Who will invest in nuclear power?

Many governments around the world have concluded that they need new nuclear power stations to meet ‘net-zero’ targets. However, funding and constructing new nuclear plants are major challenges.

| 9 min read

The recent G20 summit explained the role of nuclear in the overall strategy again. Today, some countries – led by Russia and China – are building substantial new facilities, with more announcements expected as pressure to hit decarbonising targets increases.

Nuclear qualifies for government subsidies

Green politics has come to play a dominant role in the much-advanced country thinking about everything including economic policy, transport and agriculture. All these areas need to switch from fossil fuel-based methods. By general agreement, it is easiest to change the electricity generation system from coal, oil and gas to renewables on the road to ‘net zero’. This can be done by regulation, subsidy and taxes on a limited number of large companies responsible for producing the energy.

Changing the current generation to low carbon is easier to force than a bigger transition of people and companies to use more electricity instead of oil, coal and gas. That will also require very large increases in current generating capacity to provide the extra electricity needed for electric vehicles, heating, industrial processes and the rest. Fossil fuels still account for around 80% of our energy needs.

Converting electricity generation to cleaner methods is proceeding at pace. Many more coal power stations have been closed in advanced countries, whilst there have been large increases in investment in solar panels and wind farms.

Mainstream greens accept nuclear has an important role to play in providing reliable continuous power on days when the wind is low or the sun is not shining.

The green movement has had an internal disagreement over the role of nuclear power generation. The purest greens take the view that nuclear produces waste that is difficult to handle. They oppose the use of nuclear for its environmental footprint, despite the electricity being low carbon.

Mainstream greens accept nuclear has an important role to play in providing reliable continuous power on days when the wind is low or the sun is not shining, free from carbon dioxide output. In both the European Union (EU) and in the counsels of the Democrats in the US this view has prevailed. Nuclear has joined the approved list of low-carbon options. Nuclear qualifies for subsidies under the US Inflation Reduction Act and is part of the EU’s green transition agenda.

Where are new nuclear plants being constructed?

The issue is now which countries will want to add to their nuclear fleets and which countries will speed up replacing ageing nuclear fleets close to the end of their design lives. China and Russia lead the field in committing to new nuclear, with other early adopters of nuclear power aiming to extend the lives of plants and to add to their fleets.

Much of the plant put in the early developments from the 1950s to the 1980s are now closed or being refurbished to extend their lives well beyond the original planning assumptions. France is seeking to extend as much of its large and ageing fleet as it can as it cannot build replacements in time to cope with the original planned closure schedules.

The main thrust – led by France’s EDF in recent years – has been to create a new pressure water reactor, called an EPR, with a model favoured that is designed to generate around 1,600 megawatts (MW) of power. This product has been dogged by delays and cost overruns where it has been tried. China’s version at Taishan was the fastest with lowest cost escalation. Whilst the Chinese partnership was more successful over time and budget, Taishan 1 had to be closed for a year from July 2021 for remedial works after coming into commission.

Some in the industry think that Russia – which is planning to roll out 29 new nuclear reactors by 2045 with the possibility of 20 plants for export – may build significant capacity. The Russian plants will be around 1.2 gigawatts (GW), much smaller than the EDF plants, which reduces the complexity of build. That’s because the reactor core is smaller, easing engineering issues with containment and pipes.

The US has recently brought on stream a 1.1 GW station in Georgia at the established Plant Vogtle. This was around 100% over budget. Construction began in 2009 and was expected to be finished by 2016. A second new unit at Vogtle is due soon. The US has 93 active nuclear stations mainly from the 1970s and 1980s when they were built in large numbers.

In 2022, the International Energy Agency estimated that, of the 31 new nuclear reactors started since 2017, 17 are Russian design, 10 Chinese, 2 European and 2 Korean. It is likely others will be attempted, given the carbon imperatives. It is also possible that the industry will succeed in developing one or more competitive products for smaller nuclear plants.

Various companies have plans to develop a smaller nuclear plant capable of generating a few hundred megawatts of output. They think this could then be partially built in factories, with standardisation and simpler site works than those required for the large 1,600 MW EDF plants currently under construction. It is possible such smaller plants would provide fewer challenging tasks in reactor containment and pipes for cooling and will reduce the weight needed to make the pressure vessel and surrounding structures. Rolls Royce thinks it can scale up its nuclear reactor technology currently deployed in some submarines.

How will this be financed?

Financing nuclear is not easy. The large plants pose problems for any private sector company or interests. If there is a serious danger of future plants being several years late and well over the original budget the initial business plan will be destroyed. More years without revenue hit future cash flows and returns hard just when you need them to start meeting the debts on the set-up costs. If the capital cost which is the determining cost of the whole project goes up so much it will need substantial increases in the price of the power sold to cover it. For this reason, there is often some form of government involvement. This may take the form of a price guarantee for the eventual power, with government guarantees or government grants and stakes in the project. Authoritarian countries find it easier to proceed with far less scrutiny and with their ability to insist a project goes ahead in a given place whatever the local reaction.

The French have a particular set of problems. They have had good years based on long-gone sunk investments in a large fleet of nuclear power stations. This has been delivering low-cost electricity based on historic costs at a time of energy shortage and much higher prices in Europe. Unfortunately, the fleet is old and up to half of it has been out of commission at any one time with substantial remedial works underway.

France hopes that it will be able to fix the deterioration in ageing plants so that it can get a few more years of useful life out of them. Her plants have been subject to more outages than US or German ones in recent years. The fleet now has an average age of 37 years compared to a design life of 30. Some are thought to be safe to operate for a further 10 years with the replacement of parts as needed. Meanwhile, the French President has announced another six new reactors to be added, with more beyond that.

Nuclear will play a part on the road to net zero

It will still be concentrated in the main existing nuclear power users, with some spread wider via export. Existing nuclear countries will spend on extending operating lives further, but also will need to replace more of the ageing fleets. Financing these larger plants is expensive and risky.

The lower-risk investment opportunities lie in the suppliers of components and uranium fuel. Investors await developments on whether a good market will emerge for smaller modular reactors where one or more companies might establish an important growing business to supply many of the same type, defraying more of the development costs and cutting construction costs. There could be good business opportunities for a successful design once it has passed the trial plant stage and gained all the necessary permits. It could then be rolled out in considerable numbers for a successful profitable business.

Governments and large power companies are going to need to share the development costs, and or offer favourable terms and guarantees to enable private financing. Unless there is a big step up in nuclear construction, the proportion of electricity generated from nuclear will fall, as a result of old stations closing and overall electricity demand increasing substantially.

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Who will invest in nuclear power?

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