FST BLOG

Will your energy bills go down with nuclear energy production?

• 29 October 2021
• Chloe Davies

The UK has been on the way to a green transition, and especially renewable energy energy production. The country has set a very optimistic plan to reach its 2050 Net Zero goal. The ongoing energy crisis has clearly pointed out the need for renewable energy production and less reliance on fossil fuels. Nuclear energy has been in the government’s plan for some time and it has officially announced a serious focus in the nuclear sector, introducing the Nuclear Energy Regulated Asset Base (RAB) model. This is good news for energy customers as it will help lower their bills in the long run. 

What is a Nuclear Energy Regulated Asset Base (RAB) model?

The Nuclear Energy (Financing) Bill will introduce a Regulated Asset Base (RAB) model as an option to fund future nuclear projects. A RAB model is a tried and tested method, typically used in the UK, to finance large scale infrastructure assets such as water, gas and electricity networks. Under this model a company receives a licence from an economic regulator to charge a regulated price to consumers in exchange for providing the planned infrastructure .

The model enables investors to share some of the project’s construction and operating risks with consumers, which  significantly lowers the expenses, which is the main driver of a nuclear project’s cost to consumers. This charge is set by the independent regulator, who will ensure that any money spent is done in the interest of customers. For a nuclear RAB, suppliers will be charged as the users of the electricity system toward the cost of the construction of the nuclear project, and the economic regulator will be Ofgem.

What does that mean for you and your bills?

The nuclear RAB model will require you and all energy customers to pay a small amount added on your bills during the construction of a nuclear project. These payments are created so that when the nuclear plant is in operation, there will not be a build-up of interest on loans that usually lead to higher costs to consumers.

For example, a project starting construction in 2023 will at most add a few pounds to typical consumer bills during this Parliament and on average less than £1 per month during the full construction phase of the project. Therefore, the new nuclear energy system will deliver electricity that is lower cost for consumers in the long run. The RAB model will also make future nuclear projects cheaper.

The UK government promises that the RAB model will save customers between £30 billion and £80 billion. This will result in you saving more than £10 per year for an average domestic dual fuel bill throughout the life of the nuclear power station, which is expected to be around 60 years. 

Why is nuclear energy important for the UK's Net Zero goal?

The current energy market crisis shows that the UK is dependent on external sources of energy, which also plays a role in the energy prices around the country. The crisis further highlighted the need for more renewable energy produced inside the UK. This could be the key to bringing energy prices down. At the moment, around 16% of the total electricity generation in the UK comes from nuclear power and the RAB model will play an important role in attracting private investors to back up financially new large-scale nuclear power stations. RAB could also be used on new nuclear technologies, including Small Modular Reactors designed and manufactured in the UK.

Authorities including the United Nations Economic Council for Europe and the International Energy Agency have both stressed the importance of developing new nuclear capacity, alongside more renewables, to meet the doubling in demand for electricity in the decades ahead, as well as the UK’s legal commitment to reach net zero by 2050.

Business and Energy Secretary Kwasi Kwarteng, said: “In light of rising global gas prices, we need to ensure Britain’s electricity grid of the future is bolstered by reliable and affordable nuclear power that’s generated in this country.”

“The existing financing scheme led to too many overseas nuclear developers walking away from projects, setting Britain back years. We urgently need a new approach to attract British funds and other private investors to back new large-scale nuclear power stations in the UK.”

“Our new model is a win-win for nuclear power in our country. Not only will we be able to encourage a greater diversity of private investment, but this will ultimately lower the cost of financing new nuclear power and reduce the costs to consumers and businesses.”

The UK has committed to cut carbon emissions by 78% by 2035 and invest heavily in green energy. The prime minister, Johnson, believes that it is the most ambitious climate change target globally, which would put the country on track to become a net zero emissions producer by 2050. In 2020, the country had generated 43% of its electricity from renewable sources. However, gas-fired power plants still account for a big percentage of the energy generation. 

What does Net Zero really mean?

The term net zero means achieving a balance between the carbon emitted into the atmosphere, and the carbon removed from it. This balance will happen when the amount of carbon we add to the atmosphere is no more than the amount removed.

To reach net zero, emissions from homes, transport, agriculture and industry will need to be cut. This means that the business sectors will have to reduce the amount of carbon they put into the atmosphere. But in some areas, like aviation, it will be too complex or expensive to cut emissions altogether.

These ‘residual’ emissions will need to be removed from the atmosphere: either by changing how we use our land so it can absorb more carbon dioxide, or by being extracted directly through technologies known as carbon capture, usage and storage.

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