Following the UK government’s announcement to consider using the Regulated Asset Base (RAB) financing model for nuclear power plants, after Hitachi’s decision to pull out from the Wylfa Newydd Nuclear Power Plant, Harminder Singh, Power Analyst at GlobalData, a leading data and analytics company, offers his views on the impact of this on the UK’s nuclear power industry: “Nuclear power plants are long gestation period projects and involve substantial amounts of capital investment. The complexity of the projects can cause unforeseen delays that can increase the project cost significantly, leading to a huge risk for nuclear power project developers. “The RAB model has been used in other infrastructure sectors in the UK, such as the £4.2bn Thames Tideway super sewer project, to provide comfort to investors in private utilities, especially in water. “As per critics, the RAB model would shift the risk from the developers to consumers, thus raising the electricity bills of consumers. Consumers will be effectively paying for an asset that will come up some time in the future, with all the risks associated with it. Furthermore, with the cost escalations associated with nuclear power projects, there is an additional uncertainty regarding how much it will add to the consumer power bill. The model has so far not been used for projects as expensive as nuclear power plants, which is seen as a key cause for concern. “On the other hand, the RAB is a useful tool to attract private investments in the sector, as investors are able to see a fixed rate of return as the project is being built. The key problem that RAB addresses is that of high cost of capital for nuclear power projects. It is revised at regular intervals to take into account increases in capex – subject to regulatory approval. The regulatory protection and government backing means that the RAB is treated as a strong, secure asset.
Global Data 21st Feb 2019 read more »