**Since this paper was published new dates for the closure of nuclear power stations have come to our attention: Hunterston B was shut down on Friday 7 January 2022; Hinkley Point B will shut down in July 2022; and Torness will shut down in 2028. This paper will be updated to include this information in due course.**
The Bill creates a framework for a Regulated Asset Base (RAB) model to be used. The RAB model is expected to allow private investors, such as pension funds and insurers, to finance new nuclear projects, and reduce reliance on overseas investors. New nuclear power stations financed through the RAB would be funded by a charge on electricity suppliers, who are expected to pass the cost on to consumers.
The Bill was introduced in the House of Commons and received first reading on 26 October 2021. Second reading took place on 3 November 2021. Committee stage took place over six sittings between 16 and 25 November 2021. Report stage is expected to take place on 10 January 2022.
Alongside the Bill the Government published a series of documents related to it:
- Nuclear Energy (Financing) Bill Explanatory Notes (PDF, 504 KB)
- Delegated Powers Memorandum (PDF, 498 KB)
- Impact Assessment (PDF, 1,912 KB)
Nuclear in the UK
The UK has 13 nuclear reactors at six plants which are able to supply about 20% of UK electricity demand. Most of these reactors are due to reach the end of their operating lives and be shut down before 2030.
New reactors are proposed at different sites in the UK but funding these large construction projects has proved challenging in recent years. In 2016, Hinkley Point C power station was granted final approval for two reactors. The project is supported by a Contract for Difference (CfD) agreement, and there are concerns this doesn’t offer value for money for taxpayers.
Government policy is to use new funding mechanisms
Current policy, as outlined in the December 2020 Energy White Paper is that the Government aims to bring at least one large scale nuclear project to the point of Final Investment Decision (FID) by the end of this Parliament, subject to it demonstrating value for money.
There is speculation that the RAB model will help the Government take forward the Sizewell C project and change the project’s ownership structure; it is currently led by EDF with a 20% stake held by China’s CGN for the development stage.
In July 2019, the Government consulted on a new Regulated Asset Base model, for funding nuclear power, which has been used for other infrastructure projects. The Government responded to the results of the consultation in December 2020 and this Bill provides for it to be potentially used for future nuclear projects.
What the Bill does
The Bill allows for eligible nuclear generation companies to be given a right to a regulated revenue stream during the construction, commissioning, and operation of a new nuclear project.
The Bill does this by:
- Allowing for the Secretary of State to ‘designate’ an eligible nuclear company to receive the benefit of the RAB special licence conditions.
- Allowing the Secretary of State to regulate for revenue collection contracts, which will be used to fund a nuclear company. Payments will be managed by a ‘revenue collection counterparty’. Projects will be paid an ‘allowed revenue’ which is broadly the agreed capital cost of a project along with other relevant costs. Payments will be made by electricity supply companies who are expected to pass the cost on to consumers. Costs will start to be charged to consumers during construction, based on the allowed revenue due for the period. During operation the cost will be the allowed revenue due, minus the value of selling the energy generated.
- Creating a Special Administration Regime, modelled on that already in place in other parts of the energy industry. If a generator with a RAB contract becomes insolvent (which the Government considers very unlikely), the Government can apply for a court order to appoint a special administrator to manage that generator and the plant. They would have the objectives of maintaining (or restarting) energy generation and rescuing the generator.
- Amending the Energy Act 2008 in relation to funded decommissioning programmes. This aims to clarify how decommissioning programmes would apply to certain finance sources in nuclear projects.
The Bill does not cover the actual investment decision for a specific project, the level of expenditure and payments, provisions to manage risk and overall value for money. The Final Investment Decision (FID) would be made after designation and before any final licence amendments; following this the revenue collection contract will be made.
According to the impact assessment, the Government expects to ‘designate’ a project at Royal Assent of the Bill and then move to modify the licence conditions in quarter four of 2022. The assessment also compares the RAB model against the CfD model, showing that it is expected to reduce the cost of a future nuclear project.
Reaction to the Bill
The energy industry and investors broadly support the new model for funding nuclear power generation. From a consumer perspective, there are concerns that construction cost overruns will need to be met by consumers, and that project costs will need to be met before generation starts. This briefing does not consider wider views on the benefits and drawbacks of nuclear power.
Territorial extent
Energy is generally a reserved matter. Most of the Bill (parts 1, 2 and 3) extend and apply to England, Wales and Scotland.
Northern Ireland does not share the energy infrastructure of Great Britain and is therefore not included in provisions related to new nuclear power funding.
The provisions relating to funding decommissioning programmes apply and extend to England, Wales and Northern Ireland.