atw - International Journal for Nuclear Power | 10.2019

atw Vol. 64 (2019) | Issue 10 ı October
452
INSIDE NUCLEAR WITH NUCNET
How Governments Can Remove Barriers
to Investment in Nuclear Energy
The message about nuclear energy is clear: without it, the global transition to low-carbon energy systems
will be that much harder. The problem is where to find – and how to make worthwhile – the upfront funding
it needs. The biggest barrier to new nuclear construction, says the International Energy Agency (IEA) in a
report, is mobilising investment.
The IEA report, published because the agency says nuclear
needs to be part of the debate on energy, contains some
stark warnings – and also cause for optimism. The declining
share of nuclear power in the global energy mix in recent
years is one of the main reasons why the rapid expansion
of renewables has failed to stop the increase in CO 2
emissions. The bad news: nuclear is not on track to fulfil
its potential. The good news: this is due to policy imperfections,
which can be corrected.
The report says it is vital that countries which have kept
open the option of using nuclear power reform their
policies to ensure that nuclear is able to compete “on a
level playing field”. Governments must address barriers to
investment in lifetime extensions and new capacity.
The most important focus of policies should be on
designing electricity markets in a way that values the clean
energy and energy security attributes of nuclear power.
The clean energy component can be achieved by explicit
carbon pricing, clean energy credits and contractual
arrangements that reward nuclear and other low-carbon
sources of electricity.
As for the energy security component, the dispatchability
and reliability of nuclear power should be rewarded
by remunerating plants for their flexibility and resiliency.
The industry has long argued that electricity markets
should be reformed to recognise the ability of traditional
baseload generation with onsite fuel supplies – including
nuclear power plants – to provide grid resiliency during
extreme weather.
These measures, the IEA believes, would ensure that
extending the lifetimes of almost all existing reactors to at
least 60 years would be financially viable.
Securing investment in new nuclear plants – as opposed
to legislating for those already in operation – would require
“more intrusive policy intervention” given the high cost of
projects and recent experience with the construction of
Generation III EPR plants at Olkiluoto in Finland and
Flamanville in France, both of which have been plagued by
delays and cost increases.
The focus, says the IEA, should be on designing electricity
markets in a way that values the clean energy and energy
security attributes of low-carbon technologies, including
nuclear power. Investment policies need to overcome
financing barriers through a combination of long-term
contracts, price guarantees and direct state investment.
A number of challenges specific to the nature of nuclear
power technology can prevent investment from going
ahead. The main obstacles relate to the sheer scale of
investment and long lead times; the risk of construction
problems, delays and cost overruns; and the possibility of
future changes in policy or the electricity system itself.
But without investment in nuclear, achieving a sustainable
energy system will be much harder. A collapse in
investment in existing and new nuclear plants in advanced
economies would have implications for emissions, costs
and energy security. If no further investments are made in
advanced economies to extend the operating lifetime of
existing nuclear power plants or to develop new projects,
nuclear power capacity in those countries would decline
by around two-thirds by 2040.
Coal would play a significant role in replacing nuclear,
which would further increase the importance of gas for
countries’ electricity security. Cumulative CO 2 emissions
would rise by four billion tonnes by 2040, adding to the
already considerable difficulties of reaching emissions
targets. Investment needs would increase by almost
$ 340 bn as new power generation capacity and supporting
grid infrastructure is built to offset retiring nuclear plants.
The problem remains that the construction of new
nuclear power plants using current technology calls for
huge amounts of capital. Generation III pressurised water
designs like the AP1000 and the EPR require investment of
several billion dollars over a few years and few private
electricity utilities have the financial capabilities to support
such an investment on their own. Because of the sheer
scale of the investment required, all but seven of the 54 nuclear
power plants under construction globally are owned
by state-owned companies and all but one of the projects in
private hands – all of which are in advanced economies –
are subject to price regulation, which reduces risks to investors.
“In the current policy and market environment, it is
difficult to see any privately-owned utility embarking on a
Generation III project in Europe or in North America
without strong government support to minimise financial
risks to investors,” the report says. “In developing countries,
state-owned companies are responsible for all new nuclear
investment.”
In some cases, direct government intervention has been
used to support private sector investment in nuclear power
in electricity markets. The UK has been innovative in
this regard, providing a contract for differences at a rate
of £ 92.50 per MWh for 35 years for the Hinkley Point C
station.
However, following extensive negotiations, the UK was
not successful in obtaining new nuclear investment at the
Wylfa site, despite its offer to provide one-third equity
participation, the provision of debt financing and a
contract price of up to £ 75 per MWh.
The UK is now considering a regulated asset base
model, whereby the generator receives payments during
the construction phase and during operations. This
approach allows investors to see a return before the plant
starts generating electricity.
There is another option for the industry. Increasing
difficulties in financing the construction of large
Generation III reactors, coupled with the need for more
low-carbon dispatchable generation, is driving policy and
investor interest in small modular reactors (SMR).
This type of nuclear reactor could prove much easier to
finance and the IEA says it may be the way forward for
nuclear fission technology. SMRs are much smaller than
Inside Nuclear with NucNet
How Governments Can Remove Barriers to Investment in Nuclear Energy