White Paper - 02. Create new forms of government funding mechanisms to ensure low-interest loans for new nuclear builds.

Page / - last modified by Ad Min on 2021/04/24 22:49

02. Create new forms of government funding mechanisms to ensure low-interest loans for new nuclear builds.

last modified by Ad Min

on 2021/04/24 22:49

Table of Contents

An overstretched electricity market with unplanned overproduction leads to marginal and even negative electricity prices. It is therefore important that new medium to large-scale power plants which do not receive price guarantees or do not have quotas are financed in a new way. Interest rates are to a significant extent decisive for the cost of electricity production of new plants. These low interest rates are possible if the government is the financing provider—(i.e. issues guarantees), or if a form of financing is chosen such as RAB (Regulated Asset Based financing model). We propose that EZK, I&W, ANVS, energy companies and potential reactor partners work together to mitigate these costs as much as possible.

The business case for new nuclear power plants can be significantly improved if the government considers new ways of financing. If a power plant is financed with a loan that must be repaid in 30 years, the loan and interest payments alone constitute a sizable portion of the production costs of electricity and heat-energy. For instance, with an interest rate of 8%, the financing burden in the first operational year is over 63% of the cost to produce electricity, but if we use an interest rate of 0%, the burden decreases to 30% of the initial cost to produce electricity, resulting in a lower consumer price for electricity. We performed a bandwidth analysis to determine under which circumstances a nuclear power plant can be operated cheaply in the Netherlands. First, we considered the full construction costs of existing foreign Generation III+ nuclear construction projects.

Linking these figures to a wide range of financing rates, we get this graph 13

Based on this bandwidth analysis, we found that a nuclear power plant can be brought online with a first-year electricity cost of 40 to 50€/MWh in the Netherlands. 40 €/MWh is attainable with a CAPEX of 2800 €/kW and a financial interest rate of approximately 2.3%. Considering an existing APR1400 with CAPEX of 4700€/kW (Barakah) we see a possible first-year-cost between 40 and 50€/MWh at a financing rate between 0 and 2.1%, while an EPR (Olkiluoto) remains below 50 €/MWh at a CAPEX of 6400€/kW and a financing interest rate of 0.5%. This suggests that new nuclear reactors can be built in the Netherlands at an affordable level, but also helps keep consumer costs low.

We specifically take non-Asian examples for the APR1400 and EPR. There are cheaper precedents, as the graph indicates, but these can only be found in Asia. (More on this later) The bandwidth analysis shows that there is room for better business cases in the Netherlands, made possible by, for instance, SMR technology (e.g. based on GE-Hitachi BWRX300).

Considering financing for other forms of energy such as wind and solar, we see interest rates at such low levels that—when applied to nuclear—can lead to a similarly profitable business case. However, it is unclear whether new nuclear power stations can count on the same treatment.

To ensure a low interest rate, we propose the following options:

The government finances the nuclear power station with a low-interest loan and sells the plant on completion;

The government guarantees the financing of the power plant and thus ensures a low-interest loan;

The government and energy companies examine the RAB funding methodology applied in Britain to energy infrastructure, possibly including, future nuclear power stations.14

The construction of new nuclear power plants takes some time, but then leads to drastic CO2 reductions for at least 60 years and offers unparalleled security of supply for the Dutch electricity and energy consumer. That is why we believe that it is justifiable to be first mover 15 as a government, thereby creating momentum and sharply decreasing construction costs and associated reductions in electricity costs, thus creating positive spinoff effects in other countries.

13 Production costs: fuel 5€/MWh, Fixed O&M 99€/kW, Variable O&M 2,1€/MWh
14 https://www.gov.uk/government/consultations/regulated-asset-base-rab-model-for-nuclear
15 Together with industrial partners, utilities and vendors.