From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

The latest table of Environmental Levies includes the Sizewell C RAB Levy.

I’ll let Grok explain!

What is the Regulated Asset Base (RAB) Model?

The Regulated Asset Base (RAB) is a financing mechanism used in the UK to fund large-scale infrastructure projects, such as nuclear power stations, by combining private investment with regulated revenue streams. It has been applied to sectors like water, energy grids, and transport for decades. Under the RAB model, investors (private and public) receive a predictable, regulated return on their investment over the asset’s lifetime—typically 60 years for nuclear—rather than waiting until the project is fully operational. This reduces financing risks, lowers borrowing costs, and encourages private sector involvement.

For nuclear projects, the model was enabled by the Nuclear Energy (Financing) Act 2022, which allows developers to recover costs during construction through a levy on electricity bills, rather than solely via power sales once the plant is running. This spreads the financial burden across all UK electricity consumers, providing steady funding and sharing risks between developers, government, and bill-payers.

How Does the RAB Levy Work for Sizewell C?

Sizewell C is the UK’s first nuclear project to use the nuclear RAB model. It’s a new 3.2 gigawatt (GW) nuclear power station in Suffolk, expected to generate low-carbon electricity for up to 6 million homes, with construction costs estimated at £38 billion. The project reached financial close in November 2025, with the UK government taking a 44.9% stake (initially planned at 47.5%, later adjusted) and private investors (e.g., EDF, Centrica, La Caisse, Amber Infrastructure) funding the rest.

The RAB levy specifically funds Sizewell C’s construction (expected to last about 10 years) and early operations. Here’s how it operates step-by-step:

1. Revenue Determination: Ofgem (the energy regulator) calculates the “RAB payment”—the amount needed to cover allowed costs, including financing, construction, and a regulated return on invested capital. This is based on the project’s “asset base” value, which grows as construction progresses. Incentives and penalties are built in to encourage on-time delivery (e.g., bonuses for efficiency, fines for delays or overruns).
2. Levy Collection: The Low Carbon Contracts Company (LCCC) acts as the revenue collection counterparty. It imposes the levy on electricity suppliers based on the total electricity they supply in Great Britain (GB). The levy rate is set quarterly and published by LCCC, reflecting forecast costs. Suppliers must pass it on to consumers as a non-commodity charge (not part of the wholesale energy price).
3. Billing and Payment:
   • The levy appears as a separate line item on electricity bills, similar to existing charges like the Renewables Obligation or Feed-in Tariffs.
   • It’s charged per megawatt-hour (MWh) of electricity supplied.
   • All funds go directly to Sizewell C Limited (the project company) via LCCC—no supplier margins are added.
   • The levy starts during construction and continues into operations, potentially for decades, until the project’s costs and returns are recovered.
4. Updates and Adjustments: Rates are reviewed quarterly. For example, the levy began in November 2025 (mid-Q4). Future values account for actual vs. forecast costs, with adjustments to protect consumers from excessive overruns while rewarding efficiency.

These rates apply GB-wide and are forecast to recover construction costs over ~10 years, with total levy impacts depending on consumption (e.g., ~£10–£20 annually for a typical household, more for businesses).

Benefits and Criticisms

• Benefits: Lowers overall project costs by ~£4–£6 billion through cheaper financing; supports UK energy security and net-zero goals with reliable, low-carbon power.
• Criticisms: Places upfront risk on consumers (e.g., potential for higher bills if delays occur, as seen in past EPR reactor projects like Hinkley Point C); seen as a “surcharge” on bills amid rising energy prices.

I also asked how much it would all cost:

Total Payments Under the Sizewell C RAB Scheme

The Regulated Asset Base (RAB) levy for Sizewell C is designed to recover the project’s efficiently incurred costs (primarily construction and financing) plus a regulated return on invested capital over the asset’s lifetime—estimated at 60 years. The total project construction cost is £38 billion (in 2024 prices), but the full amount paid through the RAB levy will be higher due to:

• Financing costs: Interest on debt and equity during the ~10-year construction phase (mid-2020s to mid-2030s).
• Regulated return: An allowed rate (set by Ofgem) on the growing RAB value, typically around 5–7% for similar infrastructure, to attract investors.
• Operational costs: Maintenance, decommissioning, and waste management during the 60-year operational life.
• Adjustments: Incentives/penalties for performance, plus any approved overruns (with caps to protect consumers).

This means the total RAB revenue (i.e., payments collected via the levy) is not fixed at £38 billion but is expected to exceed it significantly. Independent estimates suggest the levy could recover £50–£60 billion or more over the project’s life, depending on the exact return rate and any extensions. The RAB model reduces overall financing costs by ~£30 billion compared to alternatives (e.g., full private funding like Hinkley Point C), through lower borrowing rates and risk-sharing. However, this benefit is spread across consumers and the system, not a direct offset to levy payments.

Breakdown of Payments

Payments are collected quarterly from all GB electricity suppliers (passed to consumers) and flow to Sizewell C Ltd via the Low Carbon Contracts Company (LCCC). The levy covers:

• Construction phase (~10 years): Focus on capex (£38bn) + financing (~£5–10bn estimated interest/returns).
• Operational phase (60 years): Lower annual amounts for opex, returns on the depreciating RAB, and decommissioning (~£1–2bn total fund).

Notes:

• Annual figures based on ~300–320 TWh GB electricity supply, with levy rates starting at £3.49/MWh (Q4 2025) and rising to ~£10–15/MWh during peak construction.
• Exemptions (e.g., Energy Intensive Industries) reduce collectible amount by ~10–15%, so gross levy is adjusted upward.
• Post-operations, any surplus (e.g., from power sales at market rates) could lower future levies.

Obviously the amount of levy depends on the actual revenue from electricity sales – Grok confirms it has assumed a wholesale market price of £50 to 65/MWh, based on BEIS pathways. (As with CfDs, if Sizewell achieves all of its allowed revenue from electricity sales, there will be no top up subsidy. As electricity prices drop, so the subsidy increases.)

Working through Grok’s calculations though, the £60 billion total levy forecast in that final table equates to a allowed revenue of around £86/MWh, at current prices. In comparison, the Hinkley C strike stands at £127/MWh this year.

On the face of it, the RAB model should save money against the CfD model used for Hinkley Point. But debt interest on Government borrowing of the £14.2 billion invested in the project needs to be taken into account.

With gas power now close to £50/MWh, when carbon taxes are excluded, nuclear does not look very good value.

However Sizewell and Hinkley will have enormous, long-term security value, given the potential 60-year lives. Moreover, Sizewell C will provide electricity at much lower prices than the offshore wind that Miliband wants.

The message is clear – cancel all new contracts for offshore wind, ramp up gas power and keep building nuclear.