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Western governments have flip-flopped on nuclear power for decades. But the current enthusiasm for atomic energy in countries such as the Czech Republic, Sweden, the US and the UK now also appears to be spreading to the private sector.
This week, 14 of the world’s biggest banks and financial institutions pledged to increase their support for nuclear power. Microsoft has also signed a 20-year power supply deal with Constellation Energy that should allow for the reopening of part of a US nuclear power plant that was shuttered in 2019.
Vague pledges of support rightly raise eyebrows. That said, the platitudes for nuclear power from banks including Morgan Stanley and Goldman Sachs are not entirely to be scoffed at, even if details are thin. Finance has been one of the key obstacles to rolling out more nuclear power projects in the west in the last few decades. Even so, warm words from banks will probably come to nothing unless governments also take a central role in nuclear energy financing.
Nuclear power projects prove too tricky to fund through normal project financing methods. Upfront costs are high and construction is lengthy. If the company set up to construct the project defaulted, a half-built nuclear plant would be pretty worthless as security. The interest lenders would demand for that level of risk would simply make projects unviable, says Jens Weibezahn, assistant professor at the Copenhagen Business School.
Projects running overtime and budget, such as EDF’s Hinkley Point C plant in south-west England, have hit confidence. On the French utility’s last estimate, the initial £18bn budget for the 3.2 gigawatt plant had ballooned to £31bn-£35bn in 2015 prices (£41.6bn-£47bn in today’s money).
Sweden’s energy minister Ebba Busch said this week that her country was looking at potential risk-sharing mechanisms to counter some of the problems. Several other countries are also considering models such as the regulated asset base, involving consumers paying towards the construction of nuclear power plans before they start operating.
Microsoft’s deal points to another way in which the private sector can support a nuclear renaissance — although its agreement is notably not for a new build.
Many large lenders have sniffed around new nuclear power projects before but backed off when the risks looked too high. New models are drawing back interest. But it is only when we get into the “nitty gritty” of who ultimately bears the risks will we know whether banks really have the appetite to take on nuclear risk this time around, says KPMG’s Simon Virley.
The danger remains that if financial risk tips too far in the direction of taxpayers or consumers, as it well might, projects will slam up against another major roadblock: public opinion. Past decades show how ballooning costs, as well as safety concerns, can quickly lead to another change of heart.
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