Regen’s senior project manager, Poppy Maltby, explains Regen’s response to the consultation on a Regulated Asset Base (RAB) Model for Nuclear
This month Regen responded with a letter to the consultation on a Regulated Asset Base (RAB) model for nuclear. The UK government had proposed RAB as a funding model to support new nuclear projects such as Sizewell C. This would replace the Contract for Difference (CfD) which currently provides subsidy/price support for Hinkley Point C and some renewable generation. Their argument is that a RAB model allows nuclear projects to raise the money for their costly construction more cheaply and this, we are told, is good news for consumers.
There are, however, some fundamental problems with the government‘s proposal. As the UK government itself concluded in 2010, the RAB model is useful to achieve low cost of capital to support the private sector when undertaking significant infrastructure investments within natural monopolies, such as networks. Electricity generation is however, not a monopoly market, and is highly cost competitive as the CfD process has successfully proven with offshore wind. The recent CfD prices are under £40/MWh which is less than half of the price awarded to Hinkley Point C.
The government has also been clear in the past that they believe all generators, including new technologies such as Swansea Bay Tidal Lagoon, should be subject to the same level of competition (the much touted ‘level playing field’). This is the line they have stuck to, despite some technologies providing more beneficial system services than others (as tidal would).
A RAB model is a big departure from this; it means that new nuclear projects will no longer be comparable with other projects and technologies. They will, therefore, be operating outside of market competition and being built on an entirely different playing field, which is likely to lead to costly and inefficient outcomes for all UK taxpayers
One particular problem is that in a RAB model, you would transfer the risk of new nuclear construction from those who were best placed to manage it (the constructors) onto the electricity bill payer. Both Hinkley Point C and sister plant Flamanville have experienced huge cost and time overruns. In a RAB model, these overruns would be funded by the UK electricity bill payer.
The RAB model also implies there is an optimal and centrally planned electricity generation mix, and the consultation contains undisclosed assumptions about the role of nuclear generation in this. We are keen that these assumptions are disclosed and opened to scrutiny. Within this, we would like to see evidence that the system costs of non-flexible generation have been considered. As nuclear plants are unable to turn off during periods of high renewable generation, higher-cost nuclear is likely to displace lower-cost renewable generation, driving up bills and potentially making new nuclear plants themselves unprofitable.
If the UK government believe that the system and decarbonisation value of nuclear is far above all other technologies (which they might), then they need to fully justify the logic behind a much higher CfD level for nuclear than for renewable energy technologies. This would allow the UK tax payer and other stakeholders, including the National Audit Office, to fully scrutinise the justification behind that decision.