Towards sustainable nuclear financing

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The NEA is currently analysing the financing frameworks for nuclear new build in its member countries and in others around the world. The key objectives of this study is to review the challenges facing new nuclear financing in NEA countries and to identify good practices in terms of the allocation and management of construction and market-related risks. The study also explores how proposed financing frameworks and policy interventions could best support nuclear new build in today’s electricity markets.

In this context, the NEA launched an initiative together with the Poland’s Ministry of Climate and Environment and the International Framework for Nuclear Energy Cooperation (IFNEC) to collaborate on issues of common interest related to innovative nuclear financing. The initiative kicked off with a technical workshop on 14-15 January 2021, which brought together experts from the public, private and academic sectors to discuss a number of fundamental issues pertaining to the financing of nuclear new build.

During his introductory remarks, Adam Guibourgé-Czetwertyński, Undersecretary of State for Climate and Environment of the Republic of Poland, provided an overview of Poland’s national energy strategy and nuclear power programme. After evaluating options for its future energy mix in order to reach climate neutrality and to significantly reduce energy sector emissions, Poland concluded that nuclear energy has a crucial role for providing baseload power in the energy system.

“But the necessary development of nuclear power encounters many challenges and problems today, and one of the most important is the availability of adequate and effective financing at reasonable costs. It is indeed one of the greatest challenges that we face in bringing new power plant from the development stage to a reliable safe and economic commercial operation,” Guibourgé-Czetwertyński added. “And without finding the right way to address this issue, there will be no successful nuclear power plant projects, and without nuclear the transition to zero emission clean energy system will be much more difficult.”

Workshop participants agreed that investments in long-lived and highly capital-intensive low-carbon technologies such as nuclear energy are integrated with long-term societal objectives such as climate change mitigation. As such, they have characteristics that make them similar to strategic national infrastructure investments that have large positive externalities at the system level and therefore require specific linkages between the public and the private sectors.

Aleshia Duncan, IFNEC Chair, highlighted the role of the government in achieving well‑performing financing frameworks for new nuclear building. “There is a strong need for the involvement of the government. And I think that is, from my point of view, one of the most overlooked and undervalued pieces of this puzzle,” Duncan said.

The role of the government in successful nuclear new build projects was also addressed in the 2020 report Unlocking Reductions in the Construction Costs of Nuclear: A Practical Guide for Stakeholders, which focused on potential cost and project risk reduction opportunities for contemporary Gen‑III reactor designs. The report identified eight cost‑reduction drivers that could be exploited at different stages of nuclear construction, including government support for robust and predictable market and financing frameworks.

The NEA report also explored risk allocation schemes and mitigation priorities at the outset of well‑performing financing frameworks for nuclear new build, which formed a key highlight of the workshop discussions. “Effective policy to allocate construction risk and market risk between the stakeholders of a nuclear project, including governments is essential to reduce the cost of capital and therefore the cost of electricity for consumers,” said Patrick Ledermann, Chair of the NEA Committee for Technical and Economic Studies on Nuclear Energy Development and the Fuel Cycle (NDC).

The participants noted that the overall costs of financing can be efficiently reduced though proper allocation of the different risks pertaining to a new nuclear power project. The most important of these are construction risks and market-related risks. A core economic principle to follow is that each risk should be borne by the parties best placed to reduce it ex ante and most capable to absorb any incompressible residual ex post in the context of their overall strategies of diversifying.

An equally important condition for success in nuclear financing identified during the workshop was the alignment of incentives among all stakeholders in order to ensure that individual profit maximising behaviour drives the minimisation of the costs and duration of nuclear new build projects. “There must be an alignment of incentives among all the stakeholders involved in any nuclear construction project,” said William D. Magwood, IV, NEA Director-General. “The vendors, the owners, the operators, the local stakeholders have to see the project as a whole and have to have an alignment to make sure that their highest priority is the success of the project. And if that is not the highest priority for everyone involved, then you are walking into problems and that is partly including those who would provide financing.”

This technical workshop was the first of a series of workshops designed to assess the state of nuclear financing and examine a number of key issues at a conceptual level. Building on the findings of the workshop, several topical webinars will follow in the first half of 2021. These webinars will explore specific issues related to international co-operation in the area of nuclear finance, including nuclear financing in embarking countries, exploring the role of multinational banks, export credit agencies, and other international financial institutions. This series of events will be concluded with a high-level conference to be hosted by Poland at the end of 2021.

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