- The proposal for the RAB model is credible, but further work is now needed to develop the details of the mechanism for new nuclear projects. It will be vital to confirm and clarify important aspects including risk apportionment, construction cost overrun, time overrun, approvals and payment sequencing, particularly to ensure consumers are not unfairly burdened with risk.
- While there are some transferable lessons from Thames Tideway Tunnel (TTT), including using a bidding process for determining the weighted average cost of capital (WACC), the differences between TTT and new build nuclear should not be underestimated, particularly as nuclear is of a significantly higher scale and complexity.
- A nuclear project under RAB will require close scrutiny and full transparency. The consultation recognises the important role of an economic regulator within the framework; we welcome this and consider that a body with effective capability would need to be appointed to both protect the interests of consumers and provide reassurance to investors, with Ofgem appearing the most suitable organisation.
- Government must consult thoroughly with potential investors to ensure that a framework is developed which does deliver the lower cost of capital which is central to a RAB approach. This needs to also provide confidence to investors that regulatory decisions are evidence-based and impartial.
- There must be a responsibility on the project proposer under a RAB model to have a mature design from the outset. Clearly not all risks will be known, but scope, design and exploration works should be completed before commencement of work is allowed, to mitigate the risk of scope creep or retroactive changes, taking steps to include contractors in design at an early stage.
- Consideration should be given to the type of model used in the delivery of new nuclear when awarding a RAB contract. Many infrastructure clients are taking steps to move away from a transactional arrangement to an enterprise model, with seven early adopters forming part of the Infrastructure Client Group’s Project 13. This approach could deliver better outcomes on new nuclear projects, including more collaborative working, productivity improvements, better governance, data-led frameworks and earlier, strategic engagement of the supply chain.
ICE response to BEIS consultation on a Regulated Asset Base (RAB) model for nuclear
Content type: Consultation
Last updated: October 2019