Rolls Royce Lays Out Funding Plan for Small Nuclear Reactors
Rolls Royce Lays Out Subsidy Plans for Small Nuclear Reactors
(Bloomberg) -- Rolls-Royce Holdings Plc will need a guaranteed price of 60 pounds ($80.62) a megawatt-hour for electricity produced from its small nuclear reactors, significantly less than the contract for Electricite de France SA’s Hinkley Point C station.
The company is looking at selling long-term contracts to large consumers to supplement a contract-for-difference, the funding mechanism the government uses for renewables and big infrastructure projects, Tom Samson, chief executive officer of Rolls-Royce SMR Ltd., told a panel of lawmakers.
The U.K. is backing nuclear as the best way to back up intermittent renewable generation and eliminate fossil fuels from power plants by 2035, but it’s struggling to develop capacity and keep a lid on costs.
“Contract-for-difference is available today and is something we could work with,” Samson said. A 60 pound-contract is “a very cost-competitive starting point” and power prices could be significantly higher than that by 2030.
Rolls-Royce’s proposal compares with 92.50 pounds agreed for Hinkley Point C that’s under construction. That contract was condemned as being bad value for money and prompted the government to seek a new way to finance large-scale nuclear projects. A regulated asset base model is going through parliament, but it’s not certain whether it will apply to small reactors.
Last week, Rolls-Royce said it had raised 455 million pounds to fund the development of its small modular nuclear reactors, with almost half of the financing coming from the U.K. government. The plan is to build 16 such reactors by 2050.
Under a CfD, developers agree a fixed price for future generation over a period of time. This gives certainty on future revenue that helps secure financing. If the market level is below the strike price, the generator will receive a top-up from the U.K. taxpayer. But on the flip side, the plant operator must pay back the difference if the market price is higher.
By seeking five to 10-year power purchase agreements, Samson hopes to reduce the amount of generation that is attached to the support mechanism. The CfD provides certainty for investors and helps reduce the cost of capital, he said. Rolls-Royce is still talking to government about how best to attract long-term investment.
©2021 Bloomberg L.P.