The government should kick-start the small nuclear sector by offering it revenue support, via mechanisms like the contracts for difference (CfD), a team of advisers has recommended.
The final report of the expert finance working group, which was published yesterday (7 August), has also concluded that the government should not attempt to “pick winners” in terms of those small nuclear technologies that should receive the go ahead.
Convened by the Department of Business, Energy and Industrial Strategy (BEIS) to plot ways of financing the new breed of mini-nuclear plants, the group concludes that such projects will require revenue support mechanisms like CfDs or power purchase agreements until technologies are more established.
Without such mechanisms it is “highly unlikely” that plants will be financially feasible, concludes the report, entitled “Market framework for financing small nuclear”.
The cash flows they generate could spur the provision of long-term finance at low interest rates from the capital markets, which would otherwise be reluctant to invest in small reactor projects because they are “inherently risky” and ill understood.
The report says that, like offshore wind, such first of a kind projects will require some government support to overcome these barriers.
The government could also cut private financing costs by seed funding a new infrastructure fund, taking a direct stake in projects and by offering government guarantees.
It could further de-risk the process of small nuclear development by reserving sites, including those already licensed for nuclear activities, for such projects.
But the report recommends that the government should not back particular small reactor technologies. Instead it should allow the market to lead the development process once technologies have been judged to be commercially ready via the Generic Design Assessment and other processes.
And the group questions whether small nuclear projects should pay into the nuclear industry’s funded decommissioning programme so that they can compete on a level playing field with other industries such as offshore wind.
It suggests that small nuclear projects may be able to find other mechanisms for dealing with their decommissioning and waste management costs.
The group also urges the government to work with the finance industry to make green bonds available to small nuclear like other low carbon projects.
Peter Haslam, head of policy, at the Nuclear Industry Association, said the group’s report confirmed that small reactors could be a “financially viable addition” to the existing nuclear programme.
He said: “Not only could small reactors bring value for money to the consumer, they also have the potential to create a lucrative export market, with a major benefit for British engineering companies and the wider supply chain.
“The report sets out how small reactors can be cost competitive, and we hope the financial sector will recognise this. Small reactors could make a significant contribution to bolstering energy security while tackling climate change, and we hope to see government taking forward the recommendations as soon as possible.”
Welcoming the report, Energy UK’s chief executive, Lawrence Slade said: “This report sets out what needs to be done to support the development of small nuclear projects, which could form an important technology helping to provide clean power for UK homes and businesses.
“These recommendations should help de-risk infrastructure funding and help establish the small nuclear industry, which will deliver crucial investment for the UK economy and support the industrial strategy.”