Question
To ask the Secretary of State for Business, Energy and Industrial Strategy, with reference to the impact assessment BEIS039(F) for the Nuclear Energy (Financing) Act 2022, if he will make a comparative assessment of the equity of utilising a 9 per cent hurdle rate to estimate the cost of a new nuclear power station to be constructed under a Contract for Difference and a maximum 6 per cent hurdle rate for the cost of constructing new nuclear power station under a RAB model.
Answer
The Impact Assessment (IA) calculated the difference in the cost of building and financing an illustrative large-scale nuclear plant, funded by the Regulated Asset Base (RAB) or Contracts for Difference (CfD) model. Several assumptions were made to reflect uncertainty around project cost and likely hurdle rate for investors.
The RAB enables lower cost of finance, by providing a revenue stream to the developer during construction. The IA shows that RAB results in better value for consumers over the project lifetime and reduces total project costs. Paragraphs 58-61 https://bills.parliament.uk/bills/3057/publications explain the different hurdles rates assumed under a CfD compared to RAB.