By Beatrice Lo and Heeran Caselton
The UK government recently published its Nuclear Sector Deal (Sector Deal) as part of the UK’s modern industrial strategy. Recognising the sector’s strategic importance in delivering future energy security, the Sector Deal reconfirmed the government’s commitment to upgrading the UK’s nuclear infrastructure and support for new build nuclear projects.
Amongst a number of other policy initiatives, the Sector Deal includes:
- Industry action to reduce the cost of new build nuclear projects by 30% by 2030.
- Targeted cost savings of 20% by 2030 for the decommissioning of old nuclear sites.
- Up to £56 million in funding for R&D in advanced modular reactors and support for the development of small modular reactors. Furthermore, the industry awaits the Expert Finance Working Group’s findings on financing models for small reactors, which is scheduled for this summer.
- The government will keep under consideration a range of financing options for new nuclear projects, including a direct equity stake in Wylfa and assessing use of a regulated asset base financing model.
The exploration of new funding models follows extensive media coverage and a National Audit Office report on the value for money of the support given to Hinkley Point C (HPC) — the first new nuclear power station to be built in the UK in over 20 years. HPC was awarded a contract for difference and the benefit of guarantees from HM Treasury on up to £2 billion of bonds that the HPC project company may issue to finance construction. The contract for difference payments are not funded directly by taxpayers but instead through a levy on electricity suppliers, which is then passed through to household electricity bills. However, the National Audit Office considered that alternative funding approaches, including options that involve the government sharing some of the risks and costs, could have reduced the total project cost and resulted in better value for money for consumers and taxpayers.
The government has stated that its long-term objective is for the private sector to finance new nuclear projects, like any other infrastructure project. However, investment in, and project financing of, a nuclear plant poses a risk assessment for investors and financial institutions unlike any other major asset —including a perceived increased political risk and the potential for significant liability if a nuclear incident occurred during the lifetime of the project. Institutional investors, financial institutions and ECAs looking to invest in new UK nuclear projects will be keen to understand the details of the proposed alternative funding models (whether it be a government equity stake, an RAB or another alternative model) and will be particularly focussed on how key risks will be mitigated or shared.
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