Thursday, October 3, 2013

Financing Nuclear Construction Costs:

Thinking Outside the Box

In the United Kingdom, Sir John Armitt, the former chairman of the Olympic Delivery Authority recently told the government that he could break the log-jam over the construction of new nuclear power plants by setting up a similar body to construct them.

The particular issue he was addressing is the impasse between the government of the UK and France's EDF Energy over how the costs of the planned Hinkley Point C plant will be paid.  Under the current system, the costs of electricity must be predicted decades in the future.  The alternative, according to Sir Armitt, is to create an independent government body like the Authority, which built the facilities for the 2012 London Olympics.  In the power sector, such a body could use a mix of public funds and private investments (supported by tax incentives or government guarantees) to build the units and then sell each unit to the private sector.

My first reaction, when I saw this news, was one of astonishment.  After all, I well recall, around the time of the London Olympics, hearing that the construction had incurred huge cost overruns.  In fact, I recall wondering, at the time, if cost issues might be inherent to any very large-scale construction project. 

Of course, whether or not there are cost overruns, financing the construction of nuclear power plants remains a major challenge for the industry, so it is good to see someone thinking about innovative options.  The concern about the financial risk to utilities for the construction of large nuclear power plants is well known.  Even a move to smaller designs will not entirely remove the potential cost uncertainties, particularly for the first-of-a-kind units.

Today's news suggests that the situation may have moved forward in the UK, and a financing deal for Hinkley Point C might be close.  I do not know what that deal will look like.  Whether or not Sir Armitt's concept is reflected in the arrangement this time, it is clear that financing will remain a key issue for the nuclear power industry, and innovative financing concepts deserve to be examined closely.


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