Monday, 14 January 2019

Government aims to cover up bailout in talk about 'RAB' financing of nuclear power

There's a bunch of highly misleading statements that the Government is to adopt so-called 'Regulated Asset Base' (RAB) financing of nuclear power projects. Yes, some of the mechanisms that are being proposed are also used in RAB, but the term is being grotesquely distorted to hide the fact that this is a cover for the Government risking very large sums of money to be lent to nuclear power developers. Put simply, if the nuclear power projects are as expensive as they usually are the electricity consumer will lose an awful lot of money and prices will be jerked upwards. Either that or the taxpayer takes a hit and funding of public services suffer big time.

You can see the cover up printed in the Sunday Times yesterday where, we are told that 'Ministers are expected to accelerate plans to introduce regulated asset base (RAB) financing, which is popular in the water and infrastructure sectors, for nuclear plants including the Horizon project'. Under such schemes the developers are allowed to charge consumers in advance for the capital building projects.

What Ministers are not emphasising of course, is that in industries such as water the Government does not lend lots of money to the privatised companies. They raise this on private markets. But in the case of nuclear power plants the bulk of the money needed to build them will be borrowed from the Government. So if the nuclear plant has very big delays and cost overruns (as has happened to ALL nuclear power plant built in the West this century), the Government loses shedloads of money. The Treasury is likely to insist that this gets paid for by adding the (large) sums to electricity consumer bills.

RAB has been used to try to finance nuclear power plant in the USA, in the states of Georgia and South Carolina recently. The result was disaster and the developing company, Westinghouse, went bust. But this was 'normal' RAB where the developer takes the risk of cost overruns. But in the proposed UK nuclear version it will be the electricity consumer who goes bust when the almost inevitable cost-overruns set in!

The nuclear RAB is really a cover for a nuclear bailout. So let's call it a 'nuke bailout RAB'.

This will be embarrassing to navigate through the EU's state-aid rules (assuming we don't go down in a 'no-deal' Brexit) since the scheme will be seen as blatantly favouring the nuclear industry over renewable energy schemes who will not be offered such terms.

It will also produce a strange phenomenon, where, almost certainly the UK Government will end up bailing out foreign Governments. That's because (assuming Hitachi does withdraw from the Wylfa project) the only companies likely to take the risk of building more nuclear plant in the UK are owned either by the French or Chinese Governments. French owned EDF is already angling for Sizewell C to be funded by this 'nuke bailout' RAB. It is rumoured that CGN, the Chinese state owned nuclear developer (who want to develop a plant at Bradwell) could also take up Hitachi’s current option at Wylfa.

But private companies now want nothing to do with British nuclear power (or any for that matter) unless the Government agrees to underwrite all costs overruns. Under the Treasury approved version of nuke bailout RAB only the Government's liability for costs overruns is limited to the amount that the Government lend (which did not satisfy Hitachi). Hence only Government owned developers will be able to get some of their losses paid for by the British Government.


  1. So that's why Hitachi are delaying their announcement about Wylfa!

  2. I've started a facebook page on GE-Hitachi's BWRX-300, 300 MW SMR, which they are openly proclaiming will have an overnight cost of $2,000/kW for the NOAK. The FOAK will be operational by 2030 at 40% of the overnight cost of current nuclear and that $2,000/kW - a quarter of the priced of current nuclear - will be on the cards for 2035.

    The UK overnight cost for a single BWRX-300 will be £468 million. By comparison, Whitelee Windfarm cost £600 million - that's 28% more - but will only generate 23% of the dividend paying MWh. Every £ invested in a BWRX-300, will generate 5.6X more earnings. It will make investment in renewables look insane.

    BUT - and it is a big but - that's not the end of the story because the USA's NRC have just ruled that the EPZs for SMRs can be at the boundary fence of their tiny sites, compared to the 10 mile radius EPZs for current npps.

    This means a single BWRX-300 could be sited close to population centres and, operating in CHP mode, will be able to supply all of the electricity - domestic; commercial; industrial - for a city the size of Leicester. And, it would be able to supply much of the heat too, so that investors would get twice the bangs for their bucks; maybe 10X more per £ invested than from renewables.

    Ignoring burgeoning developments in advanced reactor technology and concentrating on renewables to achieve zero emissions by 2050, as the CCC will be advising the government to do, will be an enormous waste of time and money as policy will inevitably have to switch to the SMR solution, as renewables investment dries up.

    Not only will the government have to switch sides, but renewables supporters will have to do so too - or simply wither on the vine as will their preferred technologies.

    In career terms, it may well behove you to seriously research what is happening in advanced nuclear reactor design. You'd be welcome as a member to my BWRX-300 facebook page.