Source · Select Committees · Science, Innovation and Technology Committee
Recommendation 39
39
Accepted
Paragraph: 217
Public-private risk sharing for gigawatt nuclear transfers significant cost overrun risks to taxpayers.
Conclusion
Given the demonstrated unwillingness of private investors to take on all of the construction risk of gigawatt scale nuclear plants through the CfD model, it is inevitable that a public-private risk sharing model should be contemplated if new gigawatt-scale plants are to be constructed. The Regulated Asset Base (RAB) model— which has been given Royal Assent in the Nuclear Energy (Financing) Act is one such. However, the model entails significant uncertainties and downsides. Chief among these is that although the financing of a plant should be cheaper in headline terms than a model in which the private sector shoulders all construction risk, the extent to which this represents value for money depends on the financial value of the construction risk being absorbed by the public balance sheet. The consumer or taxpayer is taking an unknown and uncertain risk of cost overruns, yet disburses funds from day one without earning a return.
Government Response Summary
The government defended the Regulated Asset Base (RAB) model by highlighting statutory requirements for value for money assessments and consumer interest considerations. It committed to publishing a full value for money assessment for any RAB project at its final investment decision, and plans a programmatic approach through Great British Nuclear to reduce costs.
Paragraph Reference:
217
Government Response
Accepted
HM Government
Accepted
• In establishing the RAB model for use on nuclear projects, we have followed the recommendation of the National Audit Office, that models like RAB, which share more construction risk with consumers, could provide better value for money than the Contract for Difference (CFD) model which allocates risk to project developers only. • The Nuclear Energy (Financing) Act 2022 requires the Secretary of State firstly to determine whether a project is likely to represent value for money when designating a project to benefit from the RAB model, and to take the interests of existing and future consumers (including in terms of cost and security of supply) when modifying the licence of a project company to use the model. • Satisfying these tests entails statutory consultations with named consultees, including Ofgem as the regulator of nuclear RAB agreements, and robust due diligence of the project in line with Green Book guidance. In addition, during construction of any project. • We have also committed that a full value for money assessment will be published for any project using the RAB model, at the point of a final investment decision. • Other measures taken by Government will help to mitigate the risk of uncertainty viz. potential cost overruns. For instance, in replicating Hinkley Point C, Sizewell C would be able to incorporate all the lessons learned from HPC, and that project’s established supply chain, providing much higher levels of maturity and substantially de-risking the project – the benefits of replication are already being demonstrated between reactors 1 and 2 of Hinkley Point C. • The Government also plans to take a programmatic approach to the delivery of new nuclear projects beyond Sizewell C through Great British Nuclear, which will reduce project costs through learning and replication.