Dieter Helm: If the government decides to invest in further nuclear power station projects, it should obviously try to do so at minimum cost. The Secretary of State, Greg Clark, has suggested that one option might be to develop a Regulated Asset Base (RAB) model. Is this concept fit for the nuclear purposes? How does it compare with the other two options currently under consideration – direct investment and financial guarantees, and the Hinkley-style CfD approach. (No assumption is made here as to whether nuclear projects should be proceeded with: it is about the best means, not the end). The RAB approach is in a first best world probably inferior to the direct procurement route, but the latter is ruled out by the Treasury imposed constraints. The RAB model is a second best, but much better than the Hinkley style contract. None of these approaches leads to the conclusion that nuclear is either necessary or desirable to meet the twin objectives of security of supply and decarbonisation, though it would contribute to both. No smart contracting and regulating framework can magic away the deep challenges that nuclear faces, notably: the possibility that in the next 60 years much cheaper new low carbon technologies may become available, possibly including new nuclear ones too; the very large upfront and sunk costs; the risk and the safety regulation; and the challenges of getting rid of the waste. It is for society to decide whether it wants new nuclear or not. The market cannot decide. If that decision is to proceed, the RAB model is both plausible and preferable to the Hinkley model.
DieterHelm 12th June 2018 read more »