Global nuclear industry ponders ways to get taxpayers to pay up for Small Modular Nuclear Reactors (SMRs)

Doncha love the way they leave the word “nuclear” out of “SMRs”, hoping that people somehow won’t notice that SMRs are nuclear reactors?

Can SMRs unlock financing? World Nuclear news, 24 August 2016 Whilst a project of the size and complexity
of Hinkley Point C faces a range of challenges which lessen the availability of limited-recourse financing, it is clear that nuclear plant construction violates the basic precepts of project finance due to the unpredictability of project costs and schedule, write Rory Connor and Ken Culotta of law firm King & Spalding…..

For the industry to flourish, even in the presence of strong government policy support, the ability to finance is critical. There is the possibility though that new technology and new construction techniques, in the form of small modular reactors (SMRs), may hold the key to overcoming such issues……..

……..a long-term, minimum-price, power purchase agreement (or equivalent) a fundamental bankability requirement.

The UK government’s Electricity Market Reform initiatives, including the flagship contract-for-difference, have shored up the bankability of nuclear power projects. However, in a controversial field like nuclear power, there remains a risk that political or public sentiment could change during the life a project; as happened in Germany, which effectively ended its nuclear power industry in the wake of the Fukushima disaster. Lenders will require assurances that changes in policy will not adversely affect their exposure. For Hinkley Point C, the UK government agreed to enter into a so-called Secretary of State Agreement with the project sponsors, which grants the sponsors a put-option against the government in the event of a political shutdown of the project, effectively requiring the government to compensate the sponsors for their loss of investment – project lenders would no doubt expect similar protection to cover the cost of repayment of all outstanding project debt.

Nevertheless, not even the package of the Hinkley Point C contract-for-difference (which guarantees a power price of more than double the prevailing market price over a 35-year term) and the Secretary of State Agreement was enough to satisfy prospective lenders or bond underwriters that the project represented a bankable proposal. The problem lurked elsewhere – construction risk……..

The first SMRs to be installed will doubtless surface interesting risk issues, particularly the perceived ‘new technology’ risk which would likely see lenders requiring extended warranties from SMR technology providers. …..

construction risk alone is not the only issue that makes project financing a challenge for nuclear projects – the highly regulated nature of nuclear power does not sit easily with many standard project financing instruments and techniques. In any event, the developer(s) of the first commercially deployed SMRs may decide to finance on-balance sheet or by other means.

But the fact is that SMRs are no longer just ‘pie in the sky’ – billions of dollars of investment has been committed to the development of this technology (including more than $200 million by the US Department of Energy and up to £250 million by the UK government) and, in the UK at least, the possibility of contracts-for-difference, and other government-backed credit enhancements, create an attractive framework for investment and financing. http://www.world-nuclear-news.org/V-Can-SMRs-unlock-financing-24081602.html