When the U.K. government unveiled its contract for difference with EDF’s 3.2-gigawatt Hinkley Point C nuclear power station in 2012, it proudly proclaimed that the arrangement proved new nuclear did not need direct subsidy.

Since then, three other U.K. projects have been put on an indefinite pause after Hitachi and Toshiba said their respective ventures had failed to attract investors.

While the 35-year contract for difference (CFD) awarded to EDF is considered generous at £92.50 ($120) per megawatt-hour, the French energy giant is on the hook for overrun costs — no small concession. A 2014 study found that of a global sample of 180 nuclear power plants, 97 percent ended up over budget.

There is an acceptance in the nuclear industry and at the government level that the CFD approach won’t be used for nuclear again in the U.K. Yet all but one of the country's 15 working reactors are going offline by 2030, and the process of replacing them is behind schedule.

A new approach is needed — and quickly.

Sizewell C is the next active nuclear project in the U.K. pipeline. It will be a carbon copy of EDF’s Hinkley C, offering project savings and a readymade supply chain. The plan is to switch the workforce from one site to the other.

How Sizewell C will be funded, however, remains an open question.

The government launched a consultation in July 2019 on a new method that could be used for Sizewell C. That process closed in October, but between Brexit and an election, there has been no response from the government since.

EDF has reportedly become twitchy about the timeline, telling the government it needs to know how Sizewell C will be funded by the end of the year if it's to have any chance of starting construction in 2022.

The Department for Business, Energy & Industrial Strategy told GTM it would follow up on the consultation’s responses “in due course.”

RAB: Nuclear's next top model?

The government is seeking feedback on one possible new approach for Sizewell C known as regulated asset base (RAB), which is already in use for other big infrastructure projects.

The RAB model basically gives the project developer a means to recover its investment through consumer bills under the watchful gaze of a regulator — including payments during the construction phase.

It's the model used by the country's water monopolies to pay for their infrastructure. But pipes and pumps are generally simpler and cheaper than new nuclear.

The biggest RAB deal in the U.K. so far is the £13.5 billion extension of Heathrow Airport. The most conservative estimate for Sizewell C is £20 billion ($26 billion). (Its forerunner Hinkley Point C is sitting at £22 billion and counting.)

Taking this approach would be a first for the energy sector and a first for RABs. An entirely new entity, within or outside current regulator Ofgem, would have to step up to monitor how funds were being recouped from bills.

EDF and other nuclear developers wouldn't be paid if projects never make it to financial close, potentially leaving them exposed to the predevelopment costs.

But clarity is still needed on which entities would be exposed to various other risks, and there is danger that in the event of project costs rising, billpayers would be stuck with the tab.

Another option: State-backed nuclear funding?

Meanwhile, a number of respondents to the government's consultation say the government should take another, more controversial route: stepping in to build new nuclear itself, then quickly selling completed plants to the private sector.

The U.K. government celebrated the fact that it wasn't sinking state money into Hinkley Point C when the CFD was awarded. But after all, that project is being developed by two other state-run companies, albeit ones from France and China.

In its response to the government's consultation on funding options, the independent Nuclear Energy Consulting Group called for a new nuclear Crown Corporation, a state-backed investment vehicle, to step in to build nuclear projects.

“This new entity would act as an owner or funder of new [nuclear power] projects from inception to commercial operation, with project risks and benefits during development and construction remaining with [HM government],” write authors Edward Kee, Ruediger Koenig, Paul Murphy and Xavier Rollat.

In an email to GTM, Edward Kee, the CEO of Nuclear Energy Consulting Group, shared the group’s reservations about the RAB model.

“We have doubts that developing and implementing a nuclear power RAB framework would happen fast enough. It is also unclear that the RAB approach would deliver the needed nuclear power investment, even when put into place,” said Kee.

The International Project Finance Association, whose members include the World Bank, the U.S. Treasury and many major investors, agreed that the U.K. government should consider funding nuclear projects.

“An alternative structure would be for government to procure construction on the balance sheet (so that the government would own the project and pay for construction as the costs are incurred), and then look to sell the project to the private sector once operational,” the IPFA suggested in its response.

Energy Systems Catapult, a not-for-profit innovation center established by the government itself, also backs using the national balance sheet to build new nuclear at the lowest cost.

The potential funding pool for new nuclear in Europe shrank in December when the EU published a definitive list of what can be considered for “sustainable finance.” Nuclear power did not make the grade, and nuclear won't be financed as part of the EU's recently announced Green Deal.

Whether financial institutions follow the EU's lead remains to be seen.

The government declined to comment on its position toward directly funding and owning new nuclear power assets.

“New nuclear has an important role to play in providing reliable, low-carbon power as part of our future energy mix as we aim to eliminate our contribution to climate change by 2050," a spokesperson said. "However, we are clear that any energy project must offer value for money for consumers.”

Does the U.K. need new nuclear at all?

Other influential groups remain open or even supportive of the RAB model for funding new nuclear.

The union Unite is receptive to a RAB framework but began its own response by saying it "favors a policy of state ownership of the energy sector.” The union also warned against letting what it views as inevitable cost overruns be passed on to energy-intensive consumers, which might then take their operations and jobs elsewhere.

Trade body EnergyUK said it supports the development of an RAB model but added that it views a levy on consumer bills as a more regressive approach to funding than using general taxation.

At the same time, other groups are questioning the government's commitment to new nuclear.

Citizens Advice, the powerful consumer watchdog, said it does not believe RAB would deliver good value.

“Several of the government’s own advisors, including both the Committee on Climate Change and the National Infrastructure Commission, are less definitive on the case for new nuclear than it is," the group states in its response to the consultation. "If new nuclear is an option rather than a necessity, its economics come more sharply into play, and they are challenging when compared to a range of other low-carbon options.”

Citizens Advice said it wants to see a detailed business case for new nuclear prior to any contracts being signed. It claims the value-for-money assessment on Hinkley C was published after the deal was legally binding and was only three pages long.

The group also pointed out the elephant in the room: Brexit.

“To date, the investor pool for new U.K. nuclear has been largely populated by firms backed by foreign governments, including those that we may need to strike trade deals with in the coming years, meaning that there are political as well as economic considerations at play," it wrote.

"These factors would make it extremely hard for any regulator to take any steps that might result in the abandonment of a new nuclear project, even if costs were to escalate significantly. This would dilute their ability to act in consumers' best interests.”