The U.K. government wants to revamp how it finances nuclear power and is looking at how it drew in funds for a 25 kilometer (16-mile) sewage project in London as a model.
The move announced by Business Secretary Greg Clark on Monday, would help reduce the cost of nuclear power by requiring the state to share some of the risks of construction with the Wylfa plant in Wales. That would defuse criticism that came up after the last deal on the Hinkley Point C station, which is being built by Electricite de France SA. It will get paid well above the market price for its electricity.
For decades following former Prime Minister Margaret Thatcher’s effort to privatize state-run enterprises, the government tried to push commercial risks on money-making projects onto business. Infrastructure projects can be so big and take so long to pay off that few companies are willing to shoulder the cost alone. That is forcing Theresa May’s administration to reconsider its reluctance to involve the state in commerce.
“We will be reviewing the viability of a regulated asset base model as a sustainable funding model, based on private finance for future projects beyond Wylfa, that could deliver the government’s objectives of value for money, fiscal responsibility and decarbonization,” Clark told lawmakers on Monday.
Nuclear is more costly to build than most other power sources
That model worked with the Thames Tideway Tunnel, a 4.2 billion-pound ($5.6 billion) sewer line through the north of London. With that project, the government provided a contingent support package, which made the taxpayer liable for some construction risks. This helped get private-sector financing at a lower price.
With the EDF Hinkley plant, the government insisted the company shoulder all the risks of building the facility, which will take years to complete. EDF held out for a guarantee that once the plant starts working its power will be sold for 92.50 a megawatt hour, at least a third higher than the prevailing market price now.
By making a direct investment in nuclear new build, the government can lower financing costs by more than a quarter, according to Aurora Energy Research Ltd. However, this approach exposes taxpayers to the risk of cost overruns and delays.
Britain has a pipeline of nuclear projects in planning, so it’s important it finds the right balance of government support. The Public Accounts Committee and the National Audit Office both criticized the financing structure of EDF’s Hinkley project.
With the Hinkley project “the private sector bears the risk that construction costs overrun,” the NAO said in a report last year. “Alternative approaches could have reduced the total project cost.” Clark said his decision was a response to the NAO report.