Nuclear Regulated Asset Base (RAB)
A RAB model has typically been used to incentivise private investment in public projects with significant upfront capital costs and a long asset life. This has included large scale infrastructure assets such as water, gas, and electricity networks in the UK. The Nuclear Energy (Financing) Act 2022 received Royal Assent on 31st March 2022 and allows for the implementation of a Regulated Asset Base (RAB) model for nuclear energy generation.
The Secretary of State (BEIS) can award a RAB licence to a nuclear generation company. This licence will allow the nuclear company to recover its regulated ‘allowed revenue’ throughout the project period. This period can cover the design, construction, commissioning, and operations of a nuclear project. The allowed revenue will be set by Ofgem, as the economic regulator, at regular intervals and in accordance with the company’s license conditions.
During the construction phase of the project, the relevant licensee nuclear company’s allowed revenue would be primarily calculated by reference to the financing amounts required to build the nuclear plant. During operations, the calculation of the allowed revenue will include consideration of the various costs in operating the plant, and the licensee nuclear company’s forecast market revenues.
Parts of the allowed revenue will not be recovered via market-based sales of electricity (once the plant is generating and selling electricity), these will be funded through levies on electricity suppliers (who would be charged as ‘users’ of the Electricity System). Suppliers will be able to pass these costs onto their consumers who also use the Electricity System (should suppliers elect to do so).
The Nuclear RAB Model (Revenue Collection) Regulations will establish, among other things, how these levies on suppliers can be applied.
LCCC's role in RAB:
The allowed revenue will be paid to the licensee nuclear company through a Revenue Collection Contract. The Secretary of State (BEIS) has designated LCCC to perform the role of revenue collection counterparty as the counterparty for revenue collection contracts. LCCC will channel funds between electricity suppliers and relevant licensee nuclear companies.
Ofgem will confirm to LCCC (as the revenue collection counterparty) what payments LCCC should make to (or receive from) the relevant licensee nuclear company in accordance with their revenue collection contract (i.e. ‘RAB payment’).
The Revenue stream for the nuclear regulated asset base (RAB) model consultation highlights the proposed payment mechanics for suppliers and highlights the similarity to the CfD scheme.
Supplier would be required to make the following payments to support the RAB scheme:
• Interim Rate payments
• Reserve payments
• Reconciliation payments
• Operational Costs Levy
Suppliers would be obligated to provide Credit Cover in a similar way to the CFD scheme.
EMR Settlement Limited (EMRS) will be providing settlement services for the RAB scheme (which also delivers a similar function for the CfD and Capacity Market). Once the regulations come into force, EMRS will publish new and updated Working practices and Guidance. These will help suppliers understand the RAB obligations, and how the scheme will work.