Structuring Nuclear Projects for Success
An Analytic Framework
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Recent years have seen a transformation both in the actual economics of nuclear power and also in the widening recognition that it occupies an increasingly strong position in the energy marketplace. A growing community of investors now understands that existing nuclear power plants are highly economic. Power prices have risen sharply with the escalation of oil and gas prices, while well-run nuclear plants have stable and predictable operating costs that ensure excellent profitability for their owners in any type of electricity market.
The economics of new nuclear plants are more challenging and are documented in a number of publications, including the WNA Report entitled "The New Economics of Nuclear Power" issued in late 2005. It has however become clear that, even with the most cautious assumptions on costs of plants, the price of natural gas and other relevant variables, new nuclear plants can now be economically viable.
This prospect is strengthened by the likelihood that public policies will focus increasingly on penalizing energy technologies that produce carbon emissions.
Economic viability, however, is only one aspect that investors must consider when contemplating new nuclear projects. They have somewhat unique characteristics. They are capital intensive, with very long project schedules and have significant fixed operating and maintenance costs but relatively low fuel costs.
They exist in a rigorous regulatory environment where the regulator very actively patrols the plant's operations and has considerable authority that can impact on both unit construction and operations.
Many utilities are extremely risk averse, some of them having suffered through projects that did not meet expectations in the past. Given the long period of time without any substantive new build projects, they are looking for ways to boost confidence that plants will be built to budget and schedule, so that the promise of good economic performance will be realized. This report describes the key risks facing those who are looking to build new nuclear plants and then demonstrates that a good structure is essential for project success.