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UK energy white paper to detail nuclear RAB funding model

Highlights

White paper will advise heavy reliance on nuclear, renewables

3.2-MW Sizewell C could use RAB funding

Uncertainty over timing of white paper release

London β€” A UK government white paper, or formal policy document, that is expected to be released this summer will contain details of the regulated asset base funding model for nuclear plant construction, two sources who have had input into a draft of the document said.

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The energy white paper will detail UK government energy policy until 2050 and how to achieve a significant reduction in the UK's greenhouse gas emissions.

The sources -- who requested anonymity as they are not authorized by their companies to speak to the media -- said the advice in the white paper is that the UK should use low-carbon power sources, with a heavy reliance on nuclear and renewable power generation, to achieve carbon neutrality by 2050.

The RAB funding model would allow private companies, including pension and investment funds, to invest in projects under the oversight of a government regulator in exchange for being allowed to collect a fee from power customers, including before the completion of the project.

Peter Kurilecz, a spokesman for the Department of Business, Energy and Industrial Strategy, the UK government department in charge of energy policy, said that "work on the contents of the white paper is ongoing," but declined to comment further.

A May 2 report by the UK's Committee on Climate Change -- a government energy policy advisory body -- called for increased reliance on low-carbon power generation sources, including nuclear power, in the country's electricity mix. The report recommends a target of eliminating greenhouse gas emissions in the UK by 2050.

EDF Energy, in a 2018 document about its planned 3,200-MW Sizewell C nuclear power plant in eastern England, suggested that the RAB model could be used for the plant's construction.

EDF Energy said in the document that were the RAB model to be applied to the project, an "economic regulator" -- likely the Office of Gas and Electricity Markets (Ofgem) -- would oversee the "regulated company" that would build and operate Sizewell C, as well as that company's costs and revenues.

EDF Energy added in the document that the regulator would set an allowed level of revenue, earned through a levy on residential consumer power bills, for the company that builds and operates the plant, and that this revenue stream could be accessed during the plant's construction.

The first source who had input into the white paper draft said the government was considering allowing the RAB funding to run for the "life of the planned plant," meaning that in the case of a new nuclear plant like Sizewell C, it could last for 60 years.

POLICY PAPER TIMING UNCERTAIN

The source said the government white paper was "essentially drafted," but that its release might be delayed due to "ministerial changes associated with the leadership election in the Conservative party."

UK Prime Minister Theresa May is stepping down as leader of the governing Conservatives on Friday. She announced the date of her resignation on May 24, citing her government's failure to implement the result of the UK's June 23, 2016, referendum vote to leave the European Union as scheduled by March 29 this year. She will stay on as Prime Minister until a new leader is elected.

May's resignation as party leader will trigger a two-month leadership election among the 120,000 Conservative party members in the UK. The new party leader will then take over from May.

The source said that a series of ministerial changes within the Cabinet could follow a new prime minister's assumption of office, and that the government might choose to wait until the autumn to release the white paper.

Kurilecz said in an email June 4 that the white paper "will be published in the coming months."

The second source who had input into the white paper draft said there is "no point in the white paper if the [energy] minister implements it and then leaves."

The source added that the timing of the white paper's release would be "contingent on the timing of Brexit and the Conservative leadership contest."

"Any further new large reactor construction [in the UK] is contingent on the RAB model and the government is aware of that," the source said.

The source said the white paper was likely to "outline how the RAB model could be used for new nuclear construction," but that the government would want to remain flexible in its funding approach to new construction.

The second source said that the UK nuclear industry had been "encouraged" by the level of potential interest seen so far in new UK nuclear construction from financial investors such as pension and investment funds.

-- Oliver Adelman, London, newsdesk@spglobal.com

-- Edited by James Burgess, newsdesk@spglobal.com