Hinkley Point C’s (HPC) construction project, to help deliver Net Zero by 2050 and greater security of supply, progresses daily, financed by EDF and China General Nuclear (CGN) under the contract for difference (CfD) arrangement agreed in 2016. When operating, HPC will receive £129/ MWh* in 2025 values, index linked, for 40 years but returns from the project will only flow once the station is generating. Until then, the developers fund construction and commissioning and costs continue to balloon with the overrun risk falling on EDF and its co-investors.
So, what was lauded as the way to finance new nuclear almost two decades ago, and is used today for smaller and less technically challenging wind and solar developments, has failed to attract a queue of developers anxious to emulate EDF and CGN. The risk of project cost overrun and the extended time to positive cash flows has deterred likely players. Sizewell C (SZC), and Small Modular Reactors (SMRs) need a different funding model.
The Regulated Asset Base (RAB) model was designed to attract the private investment for nuclear the CfD model had failed to bring forth. The RAB model has been successfully used for large infrastructure like Thames Tideway, a colossal sewer project, and before that to finance water and power infrastructure built for regulated monopolies. But nuclear is more complex, and the arrangements for SZC, including nuclear RAB, significantly derisk the project to attract private investors.
Under RAB, investors in SZC receive returns throughout the construction period of 12-13% post tax IRR* if the costs meet target, falling to 10.8-11.4%* if costs escalate to the higher regulatory threshold of £47.7bn*. The operators get regulated returns once the station is generating equating to £133- £155/MWh* in 2025 values and share operational risks. Decommissioning costs are passed through to consumers. The structure leaves minimal regulatory and market risks with the operator and passes many to the consumer through a levy; recourse to consumers provides a good covenant, reducing the project’s cost of capital. Insulated investors should make attractive returns even if construction costs overrun. But credit to Government where it’s due….without RAB’s risk allocation would private investment in SZC have been forthcoming?
The road to SZC is now set, but what of future nuclear projects? The UK has selected the Rolls Royce SMR as the technology for a three-unit development on Anglesey but has yet to decide on how best to encourage private sector investment. The same applies to other SMR options being progressed through the Office for Nuclear Regulation’s Generic Design Approval process. SMRs offer the attractions of smaller overall project cost and efficiencies from modular factory-based volume production. Historically, the experience worldwide is that building multiple units of the same design improves construction productivity. But will those economies of production outweigh the benefits of the traditional economies of scale, albeit the Rolls Royce SMR is hardly small at 470MW? Time will tell.
Today, the first of a kind risks SMRs face and the push to deploy new nuclear stations quickly, to deliver net zero targets and energy independence, justifies greater Government support. The RAB looks a credible option but, ideally, DESNZ needs to push developers to absorb a greater share of risk. More skin in the game for developers or operators should incentivise more efficient and faster construction, operational excellence, and innovation to drive down costs; in turn this should encourage more private investors and lower costs. A win-win.
The aim is to get to a level of maturity and predictability where private investors will fund developments without support. But we are not there yet. The options for DESNZ are limited. If the developer is Great British Energy-Nuclear (GBE-N), the negotiation on risk allocation with the department will be interesting. The National Audit Office tells us negotiations on Sizewell C were robust, seeking to maximise what private investors would bear. The latter always have the choice to walk away. Against this, Government retains responsibility for energy security and climate change targets today and tomorrow and needs to deliver new nuclear.
Consumers will want to see that allocation pushed further every SMR project. If that happens, consumers benefit from the “social good” of the optimal energy generation mix being delivered at lower financing cost and see less risks being shouldered by Government as the technology matures.
So, is Nuclear RAB a good deal for consumers? The answer has to be a tentative yes. Given nuclear’s construction record in the west, support is needed to make private investment happen. Nuclear RAB has attracted investors for SZC and may be the best deal that Government could have done. If consumers benefit in the long run from new nuclear capacity being part of the generation mix, it follows something close to a nuclear RAB is essential to stimulate investment today. As the technology matures , the risks shouldered by investors can be ratcheted up to deliver greater value for money to electricity consumers.
*: Figures quoted from the report ‘Sizewell C, The National Audit Office, 20 May 2026’