funded under the RAB model will add at most a few pounds a year to typical household energy bills during the early stages of construction and on average approximately £1 per month during the full construction phase of the project.

However, overall, the lower cost of financing the project is expected to lead to savings for consumers of at least £30 billion on each project over its lifetime. This translates to a saving of more than £10 per year for an average domestic dual fuel bill throughout the life of the nuclear power station - which can operate for 60 years - compared to the existing CfD scheme.

Additional information

• If built, Sizewell C would produce 3.2 GW of electricity, powering the equivalent of around 6 million homes, and providing greater UK energy security
• in January, the Business and Energy Secretary announced £100 million to advance the Sizewell C project to the next stage of negotiations, and help it attract further private investment
• the deadline for a decision on Sizewell C's separate application for a development consent order has been set as 8 July 2022
• a 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. The model enables investors to share some of the project's construction and operating risks with consumers. This entails consumers paying a charge on their bills, but, by cutting the cost of project finance (which is the main driver of nuclear project costs), it is estimated that the RAB model would mean consumers pay less than for a project using the Contract for Difference model
• a large-scale project funded by RAB would at most add a few pounds a year to typical household energy bills during the early stages of construction, and on average around £1 per month during the full construction phase of the project. Over the 60-year lifetime of a generic new large-scale nuclear power station, our funding model could reduce the project cost by more than £30 billion
• the regulated revenue for a nuclear company will be set by the independent regulator in accordance with the nuclear company's licence, who will ensure that any money spent is in the interest of users. Under the nuclear RAB model, electricity suppliers will be charged as the users of the electricity system to contribute towards the cost of the construction and operation of the relevant nuclear project, and the economic regulator will be Ofgem
• the government published a statement on the procedure and criteria for designating projects to benefit from the RAB model on April 11 2022, setting out some of the factors the Secretary of State is likely to take into account when assessing the maturity of the projects of prospective nuclear companies, and whether designating a company for the purposes of the RAB model is likely to result in value for money for consumers and taxpayers
• further progress was made in relation to the implementation of the revenue stream for the nuclear RAB model last week (9 June), with the designation of Low Carbon Contracts Company Ltd as a counterparty for revenue collection contracts, in accordance with section 16 of the Act
• the Act gives the Secretary of State powers to make Revenue Regulations to set out the mechanics of the revenue stream through which nuclear companies benefitting from the RAB model would receive regulated revenues for the duration of their project's regulatory period
• by publishing the draft reasons for designating Sizewell C under the RAB model, the government is going beyond the transparency requirements set out in legislation