New Nuclear – The Economics Say No

UK Green Lights New Nuclear – Or Does It?

 Green lighting new nuclear? — The UK government today announced a fast-track planning process for new nuclear power stations. 10 sites have been approved for possible development. The government is presenting today’s announcement as providing the green light for a major new nuclear programme, which it says is needed to meet climate change and security of supply targets.

 But no financial support has been offered — The government has not announced any direct financial support for new nuclear. The government still seems to expect the private sector to take an unacceptable level of risk, in our view.

 The five big risks — Nuclear power station developers face five big risks:

Planning, Construction, Power Price, Operational, and Decommissioning. The government today has sought to limit the Planning risk. While important for encouraging developers to bring forward projects, this is the least important risk financially.

 The three Corporate Killers — Three of the risks faced by developers —

Construction, Power Price, and Operational — are so large and variable that individually they could each bring even the largest utility company to its knees financially. This makes new nuclear a unique investment proposition for utility companies.

 No where else in the world — Government policy remains that the private sector takes full exposure to the three main risks; Construction, Power Price and Operational. Nowhere in the world have nuclear power stations been built on this basis.

 Nor will they be built in the UK — We see little if any prospect that new nuclear stations will be built in the UK by the private sector unless developers can lay off substantial elements of the three major risks. Financing guarantees, minimum power prices, and / or government-backed power off-take agreements may all be needed if stations are to be built.
 
9 November 2009  14 pages
https://www.citigroupgeo.com/pdf/SEU27102.pdf