Financing nuclear power stations has become one of the eternal questions. The delays, the enormous initial costs, the cost overruns and lingering safety concerns have all been well documented. The sector was given a shot in the arm when, for some at least, it started to be seen as a green generator of power. Perhaps an even bigger shot now is the sector's potential to provide baseload reliable power in the data centre era.
The UK government thought it had an answer to the eternal question in 2015 when its signed the deal to back the 3.2GW Hinkley Point C nuclear power station at an attractive contract for difference strike price for the developer of £92.50/MWh at 2012 prices – with the caveat that the developer would bear any cost overruns. Well there have been a few cost overruns but the UK government has so far refused to fund them. Back in 2015 the scheme was slated as a £16bn project and now the latest estimate is £35bn. Oops.
The scheme was signed up when Chinese investment was welcomed in Western infrastructure but that is not the case now. EDF has 66.5% of the scheme while China's CGN has 33.5%. The upshot is that CGN is now not willing to cover the extra costs so EDF needs other funding sources to cover a funding gap that apparently now stands at £5bn. Interesting then that Centrica, EDF's partner in the ownership of four old UK nuclear power projects, is looking at putting £1bn into the scheme.
Why interesting? Because the alternative apparently is an investment in the new 3.2GW Sizewell C project that EDF is developing. Newspaper reports this week suggested Centrica might consider itself better off investing in the over budget but under construction scheme rather than waiting a decade at least for the entirely new scheme.
Sizewell C has a regulated asset base structure as opposed to a CfD, giving revenues during construction, but Centrica wants access to 20% of the power from the plants, as it has in its existing EDF joint venture. Abu Dhabi's Emirates Nuclear Energy Corporation could perhaps have the funds to invest in both but that might not be an option for Centrica. The equity raising process and final investment decision for Sizewell C are now stretching into 2025.
Financiers apparently do want to finance nuclear power. Last month during New York's Climate Week, Abu Dhabi Commercial Bank, Ares Management, Bank of America, Barclays, BNP Paribas, Brookfield, Citi, Credit Agricole, Goldman Sachs, Guggenheim Securities Morgan Stanley, Rothschild, Segra Capital Management and Societe Generale signed up to invest more in the sector. But how?
A large €6bn debt package is being put in place on Sizewell C but this is backed by French export credit agency BPI France and it sits alongside government debt. But a more immediate model is emerging in the US, where retired old plants are coming back into play at presumably a much lower cost and with much shorter construction periods.
Constellation Energy's deal with Microsoft to restart Three Mile Island Unit 1, sorry the Crane Clean Energy Center, in the heart of the PJM power pool in Pennsylvania, is a game-changer. It will cost US$1.6bn. Microsoft will sign a 20-year power purchase agreement for 835MW of power to supply its data centres from 2028. Three Mile Island Unit 2 will not reopen after its 1979 "incident".
The scheme is the second plant in the US to come back to life. Holtec International is looking to bring back the 800MW Palisades scheme in Covert Township, Michigan backed by a US$1.5bn loan guarantee from the Department of Energy and perhaps even tax equity. Palisades stopped operating in May 2022 and when restarted will serve rural electric cooperatives Wolverine Power Cooperative in Michigan and Hoosier Energy, Indiana.
PFI reports today that preliminary analysis released by the Department of Energy in September shows the potential to install 60GW to 95GW of new capacity at existing and recently retired US nuclear power plant sites. In addition to Palisades, Three Mile Island and a possible NextEra project at Duane Arnold, data provided by Nuclear Regulatory Commission show a total of 15 additional nuclear sites have power reactors in various stages of decommissioning that could in theory be eligible for restart.
The restart of an existing nuclear power plant could qualify for tax credits based on the proposed 45Y regulations issued at the end of May but this remains uncertain. The use of green bonds in the sector is already proven. Bruce Power, Ontario Power Generation, EDF, TVO and Constellation have use this technique and Kansai Electric is said to be mulling an issue. But in a paper issued last week former project financier Amjad Ghori said green bonds have the potential to be a game-changer for the nuclear sector for large, creditworthy companies. Less capitalised developers could use them as a refinancing tool post-construction, which could be put in place during the development phase.
