With an average nuclear power plant taking five to seven years to build and costing roughly $3.5bn-to-$5.5bn (U.S.) per plant, the financing of nuclear projects presents “unique challenges,” according to a recent report from the International Energy Agency (IEA).
IEA and the Nuclear Energy Agency (NEA) issued their 2015 ‘Technology Roadmap’ for nuclear energy on Jan. 29. The section on financing finds that it is doubtful many new reactors will be built without active government support.
“Few utilities today have the ability to develop new plants solely on their balance sheet without some sort of government guarantee or long-term power purchase agreement at predictable prices,” IEA said.
“A clear commitment and long-term strategy for nuclear development at the national level is critical in raising financing for nuclear projects,” IEA said in the 64-page report.
Clear and predictable long-term electricity prices that enable adequate return on investment are central to developing bankable projects. In regulated electricity markets, investor confidence can be gained via the regulated electricity price, IEA said.
Construction of Vogtle Units 3 and 4 in Georgia, which involves an ownership team led by Southern (NYSE:SO) utility Georgia Power has a lot going for it on the financial front, IEA noted.
Georgia is a regulated electricity market, with a limited number of players and an overall limited level of competition. The particular structure of Georgia’s electricity market, which ensures the stability of the demand and a low-risk environment for electricity generating companies, is favorable to the development of nuclear projects that are highly capital-intensive but can provide a lower and stable electricity generation cost in the long term.
During the construction of Vogtle, Georgia Power was allowed to charge a construction work in progress (CWIP) tariff to customers, increasing electricity tariffs by about 7%. Under the CWIP, Georgia Power can more effectively meet the financial needs of a new nuclear build, which in turn will result in reducing long-term electricity cost for the customers.
Likewise, other major shareholders in Vogtle have stable electric price arrangements that offer some protection from construction and market risks.
The Vogtle expansion project also benefits from a federal loan guarantee through the Department of Energy (DOE).
Government involvement is going to be necessary worldwide in order for enough new nuclear energy capacity to be built to keep up with CO2 emission reduction goals for electric generation, IEA said in the report.
An estimated $4.4 trillion in U.S. dollars would need to be invested in nuclear energy between 2011 and 2050 to reach the 930 GW of installed capacity identified in as the target in the IEA report.
Most plants under construction today have strong government involvement through state-owned enterprises or through loan guarantees, and are often government sponsored or financed projects, IEA said.
Banks on the whole have been more wary of financing nuclear power since the Fukushima disaster in 2011, although some lenders are again looking at nuclear projects, IEA said.
IEA is an organization of 29 oil importing countries devoted to energy and policy and research.