Changes to nuclear funding model and desire for greater energy security behind big bet on nuclear
Ministers are increasingly confident of being able to fund a set of new nuclear power stations at a fraction of previous costs as the Government prepares to make nuclear power the centre point of its energy strategy this week.
Prime Minister Boris Johnson is poised to significantly expand the Government’s commitment to support one large nuclear power station by 2024 when he sets out his energy security strategy on Thursday.
The Prime Minister is expected to announce his ambition to build six or seven large nuclear power stations as part of efforts to generate 25 per cent of electricity from nuclear sources by 2050.
Business Secretary Kwasi Kwarteng said: “Most of Britain’s nuclear fleet will be decommissioned this decade.
“We need to replace what we’re losing, and go further – from large plants to small modular reactors (SMRs).
“In this week’s Energy Security Strategy, we’ll reverse 30 years of drift and take the big decisions to generate more nuclear power.”
Wrangling between the No 10 and the Treasury over the funding of the nuclear aspect of the energy strategy was being blamed as the reason behind the delays to the document being published.
Chancellor Rishi Sunak is understood to be reluctant to commit the UK to another major infrastructure investment as he attempts to rebalance the books in the wake of the Covid pandemic.
The Chancellor had pledged £1.8bn for nuclear power generation in his spending review in the autumn. But Mr Johnson appears to have convinced Mr Sunak that a new era of nuclear power investment is needed to ensure the UK’s future energy security in the coming century.
A new funding mechanism for nuclear power contained in legislation passed last week will enable the Government to negotiate the construction of new large-scale power stations at a fraction of the cost of previous power stations.
The model, known as the Regulated Asset Base, which was used to fund the build of the Thames Tideway Tunnel and Heathrow Terminal 5, will enable a wider pool of investors, including British pension funds and insurance funds, to pump money into nuclear power stations.
Ministers believe the model, which was contained in the Nuclear Energy (Financing) Act that received Royal Assent last week, will save taxpayers £30bn in the lifetime of each new major power station.
Sizewell C in Suffolk is expected to be the first new large-scale power station to be signed off by ministers, with Whitehall sources suggesting that the Wylfa site in Anglesey will be the next to be given the go-ahead.
Wylfa nuclear power station – Atomfa’r Wylfa in Welsh – is a decommissioned Magnox nuclear power station west of Cemaes Bay on the island of Anglesey, off the north-western coast of Wales. Construction of the two 490mw nuclear reactors, known as reactor 1 and reactor 2, began in 1963.
Government insiders believe Sizewell C will be delivered at a vastly cheaper cost than Hinkley Point C, which is due to come on stream in 2026, with further cost savings for future builds as skills and expertise in nuclear power construction grows.
“Skills and delivery will be cheaper,” one source said.
“Sizewell C is a carbon copy of Hinkley – and will be considerably cheaper. EDF has learned a lot.”
Under the previous “contracts for difference” (CfD) funding model, developers were expected to finance the construction of a nuclear power station but would only begin to start receiving revenue once the station started generating electricity.
The system led to a series of cancellations, including Hitachi’s project at Wylfa Newydd in Wales and Toshiba’s at Moorside in Cumbria.
A Whitehall source said: “[Former business secretary] Greg Clark offered a 33 per cent equity stake in Wylfa previously. But it wasn’t enough, ultimately, because the existing CfD model was too risky.
“And Mr Clark offered all debt financing too – but it still wasn’t enough.”
It emerged last week that the Government was planning on taking a 20 per cent stake in Sizewell C, with the French energy supplier behind the plant also taking a 20 per cent share in a bid to provide confidence to investors.
Ministers are realistic that they will have to shoulder some of the burden on each new nuclear project, with a decision on how much of a stake will be needed taken on a “case by case” basis.
In an interview with i last month, Mr Kwarteng said there was a “general recognition in Government that the Government has to take some of the risk” on new nuclear projects.
Ministers are expected to offer local residents cut price or even free energy in return for allowing power stations to be built nearby, while the proposals are also receiving the backing of Tory MPs.
Ian Liddell-Grainger, the Conservative MP for Bridgwater and West Somerset and chair of the all-party Parliamentary group on nuclear energy, believes previous opposition to nuclear within the Commons has disappeared.
“We’ve come a long way from 15 or 20 years ago, and people realise that nuclear is part of the mix. We will need wind, we will need solar and we will need nuclear to provide that base energy.”
Source: I News