Big utilities to pay for Britain's nuclear revival

LONDON (Reuters) - Britain’s next generation of nuclear power plants will be built by some of Europe’s biggest companies using their own money, but banks will join the global atomic boom later.

A seagull flies past the old lighthouse next to Dungeness nuclear power station, near Lydd in southern England, January 9, 2008. REUTERS/Toby Melville

Each plant is expected to cost at least 2 billion pounds ($3.93 billion) and companies planning them have enough money to do it without financial help from government or banks.

“These are entirely within the capacity of the big utilities to take on their balance sheets,” Tony Ward, director of utilities at Ernst & Young told Reuters.

“They have the appetite and the understanding of how to develop the projects. I would expect them to at least finance the early stages of further development and construction.”

Mark Spelman, director of strategy at consultants Accenture, agreed utilities in the UK market could build several plants without external funding, pointing to E.ON of Germany’s failed attempt to buy Spain’s Endesa for tens of billions of euros.

“Remember, people like E.ON were trying to put up 40 billion euros to buy Endesa. Now that obviously collapsed and didn’t go through,” Spelman said. “The German utilities particularly have been very profitable for a whole bunch of reasons.”

There seems little doubt the utilities can fund the new plants. The government said last week it wants to replace the country’s ageing atomic energy facilities.

France’s EDF, the world’s biggest nuclear power operator which is already building a new plant in Flamanville, France, plans up to four reactors in Britain.

“We expect to start construction in 2012 and we will make arrangements to finance the investment in due course,” a spokeswoman for the company said.

“EDF has a strong balance sheet and is a vertically integrated utility which puts it in a sound position to take forward investment in new nuclear.”

“As the world’s leading nuclear generator we have unique experience and understanding of the finances of new nuclear, and that gives us the confidence that we can make the necessary investments.”

Once the first plants are built, the big utilities may take out loans secured against them to build as many reactors as possible elsewhere as the global nuclear revival gains pace.

“They might use their own funds to get the ball rolling but as this begins to get some momentum, clearly bank financing will be important,” Spelman said. “It’s not just what’s going on in the UK, it’s what’s going on in the rest of the world.”


Ward and Spelman say financial institutions will probably be keen to add nuclear power plants to their portfolios later.

“The appetite amongst the banks for investment in nuclear assets I think is very strong. But I don’t think they see themselves as providing the development capital two, three years before construction even starts,” Ward said.

“Once you have the first reactor or two commissioned and operating, they may potentially become very attractive assets for refinancing and effectively for the utilities releasing the capital that they have tied up.”

The government gave the go-ahead on January 11 for a new generation of nuclear power stations, arguing the technology would help the country meet its climate change goals and reduce dependence on imported energy.

State-built nuclear power stations provide about 18 percent of Britain’s electricity but most are nearing the end of their useful lives and need to be replaced over the next 15 years.

There are no laws preventing construction in Britain but companies have not built any because of planning obstacles and uncertainty over the economics of nuclear against other fuels.

But the European Union scheme to make power generators pay for permits to emit carbon from burning fossil fuels -- coal, oil and gas -- and soaring prices for those fuels has put the spotlight on carbon-free nuclear power after two decades in the shadows of the Chernobyl disaster.

“Think about very high gas and oil prices, supply uncertainties and the bigger environmental picture...The arguments against (nuclear) are perhaps a little bit more difficult to make compelling,” Ward said.

E.ON, which is unlikely to get the chance to build any plants in Germany any time soon because of strong opposition to atomic energy, says the UK plants could be built without subsidy or a guaranteed carbon price and out of its own pocket.

So long as oil prices remain high -- few analysts think they will collapse -- and the European Union continues to fight climate change by making dirty power generation more expensive than carbon-free technologies, nuclear makes economic sense.

“You don’t need a cast-iron guarantee on carbon pricing for nuclear to be viable,” Spelman said, adding that banks would be attracted to the plans already but would want more assurances before getting involved.

“To make this copper-plated, you would create a clearer framework for exactly how the carbon mechanism is going to work and you would confirm and clarify the issues around waste... Those over the course of the next couple of years will help make the financing definitive as opposed to interested.”