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A RAB Model for New Nuclear Power Plants: The Economics of Investment Incentives
20 March 2020
Sean Gammons, George Anstey, and Richard Druce
With the aim of changing the way the UK government does business with investors in the energy sector, in 2019, the UK Department of Business, Energy & Industrial Strategy (BEIS) consulted on using a regulated asset base (RAB) model to encourage investment in new nuclear projects. This is an unusual approach for the UK government, which has been promoting competition in the British energy market as the RAB model is often associated with regulated monopolies.
In this paper, NERA Managing Director Sean Gammons and Directors George Anstey and Richard Druce describe how the RAB model works and how the UK government would like to adapt it to meet the needs of investors in new nuclear projects. The authors conclude that the RAB model transfers risk (and some of the cost of capital) from investors to consumers and it would only reduce the total cost to consumers if its implementation reduces the riskiness of developing nuclear power for society.