New UK nuclear funding model could leave taxpayers liable


The government will set out plans to resuscitate the UK’s struggling nuclear ambitions with a new scheme which would leave taxpayers liable for rising costs or delays.

The funding model, expected this week, could help bankroll the multibillion pound plans for a follow-on to EDF Energy’s Hinkley Point C project in Somerset, which ministers aim to build at the Sizewell site in Suffolk.

It could also resurrect the dormant plans for a £16bn new nuclear reactor at the Wylfa project in North Wales, which fell apart last year due to the high costs of nuclear construction.

Government officials are expected to reveal a new financial framework based on the model being used to finance the £4.2bn Thames Tideway tunnel.

Under those plans, the government has allowed the super-sewer’s developers to charge customers upfront for the project, and agreed to cover cost overruns above 30% of the budget and step in as a lender if funding dries up.

The nuclear plans are expected to be unveiled before parliament’s summer recess at the end of this week, alongside a long-awaited energy white paper.

The policy roadmap will set out the government’s plans for the energy sector as the economy moves towards the UK’s target to reduce emissions to net zero by 2050.

The industry is expected to have three months to respond to an official consultation before ministers decide whether to move ahead with the scheme.

Senior nuclear industry sources have told government officials and investors that the proposed finance framework, known as a regulated asset base (RAB) model, could lead to lower costs for consumers.

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The plans would hand developers an upfront regulated return on their investment at each new phase of the project. This could encourage more investment from infrastructure and pension funds and better borrowing terms for the developer.

Government officials are under pressure to find a new way to finance nuclear projects after the National Audit Office condemned the 35-year deal to support the Hinkley Point project through energy bills at a cost of £92.50 for every megawatt-hour of electricity it produces.

The average electricity price in the UK last year was between £55 and £65 per megawatt-hour.

The watchdog accused ministers of putting energy bill payers on the hook for a “risky and expensive” project which offers “uncertain strategic and economic benefits”.

The new financing plan has already raised concerns that applying the Tideway model to a nuclear project thatch costs £20bn and takes around a decade to build could leave taxpayers exposed to a far higher financial risk.

Nuclear projects have suffered high-profile delays and multibillion pound cost overruns in recent years, making them almost impossible to finance without state intervention.

EDF said last month that its struggling French nuclear project at Flamanville could be delayed by another three years to repair eight faulty weldings discovered at the site.

The latest delay could push Flamanville’s start date, originally in 2012, to 2022. The project was expected to cost about €3bn when construction began but the latest estimates put its cost at almost €11bn.

EDF Energy has claimed that the risk to taxpayers of funding its Sizewell B project would be far lower because it is a copy of the same design used to build Hinkley Point C.

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EDF has said that Sizewell’s costs could fall by one-fifth compared with Hinkley Point.

The Sizewell project could even be competitive with the cost of offshore wind, according to the company, once the cost of backing up wind farms when the wind doesn’t blow is taken into account.

On a standalone basis, nuclear electricity would cost more than wind and solar power projects.



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