Risks for investors

"There is simply no other power source that can go from being a multibillion dollar asset to a multibillion liability in a matter of hours." 

Joseph Romm, Center for American Progress (Reuters, 2011-04-08).


KEY READ: The financial risks of investing in new nuclear power plants (PDF).


Nuclear power is risky for investors:
  • Contrary to the often-repeated claim that nuclear power is cheap, it is one of the most expensive ways of generating electricty. It can only be made to appear cheap if capital costs are written off and if subsidies are ignored.

  • Some in the business community already recognise the riskiness of investing in nuclear power:
    • The business case against nuclear power (Wall Street Journal, 2011-03-24).

    • New Nuclear – the economics say no; UK green lights new nuclear – or does it? (PDF, 144 KB, report from Citigroup Global Equities Online, 2009-11-09). "Three of the risks faced by developers — Construction, Power Price, and Operational — are so large and variable that individually they could each bring even the largest utility company to its knees financially. This makes new nuclear a unique investment proposition for utility companies."

    • Construction risk in new nuclear power projects – eyes wide open (KPMG, January 2011). Although it suggests, wrongly, that nuclear power is cheap, this report identifies a range of risks for investors including construction risk, market risk, regulatory risk, legal and political risk, environmental risk, and operations risk.

    • Passing the starting line: nuclear construction risk (PDF, Ernst & Young, September 2010). This report identifies a range of risks in the building of new nuclear plants, including those arising from the regulatory environment, lack of planning, and lack of experience.
    • New Texas Institute study on nuclear power projects financing (Texas Institute press release, 2011-09-13). "... the study found that while the announcement of an intent to build a new nuclear reactor had no measurable impact on a utility's credit rating, the actual construction of a new nuclear plant carried an almost 70 percent probability that the utility would experience a rating downgrade, although the magnitude of the downgrade varied from utility to utility." See also Moody’s lowers SCANA’s credit rating (Columbia Regional Business Report, 2011-09-19).

  • Nuclear power is notorious for overruns in costs and in building times. See, for example:

    • In Finland, nuclear renaissance runs into trouble (New York Times, 2009-05-28).

    • Nuclear power's real chain reaction: spiralling costs (The Guardian, 2011-07-22). "The new delays and bumper cost overruns of EDF's new reactor in France make it very hard to believe that nuclear power can fulfil the promises its supporters make."

  • Nuclear power depends heavily on subsidies, as detailed in:

    • The Nuclear Subsidies report (PDF) from Energy Fair. Several of the subsidies identified in this report are so large that, for any one of them, its withdrawal would render nuclear power entirely uncompetitive.

    • Nuclear power: still not viable without subsidies (PDF, Union of Concerned Scientists, February 2011). See also After 50 years, nuclear power is still not viable without subsidies, new report finds (Union of Concerned Scientists, 2011-02-23). "Government subsidies to the nuclear power industry over the past fifty years have been so large in proportion to the value of the energy produced that in some cases it would have cost taxpayers less to simply buy kilowatts on the open market and give them away."

  • Some or all of the subsidies may be withdrawn at any time:

    • Via a ruling from the European Commission that one or more of the subsidies are unlawful state aid under EU competition law.

    • Via legal action in the courts against unlawful state aid for nuclear power.

    • Via political action at European or national level to remove subsidies for nuclear power. See, for example:

      • Lib Dem MPs set to rebel against nuclear power 'subsidy' (The Guardian, 2011-07-01).

      • UK breaks promise on nuclear power subsidies, say MPs (BBC News, 2011-05-16).

      • Call to abolish carbon floor price (Financial Times, 2011-09-11).

  • After the Fukushima disaster:

  • Even before Fukushima, companies like Siemens and Scottish and Southern Energy appear to be moving away from involvement in nuclear power and focussing on renewable sources of power. See, for example:

    • RWE reviews involvement in UK nuclear programme (The Guardian, 2011-10-07).
    • Siemens quits the nuclear game (World Nuclear News, 2011-09-19). See also Siemens drops Rosatom nuclear plant ambitions (Financial Times, 2011-09-18) and Siemens saves face as Rosatom tie-up fades away (Financial Times, 2011-09-19). "'From a shareholder point of view, nuclear is a risky business and the margins are now potentially lower,' says James Stettler at UniCredit."

    • SSE to abandon nuclear consortium (Financial Times, 2011-09-21). SSE pulls out of UK nuclear consortium (Reuters, 2011-09-23).

    • Constellation and EDF split: what does this mean for British nuclear? (Financial Times, 2010-10-11). See also Constellation drops nuclear plant, denting EDF's U.S. plans (Bloomberg, 2011-10-10).
  • For political reasons, another nuclear disaster would probably lead to widespread phasing-out of nuclear power: 

    • "Nuclear plants are mutual hostages: the world's least well-run plant can imperil the future of all the others." From "A plan to keep carbon in check," by Robert Socolow and Stephen Pacala in the Scientific American, September 2006, p 33.

    • It is said that a nuclear power plant is likely to produce a nuclear disaster only once every 10,000 years. But with more than 400 such plants in the world today, we may, on average, expect a nuclear disaster once every 25 years or less. Counting only the Three Mile Island disaster in 1979, Chernobyl in 1986 and Fukushima in 2011, we are averaging one nuclear disaster every 11 years.

    • "RWE faces huge financial losses as a result of the Berlin decision to close existing nuclear plants early and is already talking of the need for asset disposals and job losses as well as a possible equity tie-up with Russian gas giant, Gazprom." (from RWE reviews involvement in UK nuclear programme, The Guardian, 2011-10-07).
  • The cost of nuclear power is on a rising trend:

    • Nuclear miracle is plagued by fast-rising reactor costs and cheap renewables (Nuclear Power Daily, 2010-09-14).

    • Comparing the economics of nuclear and renewable sources of electricity (paper presented by Mark Diesendorf at Solar2010, the 48th AuSES Annual Conference). "... the costs of nuclear energy have been escalating very rapidly since 2002. The lowest cost renewables, appropriately sited, are already competitive with nuclear. Several more expensive renewables could be competitive with nuclear by around 2020. Furthermore, most renewable energy technologies are capable of much faster growth than nuclear energy ..."

  • The cost of renewables is on a falling trend:

    • The cost of photovoltaics (PV) are falling fast:

      • Solar closes in on grid parity (RenewableEnergyWorld.com, 2011-10-13).

      • Sun v fossil: the race to electrical equality (Energy Saving Trust, 2011-09-28). Figures from the European Photovoltaic Industry Association (EPIA) suggest that larger solar PV installations such as those on businesses will reach grid parity in terms of cost effectiveness as soon as 2013 in Italy and Spain – with the UK following suit in 2017 and the rest of Europe catching up by 2020. See also Solar Photovoltaics competing in the energy sector – on the road to competitiveness (PDF, European Photovoltaics Industry Association, September 2011).
      • Low-cost imports from China fuel boom in solar panels (The Observer, 2011-10-02). The price of PV (photo voltaic) solar panels has dropped by as much as a third this year alone, hastening the introduction of a low-carbon economy and reducing the time period when renewable energy needs public subsidy.

      • Reports of the death of solar power are greatly exaggerated (The Guardian, 2011-09-18). "Since October of 2008, the average price of solar modules has fallen from $4.20 per watt to around $1.20 to $1.50 per watt today."

      • Solar is the "fastest growing industry in America" and made record cost reductions in 2010 (Climate Progress, 2011-09-16). See also Solar is ready now: 'ferocious cost reductions' make solar PV competitive (Climate Progress, 2011-06-09).

      • How China dominates solar power (The Guardian, 2011-09-12).

    • The cost of most other renewables is coming down via economies of scale, refinements in technologies, and refinements in manufacturing processes.

  • Other concerns:

    • Strikes: Nuclear clients worried over strike threats (Construction Enquirer, 2011-08-17).

    • Reputation: EDF's reputation faces risk of meltdown (The Telegraph, 2011-07-25).