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Britain’s floundering nuclear energy programme is to be rebooted with a new funding model that allows costs to be front-loaded on to consumer bills, as ministers look to bring in new investors and shut out Chinese companies to replace its ageing nuclear facilities.
Kwasi Kwarteng, business secretary, on Tuesday set out a bill to revamp the way nuclear facilities are funded following the cancellation of recent projects, and is hoping to attract investors from the UK, US and elsewhere before the country’s existing reactors retire by 2035.
Although Kwarteng talks only of wanting to reduce “the UK’s reliance on overseas developers”, Tory MPs believe the move will help him oust China’s CGN from future energy projects.
The Nuclear Energy Financing bill will use a funding model known as the regulated asset base (RAB), which has been used for other infrastructure projects, including Heathrow Terminal 5 and the Thames Tideway tunnel. Under the plan, consumers will contribute upfront to the cost of new nuclear power projects during their construction phase.
Currently, operators only receive revenue when the plant starts producing electricity. This model, known as “contracts for difference”, has failed to create the nuclear renaissance that Boris Johnson believes is vital to help Britain meet its net zero commitments. The recent cancellation of nuclear power projects at Wylfa in Wales and Moorside in Cumbria — by Hitachi and Toshiba respectively is seen as evidence that the current model is broken.
“The existing financing scheme led to too many overseas nuclear developers walking away from projects, setting Britain back years,” Kwarteng said.
China’s state-owned CGN has a 20 per cent stake in the proposed Sizewell C plant in Suffolk — France’s EDF owns the remaining 80 per cent — and had hoped to build a nuclear power station in Bradwell, Essex. But Tory MPs hope that if new investors come into the sector, EDF would be able to find new investment partners before Kwarteng signs off the Sizewell project with a “final investment decision”.
The plan would also help Kwarteng avoid using new national security and investment legislation that comes into force in January, to forcibly block Chinese involvement — a move which would heighten tensions with Beijing.
Ministers have been looking to remove CGN from infrastructure projects in the UK. The government banned Chinese telecoms equipment maker Huawei from its 5G mobile phone network last year. “Finding alternative investors to the Chinese for this urgent and necessary development of new nuclear power is vital,” said Damian Green, former Tory deputy prime minister.
Energy minister Greg Hands this week wrote on Twitter that he had discussed with US officials “how the US could help with new civil nuclear power in the UK”, but ministers also want more UK investors, such as pension funds and other institutional investors.
Ministers claim lower financing costs could save consumers more than £30bn over the lifetime of a big nuclear project, although in the short term a typical household energy bill would rise by “a few pounds a year” during the early construction phase of a project.
Currently 16 per cent of the UK’s electricity generation comes from nuclear power but Hinkley Point C in Somerset, another EDF project also backed by CGN, is the only new station under construction.
Opponents of the RAB model say that consumers could be hit with the costs of construction overrunning, as has happened with the Thames Tideway project in London. Thames Water’s customers are currently paying the £4.1bn cost of the tunnel through an £18 surcharge on their water bills, but could face additional charges because of delays to the project.
Tom Burke, co-founder of E3G, a climate think-tank, said he feared the model would be “a very bad deal for consumers”, arguing that nuclear-generated electricity would be far more expensive than that created by renewables by the time any new plant starts up next decade.
“Consumers are going to have to pay twice over the odds for their electricity,” he warned. “Once when it’s being built, through a levy on their bills, and then once they’ve actually built the thing everyone’s going to have to be made to buy its electricity at several times the cost.”
He also questioned why UK households were being asked to effectively provide a subsidy to EDF, which lobbied for the RAB model, and said the plan risks undermining the growth of a home-based renewables industry.
“There aren’t many ways this makes any sense unless you’re EDF, the GMB Union . . . or a government chasing headlines ahead of COP26,” he said.
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