In June 2018, the Secretary of State for Business, Energy and Industrial Strategy announced that the government would review the viability of a ‘Regulated Asset Base’ (RAB) model for new nuclear projects and committed in January 2019 to publishing an assessment of this model by the summer.

The government’s assessment concluded that, by providing regulated returns to investors, a RAB model has the potential to reduce the cost of raising private finance for new nuclear projects, thereby reducing consumer bills and maximising value for money for consumers and taxpayers.

Energy Systems Catapult has responded to the government’s consultation on this, which sets out the basis for the government’s assessment and seeks views from interested parties on how a Nuclear RAB model could be implemented within the current energy system in a way that allows new nuclear to be built at low cost to consumers.

Key points

• Access to affordable capital is a necessary pre-requisite for nuclear energy to make a meaningful contribution in a cost-efficient transition to UK net zero. However, it will be insufficient on its own to drive costs of UK nuclear deployment to where they need to be or even lower to where they could be.
• Alongside the cost of capital, the biggest influence on the price of electricity from nuclear plants is the management and containment of risks during construction that affect the duration and cost of the project. An Economic Regulator can protect consumer interests by assuring consumers that projects are being delivered consistently with established good practice. Developing this expertise is essential for the cost of nuclear to fall in the UK.
• The RAB model is a potential solution to making affordable capital accessible to nuclear energy developers, which can also deliver value for money for consumers and taxpayers. The potential success of RAB will depend on how it is implemented. Other solutions also exist.
• The role of the Economic Regulator with associated statutory framework and duties is pivotal as it must be trusted by investors, project developers, and consumers. The organisation needs to be competent, capable, and well informed to enable good decision making. Lessons can be learned from the establishment and operation of the Nuclear Decommissioning Authority.
• An important role for the Economic Regulator is to exercise an element of governance over plans brought forward by developers. It is better to exercise influence early to ensure that projects are developed and executed consistent with established good practice, rather than wait and disallow costs associated with schedule over-runs late in the project.
• The ERR should retain some degree of freedom to design revenue incentives during the operational phase of the project, to incentivise efficient ongoing exploitation of the RAB asset to deliver best value for consumers within the market context at the time.
• The decision to grant a nuclear RAB licence and GSP amounts to determining that a given project is of likely long-term benefit to electricity consumers and taxpayers. Such a decision should therefore be informed by robust whole system analysis which provides firm evidence that there is a high likelihood that the planned project will deliver good value to consumers during its lifetime.