Part 2 of 3 Parts (Please read Part 1 first)
      Jostein Kristensen outlined to the Driving investment towards nuclear projects panel the various ways that new nuclear build projects may be financed.
      The traditional approach for financing new nuclear projects has involved participation with government through public ownership of nuclear power plants. Understanding such utility infrastructure as a strategic asset in the current context of decarbonization is a serious challenge. He said that it may seem hard to justify state involvement in a new nuclear build when the cost of other low-carbon generation technology such as renewable is falling rapidly while there is a widespread perception that the costs in the nuclear sector are not going down. A challenge to public finance in some countries comes from recent experience of macroeconomic developments connected with financial crises. The coronavirus pandemic has introduced an “an entirely new dimension” with regard to macroeconomic risks.
      A second financing model for nuclear power is for utilities to finance nuclear plants. However, competition in the electricity markets has “weighed down on the balance sheet capacity” of some nuclear utility companies in the past fifteen years, Kristensen said. In addition, some of these companies are focusing on decarbonization through renewables. The result of these factors is that the nuclear industry is unlikely to see as much investment in this method of financing as in the past.
     A third model of nuclear financing which is often used for energy infrastructure in general is signing long-term contracts between generators and their customers. Sometimes it is “difficult to reconcile” having a relatively small number of very large energy-intensive users with very long-term contracts for the offtake of power from nuclear generating plants with liberalized market arrangements. Also, contract disputes can be hard to resolve and as such might not be an attractive basis for future investment.
      A fourth model is based on government support mechanisms that enable private finance. These can include feed-in tariffs and contract-for-difference. However, the construction risk is still mostly borne by the developer, said Kristensen. The inconsistency in government commitment to nuclear generation means that such incentives may be changed or not repeated. Thus, it can be difficult to rely on support schemes being in place in the way that they were originally envisaged in the long-term. Market arrangements can also change “very dramatically”, which can result in a significant impact on the business case of new builds as well.
     The regulated asset base (RAB) model has great potential according to Kristensen because there are a lot of infrastructure investors or pension funds seeking to place their money in long-term assets. These investors have “a more patient attitude” towards the capital allocation and are quite familiar with this model in other sectors.
      One major problem for any investor considering investment in nuclear power projects lies in the fact that a single accident at a nuclear facility anywhere in the world can impact nuclear power plants everywhere in the world which can suddenly imperil their investment.
Please read Part 3 next