The government is set to introduce a new finance model to help secure the future of the UK’s nuclear industry, aiming to attract private investors to back new large-scale nuclear power stations.

The Nuclear Energy (Financing) Bill will use a model known as the Regulated Asset Base (RAB) to fund future nuclear power stations in Britain – a tried and tested method that successfully financed other infrastructure projects, such as the Thames Tideway Tunnel and Heathrow Terminal 5.

Ministers say the RAB model will reduce the UK’s reliance on overseas developers for financing new nuclear projects by substantially increasing the pool of private investors to include British pension funds, insurers and other institutional investors.

Under the existing mechanism to support new nuclear projects – the Contracts for Difference (CfD) scheme – developers have to finance the construction of a nuclear project and only begin receiving revenue when the station starts generating electricity. This led to the cancellation of recent potential projects, such as Hitachi’s project at Wylfa Newydd in Wales and Toshiba’s at Moorside in Cumbria.

Under the new RAB model, consumers will contribute to the cost of new nuclear power projects during the construction phase – but overall consumers are expected to save more than £30bn over the project’s lifetime on each new large-scale nuclear power station compared with existing funding mechanisms. Initial contributions will give private investors greater certainty through a lower and more reliable rate of return in the early stages of a project, lowering the cost of financing it, and ultimately helping reduce consumer electricity bills.

Ministers say that large-scale nuclear power is the only technology available to provide continuous, low carbon electricity and has key role to play in reducing UK’s dependency on fossil fuels and exposure to volatile global gas prices.

Business and energy secretary Kwasi Kwarteng, 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.”

Currently, approximately 16% of the UK’s electricity generation comes from nuclear power and ministers claim that the RAB model will play an important role in attracting private investors to back new large-scale nuclear power stations, working alongside renewables on an increasingly low-carbon electricity grid. RAB could also be used on new nuclear technologies, including Small Modular Reactors designed and manufactured in the UK.

Energy minister Greg Hands said: “This legislation will help us build the new nuclear power stations we need to ensure a resilient, low-carbon electricity system for future generations. The only way to strengthen energy security is to generate clean power in this country, for this country. This finance model will also support the UK’s thriving civil nuclear industry, which currently employs 60,000 in high skilled jobs and help create thousands more as we level up opportunities across the whole country.”

Chris Ball, Atkins managing director - nuclear & power EMEA, said: “The introduction of a RAB model is a welcome step forward for new nuclear in the UK. Nuclear will play a central role in creating a dependable and resilient net zero energy system, and a new financing model that brings forward investment and reduce the project risk of new nuclear is vital for both industry and consumers. Both government and industry must move at unprecedented pace if we are to meet the UK’s ambitious aims to decarbonise the power system by 2035. Today’s announcement is hopefully an important milestone in mobilising a new wave of nuclear funding to enable the transformation of our energy infrastructure and deliver net zero.”

Tim Cooper, client development director, Arcadis, said: “The funding of high-risk projects has held back investment in UK infrastructure, and the adoption of the RAB model will make projects much more investable. RAB has successfully supported investment using well established technologies in UK water and energy networks. However, even using these technologies, regulators have found it challenging to ensure that providers deliver value to their customers.

“By extending the RAB model to nuclear, government will transfer a great deal of risk to the bill payer. This will undoubtedly reduce finance costs but paradoxically may result in less focus on the management of the initial construction costs. In a complex and high risk environment like nuclear power, ensuring the highest disciplines around the independent oversight of requirement and change management will be essential to protect the interests of the consumer. We believe that digital systems and deep asset class insight will play an essential role in providing this oversight and assurance.”