Call for UK government to back small nuclear projects

Wednesday, 8 August 2018

The UK's Department for Business, Energy and Industrial Strategy set up an Expert Finance Working Group (EFWG) in January as part of the Advanced Nuclear Technologies initiatives announced by Energy Minister Richard Harrington in December 2017. The remit of the group was to independently advise the government on the potential for small nuclear reactor projects to raise private investment in the UK that could enable their future commercial deployment.

The EFWG on Small Nuclear Reactors yesterday released its findings and recommendations in a report, titled Market framework for financing small nuclear.

The chair of the group, Fiona Reilly, said in the preface to the report: "Despite the increase in global activity and interest in small nuclear there remains a market failure in getting technologies and projects to commercial delivery, and in particular in securing sufficient financing for projects from the private sector."

She added, "In developing its recommendations for a market framework, the EFWG thoroughly reviewed the risks associated with small nuclear, considering who is best able to manage such risks, the consequences of the risks and how the consequences can be managed."

The report notes that small nuclear projects range from micro-generation projects through to 600 MWe reactors. The costs of such projects range from GBP100 million (USD129 million) to GBP2.5 billion. As such, each project will have its own structure and risks. However, the group said it believes that its recommendations apply to all the different potential small reactors being considered for development by 2030.

According to the EFWG, some of the barriers to small nuclear projects which the UK government can assist with are "relatively straightforward", such as making sites and Generic Design Assessment (GDA) slots available.

"Some require the same support that any industry needs to bring innovation forward," it said. "Others are more fundamental around a lack of understanding/misunderstandings around nuclear and the need to get the first projects across the line to create the market."

The group makes a number of recommendations on how the government can help create the right market framework for the commercialisation of small nuclear projects. It says, "Government should enable the small nuclear sector through a clear policy and a market framework, rather than down-selecting technologies." The report also calls for the government to work with stakeholders from the energy, nuclear and finance sectors to develop a common understanding of the risks associated with such projects.

"For those technologies capable of being brought to market by 2030, government should focus its resources on bringing first-of-a-kind projects to market by reducing the cost of capital and sharing risks," the EFWG suggests. "This could be done through assisting with the financing of such projects through a new infrastructure fund and/or direct equity and/or government guarantees. The government could also provide funding support mechanisms such as a Contract for Difference, a Power Purchase Agreement or potentially a Regulated Asset Base model."

The group also recommends the government works with the country's nuclear regulators - the Office for Nuclear Regulation and the Environment Agency - to review regulatory processes to develop "an optimised and flexible approach and through the Generic Design Assessment process allow the market to down-select technologies".

The government should also establish an advanced manufacturing supply chain initiative - as it did with offshore wind - to bring forward existing and new manufacturing capability in the UK and "to challenge the market on the requirement for nuclear specific items, particularly balance of plant, thereby reducing the costs of nuclear and the perceived risks associated with it".

"In short, the EFWG notes that private finance will not come forward to develop first-of-a-kind small nuclear projects without some government support in helping to remove the barriers to the development," the report states. "By following the recommendations set out, government would be creating a similar environment to the early days of wind and solar commercial development in the UK by creating a market whereby the small nuclear sector can develop and over time bring in more and more private sector financial involvement to create a sustainable industry and to in turn bring down the costs of energy."

The UK government launched the first phase of an small modular reactor (SMR) competition in 2016 to identify the best value SMR design for the UK. A decision on how to proceed with the second phase has yet to be made.

Industry welcomes recommendation

"This report confirms small reactors have real potential to be a financially viable addition to the existing nuclear programme," said Peter Haslam, head of policy at the Nuclear Industry Association. "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."

He added, "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."

World Nuclear Association Director General Agneta Rising said: "We welcome this report's support for the development of small modular reactors to enable them to contribute to the goal of nuclear generation providing 25% of the world's electricity supply by 2050."

She added, "The report's recognition that a market approach is needed that will allow small modular reactors to compete in a level playing field with other low-carbon generation, and that regulatory processes need to adopt an optimised and flexible approach, are consistent with the reforms that are urgently required, as identified by global nuclear industry's Harmony programme."