Nuclear energy is set to play a critical role in the UK’s net zero strategy, but funding new plants is costly and complex. The government’s Nuclear RAB model aims to solve this, passing some costs onto end users via energy bills.
Here, we explain how the model works, why it’s being introduced, and what it could mean for UK businesses.
Why is nuclear RAB model being introduced?
As part of the UK Governments strategy to reach net zero emissions by 2025, the government has committed to a fully de-carbonised power sector by 2030. Nuclear powered electricity generation has been identified as one of the key methods to helping achieve these goals.
However, new nuclear power plans can take up to 10 – 15 years to build and commission, whilst also requiring a large amount of upfront expenditure. The Hickley Point C project the first new nuclear power plant to be built since the 1990s was originally forecast to cost £18bn and was due to operational by 2017, however due to pandemic related delays its now not expected to be completed for another 4-6 years and is set to cost around £46bn. As a result, such projects can often struggle to attract the required external investment.
To overcome this, this UK government introduced the nuclear Regulated Asset Based (RAB) model, via the Nuclear Energy (Financing) Act 2022, which means investors will receive a guaranteed return on investment across the lifecycle of the asset. The RAB model is tried and tested, being used in the development of infrastructure projects such as Heathrow Terminal 5 and the Thames Tideaway Tunnel.
What is the nuclear RAB model?
The Regulated Asset Base (RAB) is a financing model designed to help attract private investment into large infrastructure projects, such as Sizewell C nuclear power plan project. When investing via the RAB model, investors will receive a predictable revenue stream from the end users via their monthly energy bills during the construction phase of the project as well as once its up and running.
Key features include:
Reduced Risk: By providing a regular income, even during the construction phase, the RAB model reduces the financial risks for any potential investors and developers compared to regular financing options.
Lowering of capital costs: the reduced financial risk to developers and investors often translates to lower cost of capital which in turn should lead to lower overall costs to consumers over the lifetime of the project, in this instance the power plant.
End user contributions: A proportion of the end user’s energy bills will contribute to the funding of projects, leading to short term increases in price, however in the long term the consumers will reap the benefits of long terms energy security and price stability once the project has completed.
Government oversight: The RAB model is heavily monitored and involves regulatory oversight to ensure costs are transparent and value for money is delivered to both investors and the end users.
What does the nuclear RAB model mean for consumers?
The implement of the Nuclear RAB model will have implications for any UK businesses consuming electricity. These include:
Impact on bills: The new Nuclear RAB charges will be incorporated into your energy bills to help fund the construction of new nuclear power plans. These are regulated charges set to help keep energy reliable and stable over the long term. They don’t change with market prices and include costs like Interim and Operational Levies.
Enhanced grid stability: Using nuclear power through the RAB model provides a steady supply of low-carbon electricity. This makes the energy grid more secure, reduces dependence on imported fossil fuels, and helps keep electricity stable for everyone.
Contribution to net zero targets and decarbonisation: By contributing the funding of new nuclear power plants, your business is indirectly supporting one the key components of the UK’s net zero strategy. This not only helps the national effort to reduce emissions but also complements your own sustainability efforts, especially if your business uses a lot of energy.
Diversification of low carbon electricity supply: As nuclear power provides a steady, low carbon energy source, this perfectly complements the variable renewable energy sources (Wind and solar), helping to create a more balanced and reliable low carbon energy supply for the UK.
How Dyce Energy can support your business
At Dyce Energy, we are committed to providing our customers with updates regarding key regulatory changes that impact the energy market as whole and your business. Our energy experts can help you understand the nuances of the Nuclear RAB model and its implications to your specific business.
If you have any questions regarding the Nuclear RAB charges, you can contact the team here.
Further information can be found on the Government website or the Ofgem website.
