Nuclear power: Taxpayers deserve to know that the odd billion or three isn’t being diverted unnecessarily to intermediaries.

What’s plan B if the government can’t attract investors willing to fund Sizewell C? 

Nils Pratley www.theguardian.com 

A sum of £100m is peanuts in the expensive world of nuclear power stations, so regard the business secretary Kwasi Kwarteng’s funding for a round of development work on Sizewell C as a form of advertising. The cash is intended to send a message that the government is serious about getting the plant built in Suffolk. And it is an appeal for outside investors to volunteer to sit alongside developer EDF, the French state-backed group.

There was also a definition of a desirable investor: “British pension funds, insurers and other institutional investors from like-minded countries”. Note the nationality test. It is the closest we have come to official confirmation that China General Nuclear (CGN), originally slated for a 20% stake in Sizewell, will be kicked off the project. It remains to be seen how, legally, the government will rip up the 2015 deal with CGN signed by David Cameron’s government, but the intention is clear.

So, too, is the intended funding mechanism. It will be a regulated asset base (RAB) model, a version of the formula used at Heathrow Terminal 5 and the Thames Tideway giant sewer. The key point for investors is that they will see some income before Sizewell is built, unlike at Hinkley Point C where EDF and CGN earn their princely cashflows only when the electricity starts to flow.

The switch will lower Sizewell’s lifetime costs by “more than £30bn” versus Hinkley’s contracts-for-difference model, says the government, being economical with the economics. What it doesn’t mention is that any cost overrun (a real risk given nuclear’s reliable record of never hitting its construction budgets) will be shoved on to consumers, who will in any case see £10 a year added to household energy bills during the build phase. But, yes, Kwarteng is correct that the RAB model is the only one with a chance of attracting new investors.

What, though, if those British and like-minded institutions still refuse to play? Nuclear represents unknown territory for most of them. What if competition to invest, which is meant to be the other way in which RAB lowers financing costs, doesn’t materialise? What’s the government’s plan B?

The only possible solution is for the state to invest directly. If that is so, wouldn’t it be better to run an upfront benchmarking exercise at the outset to compare the numbers? Sizewell, unfortunately, is probably inevitable given the current panic over high gas prices and long-term energy security. But taxpayers, on the hook anyway via household bills, deserve to know that the odd billion or three isn’t being diverted unnecessarily to intermediaries.

By the time Sizewell’s sums become enormous, transparency will be essential. The government has just thrown £1.7bn at Bulb, the failed energy supplier, to keep it on life support and it will be a miracle if all the cash comes back in full. In that context, using public money to invest in a productive energy asset doesn’t seem such an awful prospect.