The UK’s nuclear regulated asset base (RAB) model and what it means for our energy customers
30 July 2024 | 4 minutes
As part of the UK’s strategy to reach Net Zero by 2050, the government committed to a fully decarbonised power sector by 2030 , with nuclear-powered electricity generation identified as one of the key enablers to achieving both of these goals.
At present, the UK generates around 15% of its electricity using nuclear power3. Despite ambitious plans to increase nuclear capacity, the vast majority of nuclear plants currently operating in the UK are scheduled to be decommissioned by 2030, with only one plant (Hinkley Point C) currently under construction. New nuclear plants take up to 10 or 15 years to build and commission. They also require huge amounts of upfront capital expenditure. As a result, such projects can often struggle to attract the required investment. To overcome this challenge, the government has introduced a nuclear Regulated Asset Based (RAB) model, via the Nuclear Energy (Financing) Act 2022, whereby investors will receive a guaranteed return on investment across the entire lifecycle of the asset. The RAB model is tried and tested and has already been used in major infrastructure projects such as Thames Tideway Tunnel and Heathrow Terminal 5. The government has designated the Sizewell C project, the sister project of Hinkley Point C, which was granted a nuclear site license by the Office for Nuclear Regulations (ONR) in May 2024, as the first to use a RAB model.
What we know so far
Under the scheme, nuclear power producers will be entitled to a specified level of allowed revenue for a given year, set by Ofgem. These companies will sell their generated power on the wholesale market (market revenue), which if less than their allowed revenue, would entitle them to a top-up payment (difference payment) to bring their total revenue up to the same level as allowed revenue. If, however, market revenue rises above the allowed revenue, then the nuclear company would have to pay the difference back. Suppliers would be paying the difference payment or receiving them, depending on the state of the wholesale market.
Broadly speaking, the nuclear RAB scheme is similar to the prevailing contracts for differences (CFD) revenue mechanics operating across the UK energy market. However, as details are finalised, there are likely to be some key differences, especially in how allowed revenue is set, payment timelines, and supplier notice periods. The Low Carbon Contracts Company (LCCC), the Government-run body that operates CFD and manages Britain’s Capacity Market (CM), will act as the revenue collection counterparty, managing funds between electricity suppliers and licensed nuclear companies. Under the scheme, Ofgem will advise the LCCC what payments should be made to (or received from) each licensee nuclear company in accordance with their RAB contract. LCCC will also be responsible to calculating an operational costs levy rate to be applied for each day that the nuclear company makes an electricity supply (expressed as a £/MWh tariff) but the size of this levy or the implementation date is not yet known at this stage.
Source: Department for Energy Security & Net Zero
What it means for high-energy users
While the details are yet to be finalised, the nuclear RAB scheme has been designed to encourage capital investment into nuclear power and greatly expand energy generation capacity across the UK. It follows a similar structure to the CFD scheme which, since establishment in 2014, has facilitated investments in 29.4GW of energy generation (6.4GW are currently operational). 4 A tested mechanism with a proven track record, we would expect the nuclear RAB scheme to also deliver strong results and bolster the UK’s low-carbon energy generation capacity. Offering a stable and reliable source of electricity, which is a necessity for industrial operations that require uninterrupted power supply, nuclear has the potential to mitigate the risks associated with energy price volatility and offer lower long-term energy costs overall. At Shell Energy, we will follow nuclear RAB closely as it develops and update our customers with further information as the scheme and its timelines are finalised.
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