Policy background
The Government has made important commitments to eliminate its contribution to greenhouse gas emissions. This includes the passage of legislation that requires the UK to bring all greenhouse gas emissions to net zero by 2050, as well as subsequent commitments to reduce carbon emissions by 78% and to decarbonise the electricity system by 2035. This will require rapid, significant changes in the energy sector: it is expected that 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 that year.
	A key part of this will be to secure the transition to a clean electricity system that is reliable and affordable for energy consumers. This will require a substantial deployment of renewable technologies, alongside technologies such as nuclear which can provide energy to consumers when the wind is not blowing, or the sun does not shine.
	Large scale nuclear power plants are the only proven technology available today to provide continuous, reliable and low carbon electricity. However, the UK’s existing nuclear fleet will be almost completely retired by 2030, and the Government’s analysis shows that the UK is likely to need nuclear generation beyond the new plant being constructed at Hinkley Point C. To meet the challenge of net zero, the Government is working to bring at least one more new large-scale project to final investment decision in this Parliament subject to all relevant approvals, whilst rapidly exploring the development of new nuclear technologies beyond conventional large-scale plants. These goals were set in the 2020 Energy White Paper.
	To support this goal, the Government has considered a range of approaches to securing private finance in the design, construction, commissioning and operation of nuclear assets, to complement the Contracts for Difference (CfD) model that has been used to finance construction and operation of the Hinkley Point C nuclear plant. Regardless of the funding model, the Government’s aim is to agree an approach to financing the design, construction, commissioning and operation of new nuclear projects that can deliver value for money for electricity consumers, whilst achieving a fair and appropriate allocation of risks between investors, consumers and taxpayers.
	The Government consulted on a Regulated Asset Base (RAB) model for new nuclear projects in July 2019. A response to this consultation was published in December 2020 and confirmed the Government’s assessment that the model is a credible basis for financing large-scale nuclear projects.
	The RAB model is a well understood financing model that has received significant quantities of investment from the private sector over the last 30 years in industries including water and energy. In 2016 the RAB model was successfully modified and applied for the first time to a single asset construction project – the £4.2 billion Thames Tideway Tunnel project.
	Under the RAB model introduced by this legislation, an eligible nuclear company would receive payments in relation to the design, construction, commissioning and operation of a new nuclear energy generation project from electricity suppliers (who would be expected to pass these costs onto consumers through their electricity bills). The Secretary of State will modify a designated nuclear company’s electricity generation licence to insert new licence conditions, giving them a right to receive a regulated revenue in relation to the provision of the infrastructure in question. In so doing it could bring significant amounts of private investment into nuclear projects at relatively low cost. Given that the cost of finance is the main driver of overall project costs, this should lead to better value for money for consumers over the life of a nuclear RAB Project.
	It is the Government’s intention that in the first instance the model would be used to support investment in the design, construction, commissioning and operation of large-scale nuclear, however it remains open as a means to support the financing of emerging nuclear technologies.
	To support the RAB model, and to protect the interests of consumers, the legislation introduces the Special Administration Regime (SAR) to apply to nuclear RAB projects. In the very unlikely event of a company’s insolvency, the Secretary of State, or the Gas and Electricity Markets Authority (the governing body of Ofgem, and for purposes of these notes, referred to as ‘the Authority’) with the Secretary of State’s permission, would be able to apply to the courts for the appointment of a special administrator whose objective would be to secure that electricity generation commences, or continues until it is no longer necessary for the order to remain in force. The SAR does not change the position that the company must continue to comply with all of its regulatory and legal duties and responsibilities, including compliance with safety, security and environmental provisions related to the power plant and the site on which it is located.
	Implementing a SAR is intended to reduce the risks of consumers being deprived of the intended benefits from contributing to funding the building of a nuclear power plant using a RAB model should a relevant company become insolvent. It also reduces the risk of requiring a replacement source of electricity generation, which would further increase the cost of electricity to consumers.
	The Act also contains a further measure to help facilitate private financing in nuclear projects, specifically to amend the Energy Act 2008 to make technical changes to the regime of Funded Decommissioning Programmes (FDP). All nuclear power stations have a finite life, beyond which it is not safe or economically feasible for them to continue to operate. After this period, the power station must be decommissioned. Prospective operators of nuclear power stations are obliged to submit an FDP to the Secretary of State. The FDP must set out the site operator’s costed plans for dealing with its future decommissioning and waste management liabilities. It is a criminal offence for a new nuclear developer to start construction work on any buildings with nuclear safety significance without an approved FDP in place.
	Currently, the Secretary of State has the power to unilaterally modify an FDP to impose obligations on bodies corporate which are ’associated’ with the site operator. It is possible that the existing legislation could potentially be interpreted in such a way that security trustees and secured creditors could be at risk of falling within the scope of this power, making it less likely that a nuclear project will attract debt investment. The legislation therefore clarifies that the activities of these entities are not caught by the definition of being ‘associated’ with a site operator to the extent that they relate to the management and enforcement of security interests relating to the project, as they do not hold significant influence over its day-to-day decision making. This will facilitate the ability of projects to raise debt investment.
	The legislation is made up of the elements set out below.