Source · Select Committees · Science, Innovation and Technology Committee
Recommendation 44
44
Acknowledged
Paragraph: 225
Clarity needed on SMR deployment plans and suitable financing models given CfD limitations.
Conclusion
This is an important moment for the future of small modular reactors (SMRs) as we set out in Chapter 3. Following the £500 million Government and investor funded development of an SMR concept through to the beginning stages of regulatory approval. Clarity is needed on the Government’s plans to deploy the technology if it completes the generic design assessment. This includes deciding on what financing model will be made available should the policy be to deploy SMRs in supplying power to the grid. The Contracts for Difference (CfD) model has proved successful in financing and driving down the costs of clean energy. Key to the success of CfDs for renewables to date has been competition between potential operators which has driven down the price paid for electricity generation.
Government Response Summary
The government explained the differences between the CfD and RAB financing models, highlighting the RAB model as an established option for new nuclear projects, including SMRs, which aims to provide investor certainty. However, it did not commit to a specific financing model for SMR deployment.
Paragraph Reference:
225
Government Response
Acknowledged
HM Government
Acknowledged
Hinkley Point C is being funded under the ‘contracts for difference’ (CfD) model where the developers bear all of the risks associated with such projects, particularly in the early development and construction stages with the difficulty of predicting and controlling the out-turn costs and are only entitled to receive the ‘strike price’, that is, a guaranteed price for electricity output once power generation has begun. In its report of 23 June 2017 on Hinkley Point C, the National Audit Office, reported that the “Department for Business, Energy and Industrial Strategy (Department) has not sufficiently considered the costs and risks of its deal for consumers…the Department aligned its approach to the Hinkley Point C deal with its support for other low-carbon technologies. This means the private sector bears the risk that construction costs overrun. The NAO’s analysis suggests alternative approaches could have reduced the total project cost. .” A funding model is necessary to provide certainty over the future revenue stream to any long-term investor/owner of a power plant. HMG have engaged with technology vendors, developers, and prospective investors to develop a delivery model and funding strategy for SMRs that addresses market needs. The introduction of The Nuclear Energy (Financing) Act 2022 has established the Regulated Asset Base (RAB) funding model as an option for new nuclear projects. The RAB funding model takes a different approach than CfD whereby in order to attract more private investment from a wider range of sources, it provides for sharing of risks between investors and consumers, with consumers contributing indirectly towards the construction cost of the nuclear project by paying a small amount through their bills. The intention is for these initial consumer contributions to provide greater certainty for investors by allowing for a lower and more reliable rate of return in the early stages of a new-build nuclear project.