Attracting foreign investment into the UK’s newly revived nuclear power sector is essential to the success of the government’s ambitious plans, believes George Borovas, head of the International Nuclear Projects team at law firm, Pillsbury.

George Borovas   Last year’s Energy Bill will be seen as a firm endorsement of new nuclear projects by both current and potential investors in the UK nuclear programme. This Bill will entice the international investment and expertise needed for future energy security and help to kick-start Britain’s much-needed nuclear revival.

Last year’s Energy Bill will be seen as a firm endorsement of new nuclear projects by both current and potential investors in the UK nuclear programme. This Bill will entice the international investment and expertise needed for future energy security and help to kick-start Britain’s much-needed nuclear revival.

The UK government has solid reasons to welcome foreign investment in nuclear power projects, in addition to the increasing need for reliable, carbon-free energy security. Successful nuclear projects require strong partnerships, with commitment, mobilisation of industries and risk mitigation on both sides. Tangible government commitment and support is fundamental to the enticement of invaluable international investment, experience and partnerships in the UK.

Last year’s £700 million ($1 billion) purchase by Hitachi of the Horizon Project is a positive development and a significant vote of confidence in the future of the UK nuclear programme. The government is benefitting from nurturing relationships with a number of Asian countries, including Japan.

Traditionally, nuclear reactor vendors have been reluctant to make large equity investments in new nuclear projects and, while this is changing for many reasons, the action by Hitachi of purchasing Horizon is a significant milestone. Given the remaining uncertainties over the reform of the UK electricity market, investment in its nuclear programme still represents a ‘leap of faith’ by any investor. The British government should illustrate to Hitachi and other prospective investors that they will find a willing and supportive partner that is fully committed to, and appreciates the significance of, investments in the UK’s energy future.

To support the development and construction of the new reactors, Hitachi will most likely seek further investors and partners. Such partners will closely examine the actions of the British government, as well as the general investment climate, prior to making their final decision to invest.

A new nuclear programme goes beyond the building of electricity-producing units. With those units must come a whole new industry, with a multi-generational, society-wide commitment that provides long-term benefits in the form of energy, economic and national security. Hitachi’s involvement not only represents a commitment to the UK’s nuclear programme, but also an investment in the country’s economy and society, and an opportunity to develop the jobs and growth the government has been seeking. Indeed, the partnerships Hitachi could make with the UK nuclear supply chain may be exportable to other European projects.

Those unconvinced by the financial viability of the UK new nuclear programme should note that while the development of new nuclear projects can be complex, lengthy and costly, with proper planning and co-operation from government, industry, local communities and financial institutions, the financial risk during the development phase can be greatly minimised.

The nuclear industry learns”valuable lessons from every project” says Borovas
Credit: WANO

The UK has all the fundamentals for a robust nuclear programme. Unlike some other countries embarking on nuclear new build, it has an existing and successful nuclear programme, an independent and sophisticated regulator, a strong industry that can be mobilised to support new projects, an independent and fair judiciary (important for foreign investors) and broad public and political support. However, the UK does not have recent construction experience.

The international nuclear industry learns valuable lessons from each and every new build. Recent projects around the world demonstrate the importance of the utilisation of experienced human resources who can capitalise on construction and operational lessons learned. Asian countries have significant recent nuclear construction experience. In addition, they have the benefit of liquidity and easier access to capital.

Critics wary of foreign influence should appreciate that nuclear energy is a global business. The attraction of foreign investment is a wise, long-term move by the British government. Tangible commitment to new partnerships will be vital to secure the UK’s affordable electricity supply in the future.

From an international perspective global interest in nuclear power is causing governments, sponsors and lenders to look beyond the ways in which nuclear has traditionally been financed. Nuclear power has many long-term advantages compared to fossil fuels, including: significantly lower external costs, such as damage to health and the environment; cost competitiveness; and stable baseload generation of electricity over a long period of time. But getting private investment involved in the construction of nuclear power plants has become crucial to the success of global nuclear development.

There are various emerging nuclear financing structures and each is briefly described below.

Pure equity investment

Reactor vendors and other nuclear industry companies team up with plant owners to create project companies that will ultimately own the assets and finance them with equity contributions. These partnerships provide the anchor capital that will allow other private investors to make relatively small investments by buying shares in these project companies.

Finnish Model

Partnership with a consumer consortium is a model adopted for the Olkiluoto plants in Finland (referred to as the ‘Finnish Model’). A number of major industrial electricity consumers invested in the plant through a joint venture by Teollisuuden Voima Oy (TVO). Each equity investor contributes a proportion of the costs of building and operating the plant in return for electricity supplies that the shareholder can use itself or resell.

This model is suitable in countries where there is sufficient concentration of energy intensive industries, but is unlikely in countries where power must be sold to the grid at a low price, or where the grid must deliver the power to all takers at the same cost. Participation in such a partnership could potentially be open to market players other than industrial electricity consumers.

Utilities that have surplus capital and are interested in market expansion in the nuclear industry, either domestic or international, will be well-received in countries where investment is a major impediment to the construction of new nuclear power plants.

Supply tied to equity investment

Nuclear utilities and electricity-intensive industrial consumers form long-term industrial and commercial partnerships on the basis of sharing risks associated with the performance, scheduling and development of the utilities’ nuclear capacity.

Both utilities and industrial consumers can benefit from this type of partnership, which contributes to furthering utilities’ investment plans in new nuclear power plants and provides secured sourcing of electricity for participating industrial customers for as long as the arrangement lasts.

Asset pooling

Waste: A vital consideration
Credit: Sellafield

For equity investors other than industry energy players, particularly financial sponsors, an alternative approach could be asset pooling, where a group of investors prepared to invest in nuclear create a joint fund and then invest in a range of nuclear portfolios. This could be an option for various institutional investors such as pension funds or insurance companies that are typically seeking investments with long-term, stable and predictable returns

Debt financing

While plant owners and project sponsors prefer debt, commercial lenders expect a high equity component to reduce their own exposure. Insofar as debt financing is available from commercial lenders, these loans have been secured against the assets of the sponsoring utilities and not against the nuclear project itself. The availability and cost of debt financing depends on the strength of the balance sheet of the sponsoring utilities.

During the construction phase of a new plant, banks are most likely to favour this corporate financing approach backed by the balance sheet of one or a consortium of large, virtually integrated utilities with expertise in nuclear construction and operation, strong existing assets and a large consumer base.

Debt financing introduced at different phases of a project could take a different form. While balance sheet financing is generally required by banks to provide financing for the construction phase, non-recourse financing is likely to be considered by banks for the operational phase.

Phased financing

Nuclear projects comprise different and distinct phases (development, construction, operation and decommissioning), which may or may not be attractive or suitable to various types of investment groups according to the risk profile they carry.

While during the lowest-risk operational phase, equity holders, funds and long-term debt holders are potential investors, the development, construction and decommissioning phases present higher risks that may only be suitable to certain investors.

With phased financing, the cost of capital for each phase only reflects the risk of that phase and each phase may present a different capital structure. For example, government funding and equity investment may be introduced to finance the initial construction phase. As the project proceeds and risks diminish over the course of construction, the cost of capital also diminishes. When the project moves from the construction to the operation phase, government support and equity shareholders can be replaced with non-recourse financing. In addition – for multiple units – the revenue stream from operating units can be used to finance new construction.

Combining the cash flow of multiple unit construction can also benefit from economies of scale by sharing plant facility resources, saving temporary construction expenses and optimising project management. Collectively these serve to significantly reduce the overall construction price of multiple units.

Irrespective of the financing model or investment forms, private investors and lenders will always carefully examine the political and licensing risks, technology choices, as well as project management, supply chain and construction risks before investing in a new nuclear project.

George Borovas is a partner and head of International Nuclear Projects at law firm Pillsbury For more information visit

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