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Building Nuclear Power Is a Bridge Too Far for World’s Private Investors
(Bloomberg) -- The next generation of nuclear reactors will need to be financed by taxpayers because private investors aren’t willing to bear the risks associated with building new plants.
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That was the warning from bankers at a meeting of industry and government officials in Prague this week. The Nuclear Energy Agency event underscored the hard decisions Western economies soon need to make to keep one of their biggest clean energy sources going. While the public have warmed to nuclear in recent years, spiraling project costs have made private equity cautious.
Officials have estimated that the world needs to spend $5 trillion to triple nuclear-power generation over the next 25 years. The problem is that years of delays and billion-dollar budget overruns at European and the US projects are spooking investors, and scores of reactors already running on borrowed time will need to be replaced. No private investors want to take on construction risks, said Simon Taylor, a financier at the Cambridge Nuclear Energy Centre.
“We’re at a critical juncture of in the history of nuclear energy,” said William Magwood, director general of the Nuclear Energy Agency. “We have to move quickly. Financing is critical.”
Earlier this year, Electricite de France SA said its nuclear project at Hinkley Point in the UK would cost as much as £10 billion ($13 billion) extra to build and take several years longer than planned. In the US, Southern Co.’s Vogtle nuclear facility came in more than $16 billion over budget and seven years behind schedule.
“Unfortunately, the nuclear industry has been its own worst enemy,” said Anurag Gupta, chief risk officer at Sequoia Investment Management Co.
While some private capital has gone toward designing small modular reactors — factory-built units theoretically cheaper to build than traditional plants — those projects have also been plagued by delays pushing full commercialization years later than expected. That leaves nuclear advocates struggling for investor support with the technology at hand.
Rothschild & Co.’s Steven Vaughan, an adviser for UK’s proposed Sizewell C nuclear plant, echoed the view that investors are wary of taking on exposure to construction risk.
Equity investment interest in Sizewell, currently owned by the UK government and minority stakeholder EDF, has been muted, with Centrica Plc suggesting it could become a stakeholder.
Compounding nuclear power project risks are the long life span of the assets and the uncertain development of electricity markets. Historically, nations alleviated that risk by building reactors themselves. That’s still the case in China and Russia — the two countries building the most plants.
“It’s hard for any investor to think about market design 50 years into the future,” said Iain Smedley, chairman of global banking at Barclays Plc. “It’s therefore very important they’re comfortable with the social contract.”
Some delegates in Prague suggested economies need to think about nuclear power beyond simply profit and loss. It’s an emissions-free energy source that can help meet climate targets, as well as supporting a skilled workforce.
“There is a vast need for state involvement,” said Marcin Kaminski, risk manager building Poland’s first reactors at Polskie Elektrownie Jadrowe.
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