Mr. Thomas is professor of energy policy at the Public Services International Research Unit at the University of Greenwich, London,

Jan 05, 2009
AUTHOR: Steven Thomas
The Financial Crisis and Nuclear Power (PDF) 151.25 KB

The financial crisis and nuclear power

Introduction

Since the decline following nuclear power’s golden era of the mid-70s, there have been frequent predictions of an imminent nuclear revival, but all have so far come to nothing. The latest revival, widely known as the ‘Nuclear Renaissance’ and dating from 2002-03, is being pursued with greater determination than its predecessors and has much stronger governmental backing than earlier revivals. Because of their status as nuclear pioneers and because of the poor fortunes of nuclear power in these countries in the past 30 years, two markets, the USA and the UK are seen as particularly important indicators of whether this nuclear revival will really re-start ordering in countries that seemed to have turned their back on nuclear power.

But after five years, the absence of any new orders in these ‘bellwether’ markets and the unresolved issues, for example on finance have led to increasing doubts, even before the extent of the impact on the world economy of the financial crisis is apparent, as to whether the renaissance will again be still-born. While the financial crisis will not be good for most large scale projects, will it be it be particularly damaging for the prospects of a Nuclear Renaissance?

1. Finance

The most obvious place to start is at the heart of the financial crisis itself, the banking system, in particular the ability of electric utilities to borrow the money needed to build nuclear plants. It is clear that one of the legacies of the financial crisis will be that banks will be more risk-averse and will also be more careful in their procedures for assessing risk.

A nuclear power station is the most capital-intensive way to generate electricity and, based on its past record, the most economically risky. So it is clear that unless ways can be found to insulate the banks from this risk, the impact on the prospects for the ‘Nuclear Renaissance’ will be very severe. There are three main ways that banks can be protected, at least in part, from this risk: by electricity consumers, by government credit guarantees, i.e., tax-payers and by vendors through fixed price contracts.

1.1 Electricity consumers

Deregulation and investment risk In the past, while electricity was still a regulated monopoly, obtaining cheap finance to build nuclear power plants was made easier by the fact that consumers effectively guaranteed the loans. If costs escalated, performance was worse than expected, alternatives proved cheaper or electricity demand had been over-estimated, the plant owners simply increased electricity prices to recover the additional costs they had incurred. When this assurance broke down, either because competition had been introduced to electricity or, as in the USA in the late 1970s, because regulators were no longer prepared to make consumers pay for the errors of electric utilities, finance for new plants became unobtainable. In the USA, when regulators began to disallow part of the cost of imprudent investments, in other words, utilities were made to pay for the cost of imprudent investments from their profits, ordering ground to a halt and many existing orders were cancelled.

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