Facing the now-familiar problems of construction cost escalation and missed milestones, the British government has acknowledged that is ambitious two-unit, 3.2 GW Hinkley Point C nuclear project is in trouble. The Brits are proposing a new regulatory model for future nuclear projects.
The government has now admitted that its schedule and cost estimates for the plant have gone widely astray, with a $3.2 billion cost increase, to $25.4 billion. The plant was supposed to be in service two years ago, but the government now says it looks like 2025, and that’s optimistic.
The government now says, it current practices for nuclear won’t work for future projects (and may not ultimately work for Hinkley). So last year, the UK’s Department for Business, Energy & Industrial Strategy proposed a “model for new nuclear projects…” with comments due Oct. 14. It’s called the “Regulated Asset Base (RAB)” model. The government proposal said, “For new nuclear projects to be successful in a more competitive energy market, it is essential that there is a sustainable funding model that can attract private finance at a cost that represents value for money to consumers.”
It’s an approach that has drawn criticism an experienced nuclear power analyst, economist Ed Kee of the Nuclear Economics Consulting Group.
The crux of the RAB is a return to regulated returns on investment, guaranteed by the government, something the competitive British energy market has eschewed for the past two decades. The RAB model proposes:
* “Government protection for investors and consumers against specific remote, low probability but high impact risk events, through a Government Support Package (GSP);
* “A fair sharing of costs and risks between consumers and investors, set out in an Economic Regulatory Regime (ERR);
* “An economic regulator (the ‘Regulator’) to operate the ERR;
* “A route for funds to be raised from energy suppliers to support new nuclear projects, with the amount set through the ERR, during both the construction and operational phases (the ‘Revenue Stream’).”
Responding to the request for comments, Kee wrote, “The RAB model may be a useful tool if properly developed and implemented, but.”
It’s a big “but.” Kee says the RAB “Is complex and may be difficult to implement.” Also, “It may not clearly reflect the objectives for the British nuclear power industry; may not be relevant without a broader review and/or reopening of the overall approach to the electricity industry structure and electricity market approach in Great Britain; and may not deliver desired NPP [new nuclear power plant] investment with EdF [Electricity de France] and/or other State State-Owned Enterprises (SOEs), such as CGN from China.”
Ultimately, Kee concludes, “The British RAB model may work to deliver new NPP investment. However, the RAB model presents significant uncertainty to NPP developers, may not be fully developed and implemented for some time, and may not be attractive to NPP developers, investors, and lenders. Also, the RAB model will need to be combined with other NPP project financial support and risk reduction measures.
“Great Britain should also consider other simpler and faster approaches, such as setting up a new Crown Corporation to invest in new NPPs.”
Looking at the RAB, the New Scientist magazine said that “the ‘regulated asset base’ (RAB) model under consultation for future plants would see consumers paying through energy bills while power stations are still being built,” which sounds a lot like to the often-reviled practice in some U.S. states (where conventional regulation prevails) of “construction work in progress” financing.
— Kennedy Maize