Can New Nuclear Power Plants be Project Financed?

This paper considers the prospects for financing a wave of new nuclear power plants (NPP) using project financing, which is used widely in large capital intensive infrastructure investments, including the power and gas sectors, but has not previously been used for nuclear power. It argues that the first few NPPs will have to be financed on balance sheet by large corporations because these plants need to build a positive record on construction risk. If that record can be built there is no reason in principle why large scale project financing should be denied to NPPs. The projects will probably need to have a long term power offtake project, requiring a creditworthy electricity supplier, but this is feasible even in liberalised but relatively oligopolistic power markets like the UK. Interviews with practitioners in the project finance sector confirm that banks are interested, in principle, in lending for nuclear power stations. Project finance would also readily allow multiple shareholdings in individual plants. This in turn would provide the means for power companies to diversify their plant risk and for third party financial shareholders to invest in diversified portfolios. This last feature could open up a new route for significant equity investment in NPPs. The analysis concentrates on the UK but is potentially of wider application.