Innovative ways of funding nuclear power projects
As governments worldwide face up to the climate change commitments under the COP21 agreement and the need for large – and growing – baseload power, nuclear generation is again being hailed as a real answer to the world’s energy problems. However as with all energy solutions, set-up costs can be prohibitively high. Given the tight constraints on national balance sheets, governments and developers are creating new and often innovative funding methods for nuclear plants, writes Fiona Reilly.
Traditionally, nuclear power plants were financed, developed and operated by governments. During the mid-20th century, when a number of countries – notably the UK, US, France and Russia – chose to build nuclear power plants, they used direct government funding, partly because it was policy at the time and partly to maintain a high level of control. Later some countries adopted different ownership strategies, such as privatising plants (in the case of the UK) or maintaining their plant as national assets (Slovenia and Croatia).
A further shift in recent years is that government financing has taken on a new cross-border perspective, with Russia and China in particular offering complete solutions for developing nuclear projects in other countries. Under these schemes, the country offering the solution puts together a consortium to deliver the project together with financing from its government, its government export credit agencies (ECAs) and/or national banks.
All in all, we’re seeing seven types of nuclear financing used across the world today. Aside from ‘traditional’ government funding, there are now six alternative methods: corporate balance sheet financing; the French Exceltium model; the Finnish Mankala model; vendor equity; ECA and debt financing; and private financing with government support mechanisms. In practice, projects tend to progress using a mix of these funding mechanisms.
Here’s a quick review of each of the six alternative models:
Corporate balance sheet financing
Financing a nuclear plant from a company’s own resources is really only an option for the largest utilities and developers. The cost of a large nuclear plant – with two or three reactors – is usually around $20 billion. For even the largest and most established company, it’s a huge challenge to carry such a large capital commitment for the average construction period of five to seven years before the plant starts producing revenue.
The French Exceltium model
Between 2005 and 2010, in an effort to address the increase in energy prices, a number of industrial investors – and banks – came together in France to form ‘Exceltium’. The purpose was to enter into a contractual arrangement with EDF to help finance its new-build plants in return for cheaper electricity from EDF’s portfolio. The payback to the investors – as opposed to the banks – comes over a period of 24 years through agreements to provide electricity to the industrial investors for a mix of fixed and variable pricing. The industrial investors can either use the electricity themselves or sell it to the market.
