The challenge posed is that, according to World Nuclear Association's most recent World Nuclear Outlook Report, "when all operable, under construction, planned, proposed, and potential reactors are combined with government targets, the total global capacity could reach 1,446 GWe by 2050", up from the current 403 GWe capacity of operable reactors.
This, the guide calculates, would require investment of USD6 trillion up to 2050 - which includes the investment needs of the full sector from mining to reactor construction to decommissioning and storage costs - and means there needs to be a "significant investment from private, as well as public sources of finance, with capital flowing not only to new generating capacity but also to the nuclear fuel cycle needed to deliver it at scale".
This is where the guide comes in. To find out more about the development of the guide, and the issues it is seeking to tackle, lead author Lola Infante, World Nuclear Association Senior Programme Lead, Economics and Finance, outlined the thinking behind it to the World Nuclear News podcast:
"The genesis of the guide happened last September during the financial summit part of the World Nuclear Symposium, where we heard loud and clear from the financial community and the nuclear industry on two related things. One, that there was a structural gap, a disconnect between the two industries that needed to be breached, and two, that we needed to demystify nuclear and start seeing it as just another infrastructure asset class. So the core of the problem is that if we are to scale nuclear to triple capacity by 2050 then we need to unlock investment.
"We hear more and more that the challenge to scaling nuclear is really not technical, it is financial. But it is really not the lack of capital in global markets or the lack of interest from banks or investors. We're seeing more and more interest in nuclear projects from the sector. The issue really is, from where we sit, the lack of commitment or interest in individual real projects. That's where the rubber meets the road and the challenges do start arising. Many in the finance community are interested in nuclear, but they're not sure where or how to engage. So what we want to do with the guide is to show them the different types of opportunities that are arising and that are available at different price points or risk levels. So they get the type of investment that they're interested in.
"Then there are others who are interested and know where they want to invest, but lack the tools or the perspective on how to look at a nuclear asset or how to go about evaluating the project. So for them, we want to provide information that can help them develop frameworks and standardised tools that can facilitate their decision-making. So the guide is trying to address that gap by providing information that we think both industries need."
The newly published first part of the guide - the Roadmap to Mainstream Finance: The Path to Scale Nuclear Energy - sets out the scale of the investment opportunity/challenge, if the widely shared goal of at least tripling nuclear energy capacity by 2050 is to be met.
On the scale of the investment required, Infante says: "We are estimating that meeting current government ambitions globally, which more or less triples current capacity, is going to require around USD6 trillion between now and 2050. That's an average of USD250 billion per year. So that's a sizable challenge - or opportunity - depending on how you're looking at it. So it's a lot of capital, but it's by no means unprecedented. Other industries are spending as much, if not more. But it is more capital than governments can finance alone. And I think that's the starting point for this roadmap. Traditionally, even today, governments have a key role to play in the legal and regulatory functions, but also as a main de-risker and main financier of nuclear projects. But we do need to bring in private capital. In many markets, the conditions and maturity of the market needed for this private capital isn’t there yet. So this is what we try to explain with the roadmap. We try to set out the journey to move from today's situation, mostly driven by government, to a situation where nuclear is just like any other asset class, where risks are known, they're understood, they're priced and priceable, where we have large pools of private capital participating in the market, where there is liquidity in the market, where nuclear financing is not only, or predominantly, a government thing.
"So to get to that stage, we think that all stakeholders, government, industry, but also the financial sector have a role to play. We don't think that finance can wait until a fully de-risked project just lands on their desk. Projects don't get de-risked without the financial industry participating in the process of de-risking them and creating the tools to get there. So standardised underwriting and priceable risk come from doing early transactions, not just from waiting for someone else to do them first. We need early engagement from investors and lenders so they can build deals that create benchmarks and frameworks which can then be replicated."
One of the finance experts who played a key role as part of the Advisory Board for the guide is Ananya Modi, co-head of the Energy and Power Financing team at Rothschilds and Co. He began by addressing how important he saw the guide from the finance side.
"We hear a lot about how nuclear power needs to get standardised, and the financing is a core element of that. There is going to be no project without the financing to support it. And so I think World Nuclear Association has done a phenomenal job of pulling together people who act and advise across multiple jurisdictions, across multiple technology classes, because you really need that collaboration if we're going to meet the urgency of demand that is there on the capital side of things.
"It is genuinely, in my view, and I am biased because I spend my time doing energy and power financing work, the challenge for our generation. And if we get it right, we're going to be setting this right for future generations to come. And so this guide, I think, is a real turning point because there have been so many conversations, so many multiple ways of doing financing that may have been applicable in certain jurisdictions when we were doing the odd project here and there. But really to scale this from tens of billions a year to the hundreds of billions a year of investment that is required, this guide is going to pave the way for that."
Modi also set out his thoughts on tackling perceived risks of potential project and cost overruns.
"I think the same questions were asked of newer technologies like offshore wind 15 years ago. We were asking people to take unexpected risks or unforeseen risks and people got their heads around it. I think this is where state support schemes, or contractual protections within the risk-sharing framework, is so important to get the financing right. There isn't going to be a perfect solution. It is very jurisdiction-dependent. It is very dependent on who your contractors are, what their risk-sharing appetite is. But I think the fundamental premise is we want these projects to get completed. And so the financing needs to support that objective. If you look at the regulated asset-based model or the CFD (contracts for difference) model, there are different incentives for the capital providers to make sure that the project is delivered on time and on schedule. And as more of these get built, as we have seen in Asia, for example, you get a higher degree of certainty around that cost and schedule. So it's really about these first few, and getting the momentum right. As long as we have the right absorption mechanisms and the right incentives, I think investors are able to get their heads around it."
Infante added that one key element of the guide is to help move away from financing always being first-of-a-kind and to make it repeatable.
"Except for some areas like China, for example, we hadn't been seeing enough nuclear projects around the world to gather enough data to use to benchmark projects and standardise processes. Until very recently, each project and each deal has been treated as unique, first-of-a-kind, and everything is developed from scratch. But I think we're beginning to see changes and we're trying to gather all that experience that we're beginning to get and what we know in general about other industries and about finance to put all those things together.
"In the guide we don't want to be prescriptive, so we're not providing frameworks, but we're providing tools and information and practices and case studies and best practices that we think can help others create those standardised templates, those tools, those frameworks to facilitate their decision-making processes. So, for example, we have a module or a section in the guide that will be released in September where we present a decision framework that includes an investment model that outlines different areas where important decisions need to be made - ownership model, delivery model, government support package, the revenue model, all those things that need to be discussed at one point or another. In another module, for example, we're trying to provide tools on the other side of the table to the nuclear project so they get investment ready a little bit quicker, so they understand what type of information they need to provide to financial institutions, to get their projects understood and better assessed by the financial community. So again, the guide is not a definitive guide to nuclear investment. It does not include everything there is to do or to know but I think it will offer what we think is key information to facilitate nuclear financing, decision-making, and take some of that fear out of the equation so we can better understand the risk and what the deals really truly entail."
She also stressed that the guide is designed to be globally applicable.
"We are doing this for everybody. It is true that when we talk about financing challenges in nuclear, most people think we're mostly talking about Western countries. Again, China has a very successful nuclear programme and other countries do as well but we do think that financing discipline applies to everybody, whether you're financing with private capital or public capital, that discipline and looking at projects from a commercial perspective, understanding the risk, being able to price the risk, all that applies to everybody. Whether you're going to use sovereign funds or export credit capital or multilateral funds, it doesn't really matter. The discipline of how you're looking at a project doesn't change, and that's what we need to scale up. So even though some of the topics we are approaching with the guide don't apply one-to-one to everybody, the overall logic, I think, applies to everybody. It's absolutely global."
The guide also covers the financing demands of the entire sector, rather than just the construction phase of a new nuclear power unit.
Here’s what Modi said:
"The power plant itself is quite a modest amount of the total spend … we think the entire ecosystem is absolutely vital. And so it's not really just about funding the developer. It's about funding the supply chain, making sure the supply chain has the capacity to absorb and participate with skin in the game in terms of the development overall. So we're monitoring that very closely because that's where the bottlenecks could be, around some of these supply chains not being able to deliver, which then has a knock-on consequence on the overall project and timeline. Investors are extremely wise to that, and we're seeing quite a lot of sophistication from the financial community in terms of looking broadly across that ecosystem and saying, ‘whom else do I need to support?’ I think it's a huge opportunity from a financial investment opportunity perspective, there's very few which have the momentum and excitement that nuclear power does today. And the supply chain is increasingly working with financial investors who've come in at different stages of the supply chain to find a way forward, because we've all got to move forward together."
And on the question of what next steps are needed to facilitate the scale of investment required, he said:
"Nuclear is quite unique - in other projects, maybe you can do them on a standalone basis and not really require the collaboration that we were talking about across the supply chain. I think that collaboration extends out of the project and out of the supply chain into the financial investor universe. Lola mentioned state support and just how important that has been. But we've also seen multilateral agencies come back into it, the World Bank, for example, has recently come back into nuclear power and been a great support. Obviously, all of the export credit agencies globally are looking at nuclear power with a very keen eye. So it's not just private capital that's coming in, be it commercial banks, pension funds, insurance providers, private equity firms, infrastructure capital. It is also backed and supported by a lot of these other multilateral agencies and development institutions. On the equity side of things, there is this real public-private collaboration and partnership. I think that is a very, very important aspect of nuclear power, which is quite unique. And I think that needs to continue to evolve.
"The working relationship between the public and the private side of capital, has always historically had some tension. And I think that's where nuclear power can really unlock some of these JVs or joint partnership agreements. So yes, it's all about collaboration, not just in the supply chain, not just ensuring that all the competent parts can come together, but also from a financing perspective. It is not one solution. It is a mix and a real puzzle that you have to put together. And obviously, as advisors, we love that sort of work because it allows us to really add value and look at which pockets of capital are best suited to fund which part of the nuclear power project. So yes, hugely exciting times. And what it means is there is a lot of opportunity for investment across capital pools globally."
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Episode credit: Presenter Alex Hunt. Co-produced and mixed by Pixelkisser Production
Cover Picture Credit: Adobe Stock/Vadym
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