Financing new nuclear projects requires new financing schemes

Aurélie Faure, FORATOM Investment Framework TF Coordinator

On 12 May, financial experts from the nuclear and financial industry participated in an online FORATOM workshop in order to share their experiences and to evaluate new financing models as alternatives to traditional nuclear financing. During the workshop, members of the FORATOM Investment Framework Task Force (IFTF) invited senior credit analysts and investment bankers to share their knowledge on the financing of new nuclear projects and to shed light on the tools and methodologies they use when assessing the credit quality of an investment in nuclear related activities.

Yves Desbazeille, Director General of FORATOM, opened the workshop. His introductory presentation featured the industry’s forecasts in terms of new nuclear capacities in the different parts of Europe. Yves Desbazeille also drew the attention of the workshop participants to the EU Sustainable Finance Action Plan and the European Green Deal, with both policies aimed at supporting the recovery of the EU’s economy after COVID-19 in line with the Paris Climate Agreement.

Joe Rippon from EDF Energy and the IFTF Chair presented the UK’s proposed financing model for new nuclear and illustrated some of the benefits that the model will provide for a second of a kind project such as Sizewell C. The Chair of the Task Force encouraged experts to consider the fact that financial investors tend to assess regulatory frameworks as factors of investment resilience in other sectors such as transportation or water services.

The IFTF believes that a risk-based strategy at project level needs to encompass all parties to the project (consumers, regulators, governments and developers) and Joe Rippon emphasized that such an approach was to be established from an early stage in order to mitigate the project’s cost of capital. He pointed to the fact that governmental support was also a critical condition to any successful financial closing.

Credit analysts provided a thorough analysis of the different rating methodologies currently applied to corporations and projects. They called for the need to secure strong financial guarantees for a project to be able to achieve an investment grade rating.

In providing feedback to the Task Force internal discussions held since its creation in September 2019, the webinar confirmed that a nuclear financing plan is a key element to a project’s integrity and it must involve different parties to the project to the extent that those parties are able to manage risks in an efficient and secure way via a dedicated remuneration structure or regulatory framework. Participants in the workshop recognised the need for transparency, flexibility as well as enhanced credit protections as key factors for securing a financing plan at a low cost of capital. The webinar also touched upon how non-financial criteria may be integrated into a financing arrangement, to the extent that those criteria are relevant for new investor classes, such as pension funds and other long-term investors.

During the workshop, questions unfolded as to the financing models for smaller projects such as small modular reactors (SMRs).

The workshop offered a clear reflection on the evolution towards new financing models in light of planned nuclear capacities and it opened perspectives for further discussions on what may become the most relevant framework. The Investment Framework Task Force will participate in a series of public consultations at European level during the summer and will prepare its final policy recommendations.