Hammond floats scheme to offer many billions of state handouts to nuclear power

While Philip Hammond was busy offering a few marginal measures for green energy he is busy planning to give nuclear power a massive multibillion state funded boost. Clothed in talk of a new means financing infrastructure projects is a silkily wrapped poison pill involving a massive public handout to nuclear power. 

Heralded as a key accompaniment to today's Spring Budget statement there is a misleading message that the Government is to adopt so-called 'Regulated Asset Base' (RAB) financing of nuclear power projects. This is said to be a successor vehicle to the much-abused PFI system. But if deployed to aid nuclear power the result, is likely to be much much worse than any horrors that have come from even PFI. 

In fact the notion of RAB financing 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 reproduced in the impression given by the Government to the Financial Times today where, we are told that 'For new nuclear power stations, for example, the government is keen on the use of “RAB” (regulated asset base) financing of the sort used to build the Thames Tideway tunnel' 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 (foreign) Government owned developers will be able to get some of their losses paid for by the British Government.

What makes this move even more infuriating for green energy supporters is that Hammond offered what amount to a few superficial titbits for green energy in his Spring statement. Meanwhile renewable energy projects will not be able to take part in RAB projects. Not only will nuclear power be funded under much more preferential terms compared to offshore or onshore renewable energy projects but they will be directly funded by government and large parts, if not all, of their liabilities guaranteed by the treasury - again something that does not apply to renewable energy.

See FT: https://www.ft.com/content/330b5896-44e4-11e9-a965-23d669740bfb