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Structuring investment for new nuclear build

Running the risk


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Structuring investment for a new nuclear buildIn the previous two papers in the Deloitte Nuclear Discussion Series it has been argued that the market will begin to consider building new nuclear power stations in earnest when the economics of nuclear power are favourable, and that the one factor likely to drive an improvement in the relative economics of nuclear power is long-term clarity regarding the regime for pricing carbon emitted by fossil fuel plants. In this paper we discuss some of the issues that will need addressed in the event that potential investors conclude the economics of nuclear power are now favourable in the UK context, and begin to consider how to structure these investments. These issues include:

  • A discussion of the current differences between investing in a new nuclear power plant and a fossil fuel plant
  • The differences between investing in a single plant or a fleet of new plants
  • Risk allocation
  • The relative roles of the Government and the private sector.

Making the decision

If the economics are right, will the decision to build a new nuclear power plant be made in the same way as for other types of power plants?

Since the introduction of the New Electricity Trading Agreements (NETA) in the UK in 1997, there has been only a very limited IPP market. Instead, new large power plants (e.g. with an installed capacity of more than 100MW), where they are being built, are typically being constructed by one of the limited number of vertically integrated companies that currently dominate the UK electricity market. Most of the investment in new generating capacity has been targeted at building combined cycle gas turbines (CCGTs).

In deciding whether to build, for example new CCGTs, the following factors, inter alia, will influence an investor

  • The clearly defined roles of the investor, its financiers, the regulator and the Government
  • The level of risk. CCGT technology is well proven and business plans can be developed with a high degree of confidence regarding, for example, construction costs, the time required for construction, and future levels of performance
  • If relevant, the incremental value of the plant within the investor’s portfolio (in terms of overall risk mitigation and correlation of cash flows)
  • The nature of any detailed terms associated with turnkey construction contracts.

Download and read the full paper:  Running the risk (PDF, 118 KB)

Learn more about our nuclear discussion series.

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