Boris Johnson’s Government moved to end the use of Chinese state companies to fund new nuclear power plants in the UK on Tuesday by announcing a change in approach to financing.
Energy firms building new plants will be allowed to pass on costs to consumers before construction is completed in a break with precedent, increasing incentives to invest.
Government ministers hope the legal change will bring in a wave of funding in nuclear energy from British pension funds, insurers and investors from America and other international allies.
The move was interpreted as an attempt to force the Chinese state-owned company China General Nuclear Power Group (CGN) from building the proposed Sizewell C plant in Suffolk.
Preparations for the plant have been running for years and CGN has a 20 per cent stake in the project led by France's power giant EDF, which is at the fund-raising and development stage.
The Government has said it will announce funding for one major new nuclear power plant before the next election, due in May 2024. Sizewell C is believed to be the front-runner.
But Tuesday's announcement led to speculation the Government is trying to encourage other investors to take CGN’s place before the project is approved.
The change in finance approach will also impact consumers, adding “at most a few pounds a year to typical household energy bills”, according to a Government press release.
The new strategy was outlined on Tuesday as the Nuclear Energy (Financing) Bill was tabled in Parliament.
Downing Street wants to grow the UK’s nuclear energy sector as it pushes to decarbonise the economy.
However, there has been growing scepticism, both inside the Government and among Tory backbenchers, about letting Chinese state-owned companies help build UK nuclear power plants. CGN is also a 33 per cent investor in the Hinkley Point C nuclear plant being built by EDF in Somerset.
UK should not be 'strategically dependent' on China
Liz Truss, the Foreign Secretary, said the UK should not be “strategically dependent” on China and urged caution over Beijing's involvement in nuclear energy during an interview with the Telegraph last week.
Under the old financing model, called the Contracts for Difference (CfD) scheme, companies that built nuclear plants were given a Government-guaranteed energy price once it was constructed, allowing them to make back money.
However, it meant that firms faced years before they could begin to see a return on the nuclear projects.
Major recent plant projects such as Hitachi’s plan at Wylfa Newydd in Wales and Toshiba’s at Moorside in Cumbri have collapsed.
Under the new approach to funding nuclear power stations, Regulated Asset Base (RAB), companies building the plants would be allowed to pass some cost on to consumers before construction is completed.
This funding model was used to construct the Thames Tideway Tunnel and Heathrow Terminal 5.
'We urgently need a new approach to attract British funds'
Justifying the change, Kwasi Kwarteng, the Business Secretary, said: “In light of rising global gas prices, we need to ensure Britain’s electricity grid of the future is bolstered by reliable and affordable nuclear power that’s generated in this country.
“The existing financing scheme led to too many overseas nuclear developers walking away from projects, setting Britain back years. We urgently need a new approach to attract British funds and other private investors to back new large-scale nuclear power stations in the UK.
“Our new model is a win-win for nuclear in our country. Not only will we be able to encourage a greater diversity of private investment, but this will ultimately lower the cost of financing new nuclear power and reduce the costs to consumers and businesses.”
A spokesperson for the Sizewell C project said: “This legislation is a big step forward and will allow us to fund Sizewell C so that it delivers reliable low carbon nuclear power at a lower cost to consumers.”