According to the latest wheeze from the Business and Energy Department, future nuclear power projects should be funded via something called the ‘Regulated Asset Base’ system. Called RAB for short.
What is this when it is at home? Put simply, the RAB would fund new projects via an extra levy, placed on all consumers and payable from the moment construction begins. The objective is to reduce borrowing costs for companies building the projects – and thus in turn theoretically bring down the level of future bills.
The dream is that the extravagant £92.50 per MWh agreed for the under-construction Hinkley Point C might come down to £80 per MWh for any future twins. The dream arrangement for any company must be to pass the burden of risk in any project onto someone else, whilst collecting a guaranteed stream of income once the project is up and running.
This method of funding may be proving a serious option for other long-term projects with high upfront capital costs, having been used effectively in the water industry and elsewhere. However, as a mechanism for funding new nuclear, it is far from convincing.
Water projects, such as reservoirs and pipeline systems, do require large-scale capital. But these operate in an entirely non-competitive market and their technology is proven, so construction risks are low.
In contrast, we can observe across Europe that new nuclear construction’s financial risks are high, and getting higher. Placing them on the shoulders of consumers is unfair. Both to consumers, who will be landed with higher bills even though most are never likely to be customers of the nuclear company. And to rival companies offering different technologies and techniques.
In my humble view, the unfairness of such an outcome makes this entire RAB model unsustainable. Lovers of the Great God Atom should go swiftly back to the drawing board.