RAB Mechanics

A $10 billion offshore wind farm can cost ratepayers $16 billion or $12.5 billion. Same turbines, same construction schedule. The difference is who borrows the money.

The regulated asset base (RAB) model is a financing structure in which construction costs are added to the utility's asset base as they are spent, allowing the developer to collect revenue from ratepayers before the project is complete, in exchange for borrowing at the lower rates that regulated, government-backed utilities receive.

The key insight is a financing arbitrage. Private developers borrowing on merchant terms might face 8–12% cost of capital. A regulated utility with RAB treatment might borrow at 4–6% because lenders see the asset base as government-backed and revenue as certain. On a $20 billion project, that spread compounds into billions over the construction period.

The tradeoff is about timing and risk transfer. Ratepayers start paying earlier, but they pay less total because cheap money is doing the heavy lifting. Developers get near-certain revenue streams, which is why RAB is especially attractive for capital-heavy, long-lived assets like nuclear and offshore wind where construction risk is the main barrier to investment.

Take a simplified case: a $10 billion offshore wind project with a 10-year construction period.

Without RAB. A merchant developer borrows at 10%. Accumulated financing costs over 10 years add roughly $6 billion before a single watt is generated. Total cost to recover from ratepayers: ~$16 billion.

With RAB. A regulated utility raises the same capital at 5%. Ratepayers start contributing ~$500 million per year during construction, but the lower rate means accumulated financing costs are roughly $2.5 billion. Total cost to recover: ~$12.5 billion.

Before the reveal: if ratepayers are paying during construction under RAB, why is the total bill smaller?

Because interest compounds. The cheaper the borrowing rate, the less the clock is working against you. The early payments under RAB are buying down that compounding cost, not adding to it. Ratepayers pay earlier but pay less overall.

RAB mechanics are central to nuclear revival debates (the UK's Sizewell C is structured as RAB; Hinkley Point C was not) and to offshore wind build-out. When policymakers argue that a project is "too expensive," the financing structure is often as consequential as the engineering cost.

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