The RAB model explained
To meet Net Zero needs by 2050, there needs to be rapid, significant changes in the energy sector: total UK electricity supply will need to double by 2050 and electricity from low-carbon sources will need to quadruple, in order to deliver the UK’s commitment to become a Net Zero emissions economy by 2050. Nuclear Power will play an important part in this, delivering continuous, reliable and low carbon electricity.
With the UK’s existing Nuclear generation reaching the end of their life the Governments analysis highlights the need for nuclear generation beyond Hinkley Point C. A number of approaches were considered to secure private finance to fund the construction and following consultation with industry experts, the RAB model was selected.
Under the UK’s nuclear RAB model, developers and investors are given secure returns on investment during a nuclear project’s construction, commissioning and operation. This offers greater investment certainty, attracting investors and reducing the costs of private finance, thereby lowering the cost to the consumer. According to the UK Government, the lower cost of financing a nuclear project is expected to result in savings for consumers of at least £30 billion on each project.
LCCC will perform the role of revenue collection counterparty, channeling funds between electricity suppliers and relevant license 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’).
LCCC's role in RAB
With expertise in performing similar functions across the CfD and CM schemes, LCCC has been designated by DESNZ to set up and run this process.
The allowed revenue will be paid to the licensee nuclear company through a Revenue Collection Contract. The Secretary of State for DESNZ has designated LCCC to perform the role of revenue collection counterparty as the counterparty for revenue collection contracts. We will channel funds between electricity suppliers and relevant licensee nuclear companies.
Ofgem will confirm to us (as the revenue collection counterparty) what payments we should make to (or receive from) the relevant licensee nuclear company in accordance with their revenue collection contract (i.e. ‘RAB payment’).
The Nuclear Regulated Asset Base Model (Revenue Collection) Regulations 2023 sets out the payment mechanics for suppliers.
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.
EMRS will be providing settlement services for the Nuclear RAB scheme, who also delivers these functions for the CfD and Capacity Market schemes. On theStakeholder Support for Supplier – Nuclear RAB webpage this will help Suppliers understand the interactions and processes with EMRS. This webpage also combines the related Working Practices and Guidance documents to support them.