Current status and emerging trends in ﬁnancing nuclear power
projects
Nadira Barkatullah a, *
, Ali Ahmad b
a
AECOM, Sydney, Australia
b
Issam Fares Institute for Public Policy and International Affairs, American University of Beirut, Beirut, Lebanon
a r t i c l e i n f o
Article history:
Received 4 September 2016
Received in revised form
19 March 2017
Accepted 18 September 2017
Available online 2 October 2017
Keywords:
Nuclear power
Energy economics
Financing models
a b s t r a c t
Traditionally, governments have used domestic public sector funds to ﬁnance nuclear power projects.
However, a recent trend shows that governments, world-wide, are increasingly looking towards the
private sector for new ﬁnancing approaches with different risk and ownership structures that mitigate
risk, and new contractual arrangements that aim to lower the ﬁscal burden associated with nuclear
power projects. This paper gives an overview of the major challenges related to ﬁnancing nuclear
power plants such as the high upfront capital cost, sensitivity to interest rate and long construction
time. The paper then discuses existing and emerging ﬁnancing strategies and contractual arrangements
for both, government and private investors. The analysis eventually evaluates the potential of
the emerging ﬁnancing approaches to resolve some of the challenges associated with the deployment
of nuclear power but there is no one-answer, as each project is unique and requires careful review
regarding the applicability of the ﬁnancing model, as some of these approaches may have their own
challenges.
© 2017 Elsevier Ltd. All rights reserved.
1. Introduction
The next decade is critical for nuclear power. Proponents of
nuclear power believe that the shift away from carbon-producing
energy sources represents an opportunity for expanding global
capacity of nuclear electricity. However, the nuclear industry is
struggling with internal and external challenges that could hinder
such prospects. At the 2015 United Nations Climate Change Conference,
known as COP21,1
in a historic stance, the world agreed
that climate change is a major issue, with 196 countries signed an
agreement to abate the rise in global temperature to 2C (3.6F) by
century's end.2
A mix of technologies including nuclear and
renewable is perceived by many as the most effective way to tackle
climate change [1,2]. In addition to global warming, which is rated
as one of the top risk at the Annual World Economic Forum 2016
[3], many competing factors are likely to inﬂuence future energy
investments. Improving energy security, innovative ﬁnancing,
reducing costs, deregulating electricity markets and supply chain
backlog are probably the most important factors that governments
consider when shaping their energy policies. The weight assigned
to these factors, however, could differ substantially from one
country to another, based on the country's economic climate and
the type of project and technology under consideration.
One major challenge associated with the deployment of nuclear
power is ﬁnancing, which, regardless of its mechanism or source,
remains a barrier due to the large-scale of funds required and long
tenor, in line with the economic life of the nuclear assets.3
The
diverse and exclusive set of risks involved and the waning economic
competitiveness of nuclear electricity, due to high investment
costs and the despatch risk in deregulated electricity markets.
Furthermore, there is also ﬁerce competition from alternative investment
proposals (e.g. power generation projects using different
technologies such as gas, hydro, wind and solar), which are less
contentious from a reputational point of view and more in tune
* Corresponding author.
E-mail addresses: nbarkatullah@gmail.com (N. Barkatullah), ali.ahmad@cantab.
net (A. Ahmad).
1
COP stands for “Conference of Parties”, said parties being the countries that
ratiﬁed the UN Framework Convention on Climate Change in 1992 at the Earth
Summit in Rio de Janeiro, Brazil.
2
The ﬁrst time in over 20 years of UN negotiations, to achieve a legally binding
agreement on climate, with the aim of keeping global warming below 2C. http://
newsroom.unfccc.int/unfccc-newsroom/ﬁnale-cop21/. 3
Up to 80 years in case of license renewal(s) [4].
Contents lists available at ScienceDirect
Energy Strategy Reviews
journal homepage: www.ees.elsevier.com/esr
https://doi.org/10.1016/j.esr.2017.09.015
2211-467X/© 2017 Elsevier Ltd. All rights reserved.
Energy Strategy Reviews 18 (2017) 127e140
with the political and general public mood. In that context, investors
from the private sector, appear to be struggling to ﬁnd
“good reasons” to support nuclear power versus other technologies.
In this paper, we present a holistic view of ﬁnancing nuclear
power projects, from outlining the economic and ﬁscal challenges
faced by project developers and investors to examining the existing
ﬁnancing strategies and contractual arrangements available when
considering nuclear power projects. The paper also evaluates the
potential of emerging ﬁnancing approaches to resolve some of the
challenges associated with the deployment of nuclear power. Section
2 outlines key economic features of nuclear power and the
basics of ﬁnancing. Section 3 highlights the challenges and risks of
ﬁnancing nuclear power projects, while the different types of
ﬁnancing approaches of nuclear power projects are discussed in
Section 4 and 5. Next, Section 6 discusses contractual and ownership
arrangements, employed for the infrastructure projects and
ﬁnally, Section 7 concludes the main ﬁndings.
2. Background
2.1. Overview of key economic features
Compared to other energy sources, nuclear power is highly
capital-intensive, which brings in higher sensitivity to interest rates.
Although the cost of building nuclear power plants generally varies
with geographic location and the unique circumstances of each
project, its per kilo-watt (electric e kWe) cost range is substantially
higher than that of traditional sources of energy such as natural gas,
and is becoming increasingly less competitive against renewables.
The last decade has seen a further decline in the relative economics
of nuclear power in most of the OECD countries.4
From
operations point of view, the main challenge is the risk of not being
despatched, speciﬁcally in the deregulated electricity market. For
new investments, it will be imperative to have Government
support.5
Cost uncertainty during the construction phase is a major
challenge, like in the case of the Vogtle project in U.S., for example,
two AP1000 reactors are under construction with the actual unit
capital costs increased to $6100/kWe in 2012, roughly 2.5 times the
cost estimate assumed in a Massachusetts Institute of Technology
(MIT) study in 2001 [8]. Since then cost estimates for Vogtle have
further increased, due to delays and difﬁculty in meeting quality
standards [10].6
The recent cost estimates are more than $7000/
kWe, see Fig. 1. Likewise, the estimated costs of constructing a
European Pressurized Reactor (EPR) in Western Europe or North
America range from around $5000 to $7300/kWe, or about $6100/
kWe on average [11e13]. These numbers are consistent with the
revised estimates for nuclear power plants that are recently constructed
or under construction across the globe. Initial cost estimates,
have generally been revised, in some instances more than
twice, as shown in Fig. 1.
Fig. 2 shows the overnight cost data compilation in different
regions (US, Europe, Asia and Middle East) and its standard devi-
ation.7
The range is from $3500e$5000/kWe, for all regions, except
Asia, which is very daunting for newcomer countries. The costs for
Asia are lower, given low input costs and very high localization
rates. The standard deviation around the mean is $2000e$2700/
kWe. Asian countries (Japan, South Korea and China) have maintained
a momentum of nuclear power plant construction, whereas,
most “Western” projects are ‘ﬁrst-of-a-kind’ (FOAK), resulting in
signiﬁcant construction delays.
The outlook for future investment costs in Europe and the
United States is not very encouraging. The ﬁndings from a study
based on 30 U.S. and 30 European nuclear technology experts
shows that on average, under a business as usual scenario, the
current (Gen. III/IIIþ) designs are expected to be somewhat more
expensive in the year 2030, than they were in 2010, with the
expectation that next generation of designs (Gen. IV) to be even
more expensive [14].
In addition to the capital-intensive nature, nuclear energy possesses
some exclusive risks, further discussed in Section 3. Collectively,
these features contribute to the challenge of ﬁnancing
nuclear power plants. Despite these challenges, nuclear reactors are
being built across the world, though at different pace and efﬁciency.
Table 1 shows the 60 reactors that are currently under construction
[15], in 15 countries, with 22 reactors in China alone. Though
China's interest in investing in low carbon technologies also extends
to solar and wind energy projects.
The United Arab Emirates (UAE) and Belarus are the only
newcomer countries on the list, having started the construction of
their reactors in 2012 and 2016, respectively. It is interesting to note
that almost all nuclear power plants that are currently under
construction will operate in regulated electricity markets, with
substantial government support. The support may be in the form of
long-term power purchasing contracts (PPA) or high electricity
tariffs, in the absence of government subsidy. As shown in Table 1,
Government ﬁnancing and support still dominate the industry, as
the leading source of ﬁnance.8
Government support is also looked at favourably by the ﬁnanciers,
whether it is in the form of PPA, government equity or government
guarantee. Examples of different forms of government
support include the U.S. Department of Energy's loan guarantee, for
Vogtle nuclear power project of $6.5 billion [16], the UK Government's
35-year CfD for Hinkley Point C and the cooperation
agreement with Hitachi and Horizon Nuclear Power to promote
external ﬁnancing for Wylfa nuclear power project [17].
On the other hand, nuclear power has low fuel and operational
costs. According to the costs estimates of the U.S. Energy Information
Administration (EIA), the variable operational and maintenance
(O& M) costs of advanced nuclear are about 13% of the total
levelized cost, based on 2020 costs projections [18].
2.2. The impact of Fukushima
Prior to Fukushima, the global ﬁnancial crisis of 2008 had a
signiﬁcant impact on all large-scale infrastructure projects. The lack
of liquidity in the ﬁnancial markets made ﬁnancing difﬁcult for
4
In the United States, for example, several reactors have been prematurely shut
down because they cannot compete with the low natural gas prices [5]. A former
staff of the U.S. Nuclear Regulatory Commission has argued that nuclear power has
become so uncompetitive that market forces will phase out the US nuclear ﬂeet by
mid-century [6].
5
Like the UK's Contract for Difference (CfD) system which provides price guarantee
(eg., like Hinkley Point C price guarantee of £92.5/MWh, for 35 years), which
is vital for the ﬁnancial viability of the project [7]. Government support is required
because of the current design of the electricity market in the UK, where short-term
price signals prevail, with no new base load asset been built in the UK for many
years.
6
Westinghouse, and the operator, Georgia Power, have sued each other for
nearly a billion dollars, with each blaming the other for delays and cost escalations.
7
The term “overnight” capital cost generally includes the Engineering, Procurement,
and Construction (EPC) costs, owner's and contingency costs but excludes
interest during construction cost, escalation and inﬂation cost, as if the plant
was being built overnight.
8
Government Financing can take various form, including, State Budget (like, tax
revenue), Export Credit agency Finance (ECA), Government Equity (Direct equity or
Independent Public Offering), Government loan, PPA (Power Purchase Agreement)
and Issuance of Government Infrastructure bonds. Vendor ﬁnancing can be either
equity or debt.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140128
most capital-intensive projects. This, along with fears of another
recession, austerity measures, sovereign debt crisis, slow global
growth and low electricity demand, coupled with low gas prices,
made the economic case of nuclear very challenging.
The Fukushima disaster was another major setback to the nuclear
industry. Not only affecting public acceptance of nuclear power
negatively, but also increasing investment costs due to
additional safety enhancement [19]. A subsequent result was
pushing for higher emphasis on nuclear safety systems, particularly
the potential effects of external factors. Consequently, some countries
scaled down and postponed nuclear power projects. Other
countries decided to exit their nuclear programs (Germany, for
example). While others like China, Republic of Korea, India, UK,
Belarus, Russia, UAE and Pakistan, decided to proceed with their
plans to build nuclear power reactors.
In some countries, Fukushima also had an impact on the economics
of nuclear power. Revising licensing procedures and
adopting more stringent safety measures such as conducting more
tests [20], led to increased capital and operational costs. In countries
where building nuclear remains an option, governments
shifted their interest completely to Generation III or Generation
IIIþ reactor as a result of seeking designs that offer better safety
features. In some respects, Fukushima was also a stark reminder
that nuclear safety is very important and such events in one
country would have an impact on the industry as whole.
Fig. 1. Revised investment cost estimates, $/kWe.
Source: World Nuclear News, Nucleonics and other publications, 2008e2015.
Fig. 2. Overnight cost range, by region, $/kWe.
Source: Source: Various publications, 2008e2015.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140 129
2.3. Basics of ﬁnancing: equity and debt
Nuclear power projects can be either ﬁnanced though debt and
or equity. Generally, ﬁnancing involves a combination of both with
varying proportions, depending on project's circumstances and the
risk proﬁle. Debt ﬁnancing involves obtaining loans from ﬁnancial
institutions for the project.9
In this case, lenders would receive
regular payments with interest, which would depend on the project
structure, owner risk proﬁle, including credit rating of project
owner and/or developers. On the other hand, equity ﬁnancing involves
investing in return for a share of the project's proﬁts. In this
case, equity holders would obtain the return on their investments
through the sale of electricity when the reactors are operational.
The cost of equity is higher as investors are exposed to higher risks
than lenders. However, if the business was not generating sufﬁcient
cash, lenders could also miss debt service.
Since nuclear power projects use a combination of debt and
equity ﬁnancing, the investment cost of these projects can be
calculated using the weighted average cost of capital (WACC),
deﬁned as:
WACC ¼
Debt
Debt þ Equity
Rd þ
Equity
Debt þ Equity
Re
where Rd is the cost of debt ﬁnance; and Re is the cost of equity
ﬁnance.
If the Capital Asset Pricing Model (CAPM) is used to calculate
WACC, the risk free rate and the risk premium determine the cost of
debt (Rd), whereas the risk free rate, risk relative to the market
(beta) and the market rate of return (also known as equity risk
premium) determines the cost of equity(Re).
WACC represents an appropriate discount rate, which can be
used to calculate the net present value (NPV) of cash ﬂows.10
By
deﬁnition, the WACC is the weighted sum of the interest rate paid
or the cost of debt to lenders and the expected return on investments
(the cost of equity) to equity holders in the project.
Because of the capital-intensive nature of nuclear power, project
costs are sensitive to interest rate. Consequently, a small change in
the debt and equity balance, i.e. in the WACC of the proposed
project, would have a signiﬁcant impact on the levelized cost of
electricity (LCOE).11
Due to capital markets risk perception of nuclear power, its cost
of ﬁnance is higher. Consequently, with risk premium of x percent
above other power generation assets added to the interest rate, the
WACC for nuclear can be expressed as:
WACCnuclear ¼ WACCother power generation þ x%
3. Major risks and ﬁnancial risk management
3.1. Complexity and capital cost
The enormous scale of overnight capital cost quoted for nuclear
power plants, ranging from $2 billion to $9 billion, is a signiﬁcant
investment commitment. It is very challenging for the 45% of the
countries reporting their Gross Domestic Product (GDP) to the International
Monetary Fund (IMF), with GDP below $20 billion, to
invest in a project worth one third of their GDP. Financing nuclear
projects becomes even more challenging for governments with
gross debt to GDP of more than 50%, as it may affect their credit
rating and the cost of ﬁnance.
The LCOE of nuclear power plants is thus inﬂuenced by the
initial high up front capital cost, which could account for 70 to 80%
of the total annual levelized cost. The remaining costs are fuel cost
(including uranium enrichment), operation and maintenance cost,
and decommissioning and waste disposal cost. There are multiple
reasons for nuclear power plants to have high overnight capital
costs: ﬁrst, they are very complex structures with many hundred
thousands of components that have to be designed and manufactured
with very high standards to cope with sensitive and difﬁcult
operational conditions, such as high pressure and irradiation. Second,
accidents at nuclear facilities, particularly those of far-reaching
impact such as Three Mile Island, Chernobyl and, more recently,
Fukushima, have contributed to enhancing safety systems by adding
another layer of defense or complexity, leading to further increase
in cost. For example, EPR designs rely on the concept of
“redundancy” where multiple identical “trains” of critical components
exist to reduce risk of failure [21]. This results in increased
Table 1
Reactors currently under construction and their ﬁnancing mechanisms, as of 5 March 2017.
Country Units MWe (net) Construction Start Financing Type/Model
China 22 20,500 2009e2015 Government/Vendor
Russia 7 5520 1983e2010 Government
India 5 2990 2002e2011 Government/Vendor
USA 4 4468 1972e2013 Government/Private sector
UAE 4 5380 2012e2016 Government/Vendor
South Korea 3 4020 2008e2013 Government
Pakistan 3 2343 2011 Government/Vendor
Belarus 2 2218 2013e2014 Government/Vendor
Japan 2 2683 2007e2010 Government/Other
Slovakia 2 880 1985 Government/Corporate Finance
Ukraine 2 2068 1986e1987 In process
Argentina 1 25 2014 Government
Brazil 1 1245 2010 Government/Vendor
Finland 1 1600 2005 Government/corporate Finance/Project Finance (Mankala Model)
France 1 1600 2007 Corporate Finance
Source: IAEA-PRIS for construction data. The data on ﬁnancing mechanism are from various publications, World Nuclear News, Nucleonics, Reuters, WNA country proﬁles, and
authors' opinion
9
Debt can also be raised through capital markets through the issuance of longterm
infrastructure bonds.
10
From an investor's point of view, one would want the internal rate of return
(IRR) of a project to be higher than WACC to invest.
11
LCOE is a conventional way to compare the cost of electricity generated by
different sources. It follows from the standard discounted cash ﬂow methodology,
which accounts for the time-value of money. LCOE is used to calculate the life cycle
cost of producing electricity, and is the ratio of the total cost to the beneﬁts (in this
case the electricity produced) with all ﬁgures being discounted to the same baseline
year.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140130
number of components, complexity and, eventually, capital costs.
The lower range of nuclear power costs, as discussed earlier, are
reﬂective of the Asian region, mainly depictive of China's nuclear
power plant projects ranging from $1800-$2600/kWe. As shown in
Fig. 2, China appears to be a global leader in nuclear new build, with
nuclear power projects built at signiﬁcantly lower costs than those
built elsewhere in the world, particularly in Europe or in the U.S.
Some of the main reasons for China's ability to build nuclear power
plants at relatively lower cost include high level of localization, i.e.
heavy and complex reactor components being manufactured
domestically, lower input cost (materials, equipment and labor
costs), lower foreign exchange exposure and (recent) consistent
experience. One should be cautious when the overnight costs are
compared across different regions and countries, as differences
prevail, because each project is unique and the cost differ by the
type of technology, the size, site, known technology, FOAK, localization
rate, etc. In addition to this there are deﬁnitional issues: are
overnight costs quoted consistently? Do they entail EPC, contingency
and owners cost? or only include some ingredients of the
overnight cost.
On a per kilowatt basis, the capital cost of advanced nuclear
power plants, according to the U.S. EIA, is $4646/kWe. While solar
PV plants and advanced gas combined-cycle have capital costs of
$3123/kWe and $942/kWe, respectively. These numbers are
consistent with the overnight capital costs range of nuclear, gas
(CCGT), coal and solar PV that are shown in Fig. 3, and based on 181
plants across the globe [22].
3.2. Sensitivity to discount rates
As a direct result of being capital intensive, nuclear power
projects are sensitive to discount rates. Although other energy
sources such as utility-scale solar or wind are also capital intensive,
investors may request higher returns when considering nuclear
power projects due to the higher risks involved. Speciﬁcally, construction
delay, which is rated as the highest risk in the industry.
For the risk premium to be revised downwards, the nuclear industry
needs to build more projects on time and within budget.
Due to the high upfront capital cost for nuclear, as shown in
Fig. 4, the total LCOE generated by nuclear power increased by
about 90% when the discount rate increased from 5 to 10%, while
that of natural gas increased by 38%. The various assumptions used
to estimate the costs are listed in Table 2.
Factors that could affect interest rates include credit rating of the
borrower, be it a governmental entity or a private utility, as well as
country and project-speciﬁc risks. Countries with credit ratings
below investment grade rating of BBB-, BBB- and Baa3, according to
Fitch, Standards & Poors and Moody's, respectively, would ﬁnd it
more difﬁcult to borrow funds i.e. are likely to pay higher interest
rates and consequently suffer a higher cost of ﬁnance.12
3.3. Long lead times
Lengthy lead-time is one of the main drivers of cost escalations
in nuclear power projects. In addition to construction time, leadtime
includes the time required for the complex technical and
ﬁnancial planning as well as the time needed to complete licensing
procedures. According to the World Nuclear Industry Status Report,
the reactors currently being built have been under construction for
an average of 7.6 years, as of July 2015 [23]. Historically, experts
argued that learning has generally led to building bigger and more
complex nuclear reactors, increasing lead-time [24]. This is more
applicable in the case of FOAK designs that can add up to 35% to the
overnight cost [25].
In a recent empirical study based on data from the U.S. and
France's nuclear reactor programs between 1966 and 2002, M.
Berthlem and L. E. Rangel concluded that lead-time is linked to the
degree of heterogeneity of the reactor ﬂeet. High level of standardization
seems to reduce lead-time, and consequently, capital
costs [26]. However, the effect of learning in nuclear power projects,
particularly that of France, in the 1970s and 1980s is debatable.
A. Grubler presented a case of “negative learning” where
speciﬁc costs increase with accumulated knowledge [27]. The
reason for such a trend was new safety and quality standards,
Fig. 3. Overnight capital cost range, by technology, $/kWe.
Source: OECD overnight capital cost range for capital costs of natural gas combined-cycle (CCGT), coal, nuclear and solar PV and power plants, refer to OECD Projected Cost of
Generating Electricity, 2015.
12
Investment grade depicts that the country or company has manageable debt
and is able to meet its future obligations to repay debt.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140 131
integrated retroactively in ongoing projects. Regardless of the type
of relationship between learning rate and the lead-times, the
ﬁnancial impact of long lead-time is higher in deregulated markets,
where private investors do not have the ﬁnancial strength to bind
their capital for such long periods.
3.4. Other risks
In addition to the aforementioned economic challenges of nuclear
power there are some other risks that also affect the economic
competitiveness of nuclear power against other energy sources.
Decadeselong payback periods, for example, add extra disincentive
for investors as they would increase likelihood of exposure to
unfavourable market conditions and policy shifts over a prolonged
period of time.
Hence, investors would either have to assume a lower availability
and/or ask for higher returns, due to the despatch risk, or
request long-term electricity contractual arrangement, such as CfD,
as a risk mitigation measure due to the volatility in the wholesale
electricity market. The price volatility increases with growing
shares of intermittent renewable generation, as has been the case in
Germany.
In some countries, investors are trying to request for market
reform or lobbying for green credit for nuclear to provide a “level
playing ﬁeld” with other subsidised carbon-free technologies and
make it more competitive with fossil power generation. In regulated
markets, long-term electricity purchase guarantees provide a
risk mitigation measure to curtail despatch risk.
Another issue is the risk associated with volatile foreign exchange
rates. This is of particular importance when governments
seek foreign investments and/or when large and expensive
equipments are imported such as the case with many parts of a
nuclear power plant. Put simply, the foreign exchange risk results
due to unfavourable variations in the exchange rate. Since the
electricity generated by nuclear power plants is sold domestically,
the major foreign exchange risk emerges from ﬁnancing rather
than the project itself [28]. For example, loans in foreign currency
carry such risks in case domestic currency depreciates against the
reference foreign currency.
3.5. Risk mitigation management
A robust ﬁnancial risk management strategy is imperative for
nuclear ﬁnancing. Well-structured nuclear projects, where risks
identiﬁed upfront, allocated, with proper risk mitigation strategy,
pose less uncertainty to ﬁnanciers and are relatively easier to
ﬁnance. Tables 3 and 4 below provide examples of major risks
involved in nuclear power projects during planning, construction
and operation phases, respectively. The table shows a simple
formulation of a ﬁnancial risk management matrix, which, ﬁrst,
identiﬁes the risk (name of the risk), second, states the nature of the
risk (pure or speculative),13
third assesses the risk (high, medium
Fig. 4. Effect of varying discount rate on the LCOE for nuclear and gas-ﬁred power plants.
Table 2
Assumed parameters used to estimate LCOE.
Nuclear Natural Gas
Unit Capital Cost ($/kW) $4646 $910
Fixed O&M ($/kW-y) $93.28 $15.37
Variable O&M ($/MWh) $2.14 $3.27
Heat rate (BTU/kWh) 10458 6430
Gas used (mmBTU/MWh) 6.43
Gas cost ($/mmBTU) $5.00
LEU Fuel Cost ($/kg) $3211
Fuel consumption (kg/kWh) 3.15E-06
Economic life (years) 60 40
Capacity Factor 90% 90%
Auxiliary Consumption 8% 8%
Discount Rate 5 and 10% 5 and 10%
13
Pure risk is an absolute risk, while speculative risk is something that may or
may not happen.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140132
and low), fourth, allocates risk (who takes the ownership of the
risk) and ﬁnally, possible risk mitigation strategy (how the risk
could be managed). In the planning and construction phase, one of
the most highly rated risks is construction delay. Cost increases (not
only due to delays, but also due to increase in cost of materials, staff,
etc.) are also a major source of risk. The most highly rated risks are:
construction delay due to poor project management; supply chain
risk; credit risk due to foreign exchange exposure; and interest rate
risk. Risk allocation is based on the type of risk. For example,
construction delay risk is shared between the owner and the
contractor, with mitigation measure to employ a contractor that is
experienced, and with a good track record of delivering projects on
time.
Table 4 lists some examples of operational phase risk, where the
most highly rated risk is the performance risk, which concerns the
despatchability of the plant, ensuring the generation of electricity
as per the agreement to contribute to generating cash ﬂow. This risk
is allocated to the operator, depending on the contractual
arrangement in place. The other risks like fuel supply, spent fuel
management, and regulatory compliance risk are also listed.
4. Government ﬁnancing
Traditionally, governments have invested public sector funds
from the tax revenue and electricity tariff charges to ﬁnance nuclear
power projects. Governments may also have equity ownership,
as an equity owner in Joint Venture (JV) agreements. One
example is the Taishan nuclear power project in China, a JV between
China General Nuclear (CGN), a China Government owned
company, with an equity stake of 70% and the French Government
owned company EDF (Electricite de France), with 30% share, to coown
and operate two EPR. This cooperation has been extended to
the UK Hinkley Point C project, where EDF and CGN have 66.5% and
33.5% shares, respectievly [29].
In both cases, the main suppliers are French and Chinese government
owned companies (Areva CGNPC,14
others), where debt is
provided by international banks and ECA, with the overall support
provided by the UK, French and the Chinese governments. EDF and
CGN have also agreed on a wider UK partnership for the joint
development of new nuclear power stations, at Sizewell in Suffolk
and Bradwell in Essex, to promote their respective technologies in
the UK market. At this stage, the form of government support is not
known for these future projects.
In case of lack of national budget resources available to build
nuclear power plants, governments may opt to build equity. There
are many ways that a government can create equity, for example, it
can pledge receivables from creditable government-owned industries.
Other examples of possible government funding mechanisms
may include:
 Additional cost recovery rates (to fund nuclear projects) or
surcharges on electricity sales;
 Use of national funds (for example infrastructure funds or postal
savings);
 Creation of a government-run private bank to help ﬁnance
“clean energy projects” (including nuclear);
 Banks to ﬁnance infrastructure; and
 Asset pooling (in countries or by utilities with other signiﬁcant
power generation assets).
Governments can also provide support and incentives to
Table 3
Financial Risk Management Matrix: Planning and construction phase risks.
Name of Risk Nature of
Risk
Risk
Assessment
Risk Allocation Risk Mitigation
Construction delay/Project Manag't Pure High Owner/Main
contractor
Qualiﬁed third party contractors/PMC
Construction delay/Licensing Speculative Medium e
High
Owner Independent Regulatory Body and have good communication with the
Regulatory
Non Delivery or delay due to low capacity of the
vendor to supply equipment
Pure High Main
contractor
Selection of qualiﬁed supplier with good track record/contract clause
liquidation damages/Third party monitoring
Credit risk (Loan disbursement schedule) Speculative Medium Owner/Lenders Well deﬁned loan agreement
Credit risk/foreign exchange (currency) Speculative High Owner/Lenders FX hedging strategy
Interest rate risk Pure High Owner/Lenders Fixed rate loan
Escalation cost Pure Medium Owner/Main
contractor
Vendor contractual agreement e cap the cost/detailed sources by country
Commodity price Speculative Low Owner Hedging strategy/Target pricing with contractor
Lack of skilled staff Speculative Low Main
contractor
Fixed Price Turnkey Contract
Technology changes to design Speculative Medium Owner/
contractor
Contractual arrangement with vendor
Table 4
Financial Risk Management Matrix: Operations phase risks.
Name of Risk Nature of Risk Risk Assessment Risk Allocation Risk Mitigation
Performance Speculative High Operator Qualiﬁed operators agreement at a certain performance rate
Electricity price Speculative Low Owner PPA
Fuel Supply Speculative Medium Fuel Supplier/contractor Long term fuel supply contract/agreement
Safety Speculative Medium Operator/Owner Tested design
Spent Fuel Management Pure Low Owner/Fuel Supplier Govt. TBD after the bid approval process is complete
Regulatory Compliance Speculative Medium Owner/operator Agreement with operator
Foreign Exchange Speculative Medium Owner/Off-taker PPA linked to Foreign currency
Third party Force Majeure Speculative Medium Owner/All contractual parties Agreement with third party
Note: Electricity price risk is low for regulated utility environment with PPA and high for deregulated market.
14
China General Nuclear Power Corporation.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140 133
support energy projects. Examples of such incentives and support
are discussed below:
4.1. Loan guarantee
Examples of governments providing loan guarantee include the
U.S. Department of Energy's loan guarantee for Vogtle nuclear power
project of $6.5 billion and UK's guarantee scheme for infrastructure
projects. Other examples of UK Government's support are: the loan
guarantee for the Wylfa nuclear power project, an agreement between
the UK Government with Hitachi and Horizon Nuclear Power
to promote external ﬁnancing; and also initial UK Government's
guarantee for Hinkley Point C of £2 billion [30]. However, the British
loan guarantees need certain conditions to be met, and these
reportedly include seeing Flamanville operate by 2020 [31]. EDF,
however, has decided not to take the 2 billion loan guarantee [32].
4.2. Guaranteed long term electricity contractual agreements
These are generally host government-backed power agreements
like the PPA, where the host country utility enters into a long term
agreement (based on the life of the asset) to purchase electricity
from the nuclear power project developer/owner, at an agreed
price. This aims to provide revenue stability and long term
commitment. Like in the case of Akkuyu nuclear power project in
Turkey, the Turkish Electricity Trade & Contract Corporation
(TETAS) has an obligation under a 15-year contract to buy a ﬁxed
proportion of power at a ﬁxed price of US$ 12.35 cents/kWh from
the project company. This pertains to the 70% of the output of the
ﬁrst two units and 30% from units three and four. The noncontracted
power will be sold by the project company in the
open market. The revenue from the PPA will pay for the project cost
(expected to be paid off in 15 years), after which the project company
will pay 20% of the proﬁts to the Turkish government [33]. In
Canada, in the case of Bruce Power nuclear plant, the secure longterm
cash ﬂow from the PPA will allow Bruce Power to proceed
with its long-term refurbishment program, like investing in lifeextension
activities for Units 3e8 [34].
In the case of the UK's Hinckley Point C, a long-term electricity
contractual agreement (Contract for Difference (CfD)15
for 35 years)
at £92.50/MWh, between EDF Energy and the UK Government, will
also guarantee cash ﬂow for the project [35]. The agreed CfD is very
important for the ﬁnancial viability of the project. The long-term
electricity price purchase contractual arrangement reduces the
electricity market risk, in terms of both price and volume, specifically
in deregulated electricity markets, which is vital for risk averse
investors. Since most of the previous nuclear plants were built in
regulated markets with long-term contracts and price stability (like
the nuclear new build in China, Pakistan, India, Russia or the UAE),
the change in the structure of electricity markets to semi or fully
deregulated markets, with competition among power generations,
has amounted to regulatory market risk. Investors want long-term
electricity price guarantees, as it plays a decisive role in the commercial
and ﬁnancial sustainability of nuclear power [36].
4.3. Export credit agency (ECA) ﬁnancing
ECA, also known as trade ﬁnance, it provides ﬁnancing services
such as guarantees, loans and insurance to support domestic
companies for their activities overseas, in order to promote exports
in the domestic country. This type of ﬁnance has been generally
very important for nuclear power projects as it is a key long term
ﬁnancing debt instrument, with attractive ﬁxed interest rates. Fig. 5
shows the ECA mechanism, where a local bank16
provides loan to
the foreign buyer, under the ECA cover, and makes payment on
delivery to the exporter. The foreign buyer makes loan repayments
to the bank over time, based on the agreed term and loan amount.
Examples include the France-Coface loan to Finnish utility TeollisuudenVoima
(TVO), for the Olkiluto-3 project in Finland. Another
example is the Government-to-Government loan, an export credit
of $10 billion given by the Russian Government to support the
Belorussian VVER (Russian technology) to ﬁnance the nuclear power
project [37].
5. Private ﬁnancing
Government ﬁnancing and/or support, in both the developed
and developing countries, is one of the leading ﬁnancing approaches.
However, restrictive funds and the sovereign credit
pressure after the global ﬁnancial crisis has put more burden on
government resources. Governments are increasingly looking to
the private sector to co-ﬁnance new infrastructure investments,
including large scale capital intensive asset like nuclear power
plants. Why?
 A recognition that public funds are insufﬁcient to meet the
capital intensive infrastructure requirements like nuclear power
as governments are under severe ﬁscal pressures to use the
resources for high priority social sector programs, like health
and education;
 Increasing acceptance of the principle that the beneﬁciaries of a
project should pay for it rather than taxpayers as a whole; and
 A recognition of the greater incentives for efﬁciency and
expertise in innovation, design, construction and operation that
the private sector can bring based on the market demand, The
principle of “best value for money” is assumed to be embedded
in private sector participation.
Private sector ﬁnance can take various forms, ranging from
corporate ﬁnance to project ﬁnance, but pure project ﬁnance or
non-recourse ﬁnance is still not available for nuclear. Project
ﬁnance or non-recourse ﬁnancing has been increasingly used to
ﬁnance large scale non-nuclear energy power projects, where a
special purpose vehicle (SPV) entity is formed to build the power
plant. As the SPV entity does not have a credit track record, lenders
only have limited recourse and hold the pledged project assets and
rely on the future cash ﬂows generated by the project company, for
the loan payments.
The private ﬁnancing models that have been employed or that
are emerging in the nuclear industry are discussed below, these
span from corporate ﬁnance models to risk diversiﬁcation ﬁnancing
models. It should be noted, however, that these models only reﬂect
some signs of the shift towards more private sector participation;
project ﬁnance remains unavailable for nuclear power projects due
to the various risks mentioned earlier.
5.1. Corporate ﬁnance
Utilities with robust balance sheet have employed corporate
15
A CfD is simply an agreement between two parties e the investor and the CfD
provider e to pay each other the change in the price of an underlying asset.
Depending on which way the price moves, one party pays the other the difference
from the time the contract was agreed to the point where it ends.
16
In general, the lender(s) is (are) a commercial bank(s) which has (have) a strong
relationship with the exporter, rather than a local bank (e.g. a bank from the host
country).
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140134
ﬁnance or balance sheet ﬁnance, where a company borrows or
raises ﬁnancing (through debt and/or equity) against the assets of
the company, as a whole. The bank or the bond holder provides
funds to the company, and it has a claim against the company's
whole cash ﬂows, unless the loan is secured against a particular
asset, as is common for mortgages. The risk of the investment is
then borne by all providers of the capital to the company. An
example is Flamanville 3 project where EDF, the French electric
utility company, largely owned by the French Government, using
corporate ﬁnancing, has ﬁnanced the construction of Areva's thirdgeneration
EPR, with 1650 MW capacity, in France. The original cost
estimate reported in 2007 was V3.3 billion (in 2005 values).
However, cost overruns of more than V4 billion, with revised
project cost estimates of V10.5b (September 2015) and excessive
project delays, have been a big setback for the project.17
The industry is cognizant that even a company like EDF needs to
utilize a risk diversiﬁcation strategy, speciﬁcally when it is
venturing into a FOAK technology, which can add up to 30% to the
cost of a nuclear power plant [25]. The credit rating agencies have
pointed towards risk diversiﬁcation, advising companies that if
they want to avoid any downgrades, it is important that they
change their ﬁnancial policies, have partnerships, and/or
strengthen their balance sheet to curtail any credit pressure. Some
companies have taken on the credit rating agencies advise, like
Duke Energy, merging with Progress Energy in July 2012, thus
strengthening its (Duke Energy) balance sheet to form the largest
US utility, with a market capitalization of more than $50 billion
[39].
Cognizant of this fact, the utility industry and the ﬁnancial
sector have devised some alternatives to invest in nuclear projects
to diversify risk. Some of these ﬁnancing models are discussed in
the following subsection.
5.2. Mankala ﬁnancing model
Generally when a group of investors jointly invest in a project to
raise debt and equity to fund a project, it can be categorized as
investor ﬁnancing model. Debt can be raised as a loan from
commercial banks, and/or ECAs or by issuing bonds by tapping into
the capital markets, etc. Investors also provide equity, as shareholders,
or raise equity by issuing shares (initial public offering).
One example of investor ﬁnancing is the Mankala Model. This
type of model is also called cooperative model and is popular in
Finland's electricity sector. In the case of the Mankala Model [40],
there are several interacting parties that share the risk, this includes
the Mankala Company (or the nuclear developer), lenders,
shareholders and the Engineering, Procurement, and Construction
(EPC) contractor, see Fig. 6.
The lenders provide the Mankala Company the loan for the
construction of the nuclear project and in return, receive debt
service payments, by the shareholders. Portion of the project equity
and loans are provided by the large power customers, who have
long-term power purchase agreements with the project company,
which ensures a stable future revenue stream from the project. The
Mankala Company does not aim to make a proﬁt, and the shareholders
do not receive dividends. The Company owners beneﬁt by
using the electricity or selling it forward, in the electricity market.
In Finland, the Mankala model is applied in the case of
Olkiluoto-3 project, which is currently under construction. The
ﬁnancing model has the characteristics of hybrid ﬁnancing
(corporate ﬁnance and project ﬁnance). The project is ﬁnanced
partly through the balance sheet of TVO with leverage characteristics
similar to project ﬁnance, 75% debt ﬁnancing and 25%, equity
ﬁnancing. Some equity is provided by the large electricity customers,
that have long-term PPAs with the project company, and
receive the rights to the electricity produced. The construction risk
is shared between the Mankala company and the EPC contractor,
who is assigned to construct the nuclear power plant and signs
construction contract with the Mankala company. In addition to
this, the project also has export credit guarantee by the French and
Swedish Governments to support the company by providing
funding at very attractive interest rates, reducing the cost of
ﬁnancing. Hence, in general the Mankala Model, with multiple investors
is a good model to diversity project's risks.
Another example is Fennovoima, in Finland, with Shareholders
Rosatom (34%) and a consortium of Finnish power and industrial
companies (66%) with 69 shareholders (mostly small regional and
municipal utilities and also industry, like trade, mining and steel
manufacturing), to construct and ﬁnance the Hanhikivi nuclear
power plant. An agreement with the Russian state nuclear company,
Rosatom, is signed to build the AES-2006 VVER Russian
technology, initially funding more than $2 billion using ECA
ﬁnancing, along with other loan to support its technology [41].
The Mankala model is so far implemented in Finland, however
countries in Europe have expressed interest in adopting the
Fig. 5. Government Financing: ECA ﬁnancing mechanism.
17
The cost overruns and construction delay has led to some serious ﬁnancial
stress for the company, having an impact on the company credit rating, as Moody's
downgraded EDF to A1 from Aa3, with negative outlook [38]. Other reasons that
contributed to EDF's downgrade include the need for EDF to spend between V55
billion and V100 billion, for an upgrade of their nuclear ﬂeet within the next 10e15
years. The credit downgrade has led to further fueling of investors' negative
sentiment, with a sell-off of EDF shares, resulting in a share price plunge of 50%,
since January 2015 and decline in the company market capitalization. (Reuters, 15
January 2016).
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140 135
Mankala model, as a risk diversiﬁcation strategy.
5.3. Vendor ﬁnancing
Owners are increasingly perceived to be more inclined to build
nuclear power technology backed by vendor ﬁnancing. Having
recognized owners' sentiment and the market trend, most of the
vendors are considering this possibility. Vendor ﬁnancing is based
on vendor's ﬁnancial standing and market demands. It can be
achieved either through debt ﬁnancing, where vendors provide
credit by borrowing from the banks (generally as a liability on its
balance sheet) or arranging for the loan or credit, through the
lenders or banks to fund the project. An example is Rosatom 30 year
interstate loan of V10 billion, for the Hungary New Paks project, to
builds two units of Russian VVER units, adding 2400 MW capacity
at Paks plant. The loan covers 80% of the anticipated project cost,
with a loan repayment plan, spanned over 21 years of plant
operation.
Another example of vendor ﬁnancing are: China National Nuclear
Cooperation loan of $9e10 billion to the Pakistan Government
(Pakistan Atomic Energy Commission) to build two ACP1000 reactors
(Chinese technology reactors) to add 2200 MW capacity to
the Karachi Coastal nuclear power project [42]. In most of these
projects, the governments of the exporter of the technology are
very much involved in the transactions, hence requires government
support. In some instances the borderline between “vendor
ﬁnancing” and “government-to-government ﬁnancing” is very ﬁne.
Vendors have also put a direct stake in the nuclear power projects,
by providing equity. As a shareholder, this can be expensive, as the
cost of equity is higher than the cost of debt, so can add to the
ﬁnancing cost of the project. An example is a potential Bulgarian,
Kozloduy-7 nuclear power project, with 30% equity by Westinghouse
and 70%, by the Bulgarian Energy Holding [43].
Some vendors are termed as strategic partners, like in the case
of Jordan, where Russia's Rosatom Overseas will be a strategic
partner and operator of the plant, ﬁnancing $10 billion of the
project. The strategic partnership structure, Rosatom 49% and the
Jordanian government 51% [44].
Given that vendors have limited balance sheets, some vendors
are opting for further risk diversiﬁcation strategy, by forming
consortia. An example is the potential Turkey Sinop project, where
a group of vendors (Mitsubishi and Itochu, and France's Areva and
GDF Suez) are to provide 70% debt ﬁnancing and 30% equity ﬁnance
for the Sinop Atmea-1 reactors. The Atmea-1 is a FOAK designed for
load-following and using the same steam generators as that of
Areva's large EPR. Of the total equity, the consortia will take an
equity stake of 65% and the rest (35%) by EÜA, the Turkish Electricity
Generation Company [33].
5.4. Raising ﬁnance through capital markets
Owners and investors are also tapping into the capital markets
to raise ﬁnancing to fund nuclear power plants. These have been
either raising debt by the issuance of bonds or issuing shares and
raising equity. Like State-owned China Guangdong Nuclear Power
Holding, offshore yuan bond, raising CNY1.5bn ($240m) via a threeyear
bond at 3.75%, rated as Aþ/A3 by Fitch & Moody's [45]. Other
examples are Tepco raising $2 billion in private-placement bonds
from lenders [46], Korea Hydro and Nuclear Power issuing $750
million in bonds in September 2012, $500 million in September
2013 and $300 million in June 2015; and China General Nuclear
Power Corp issuing $600 million in bonds, in January 2016 [47].
To raise equity, some utilities, owners and vendors are issuing
share through Initial Public Offering (IPOs), like Romania's Nuclearelectrica
listing, raising V63 million [48], China Nuclear Construction
Company to raise $289 million as IPO [49] or in the course
Fig. 6. Investor Finance Model: Mankala Model and risk diversiﬁcation.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140136
of privatisation of state companies like China National Nuclear
Power, to raise $3.89 billion of IPO.
Every model varies in risk allocation and ownership transfer
ability across the public and private sectors (See Fig. 7). It is envisaged
that over time as new plants are build, the combination of
investor style ﬁnancing models might become more apparent in the
nuclear industry, where multiple equity partners share the risk.
Tapping into the capital markets is another risk mitigation option,
either through issuance of corporate bond or offering ownership to
strategic and industrial partners through Initial Public Stock Offering.
As stated earlier pure project ﬁnance is still not available for
nuclear. There were some attempts of project ﬁnancing in 2009,
when new project companies were formed, like Nuclear Innovations
North America (NINA), a partnership between NRG Energy
and Toshiba to invest in new nuclear projects, in South Texas
[50], but NRG withdrew from the project in April 2011, after the
Fukushima disaster of March 2011. As the ﬁnancial industry, started
to re-assess the ﬁnancial impact of the Fukushima event, it looked
less favourably towards large scale high risk infrastructure projects
like nuclear power projects.
5.5. Phased ﬁnancing
Phased ﬁnancing, as shown in Fig. 8, is a mechanism that can be
applied to any ﬁnancing model, discussed above. It may be applicable
to the different phases of nuclear power projects, spanning
from development and construction to the decommissioning
phase. For a nuclear power project, the initial ﬁnancing phase occurs
during the development and construction, which is deemed
most risky and has a high cost of ﬁnance.
Phased ﬁnancing pertains to revisiting the ﬁnancing terms once
the nuclear power plant is constructed. Reﬁnancing can take place
during the plant's operation and decommissioning, when there is
lower risk, and thus, a lower risk premium, associated with the
project. The lower risk, after successful commercial operation of the
nuclear power project, provides better reﬁnancing opportunities,
on better terms and conditions that lowers the ﬁnancing costs and
provides more ﬁnancing option, as a broader pool of investors could
also be tapped. Thus phased ﬁnancing, can lower the project overall
cost of ﬁnancing in case of successful completion of the nuclear
power project.
6. Contractual and ownership arrangements
6.1. Existing contractual approaches
There is a wide range of contracting structures that are available,
which can be considered for building nuclear power plants. The
selection of the most appropriate contract structure depends on the
circumstances, the experience and the capability of the owner/
developer when initiating the project. This section discusses the
main types of contractual approach applied for nuclear power
projects.
6.1.1. Turnkey contract
Under this contractual arrangement, most of the risk and responsibilities
are taken by the supplier, which maybe OEM (vendor
of the nuclear power project), or a specialised Architect Engineer
company, depending on who is best placed to take on the risk. As it
has the necessary experience and knowledge about any potential
issues that may arise during the construction phase. It can be a
single contractor or a consortium of contractors that takes the
technical responsibility for the whole nuclear power project. The
responsibility of the vendor includes, but is not limited to, engineering,
design, procurement, licensing, supply of all equipment, all
on-site and off-site fabrication, assembly, fuel loading, testing of all
system and ﬁnal commissioning of the plant. Hence, the lead
contractor would be responsible for the performance of the whole
scope of the project, from the time the ﬁrst concrete is poured to
the nuclear power plant testing and commercial operation, when
the nuclear power plant is tuned over to the operator.
There can be some variants of this type of contract, like some
minor works or supply of equipment is provided by local suppliers,
but the overall responsibility rests with the lead contactor or
vendor. An important distinction is whether the contract is ﬁrm
ﬁxed price or “open book” (or usually a combination). In the ﬁrm
Fig. 7. Emerging trends of nuclear ﬁnancing models.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140 137
ﬁxed price case, this type of contract is generally more expensive, as
the risk premium of any project contingency is priced-in the cost of
the nuclear power plant. The contractor should also have the
capability to deliver the project. An extreme example is the case of
Olkiluoto-3 project in Finland, where the main contractor is Areva,
which, in 2004, agreed to an extremely aggressive schedule and
low ﬁrm ﬁxed price. The project is behind schedule by several years
and has exceeded the budget by several billion Euros. The French
Government has already recapitalised Areva with additional funds
to survive this situation. Areva being the lead contractor has prime
responsibility for the project delivery, it has been disputing partial
construction delays and cost overruns with the TVO, asking for
compensation, which is not accepted by TVO, who has stated that
the contract was agreed as ﬁxed price turnkey contract. TVO has
also ﬁled claims for delay. The matter is still unresolved [51], as
arbitration is still in progress.
6.1.2. Split-package contract
Under his type of contract, the responsibility to deliver the nuclear
power project is divided among few contractors, each delivering
a large section of the work. However, the overall
responsibility to deliver the nuclear power project rests with the
plant owner, which is expected to have experience in the project
management of such large scale projects and with nuclear requirements.
Usually, the owner will hire experienced Architect
Engineer as EPC/M (EPC including management) contractor and or
an Owners Engineer to provide the extensive human resources and
systems to organise such a complex undertaking (project management,
procurement, interface design, etc). The procurement
process entails separate procurement of the main parts of the nuclear
power plant, typically separate contracts, which are divided
into nuclear island, turbine island and balance of the nuclear power
plant related investments. These contracts are managed and signed
by the owner who is also responsible for coordination among the
contractors to deliver and install the nuclear island, the turbine or
generator and the balance of the plant. Hence, the key risk is the
interface risk, e.g. the management of the interface between many
complex contractual arrangements. This type of contract is termed
as a split-package contract, as the owner might work with different
entities or vendors, based on perceived strength of the contractor.
Under this contract, the owner of the plant can possibly mix
parts delivered from overseas (generally nuclear island and turbine
generator) and those that can be manufactured in the country,
locally produced (like construction works and perhaps balance of
plant). This gives the owner more control and the opportunity to
optimize between competitive suppliers. However, the owner or a
contract manger appointed by the owner, would be required to
manage simultaneously, all the contacts and oversee the work, thus
seen as more of a managerial role (as opposed to the more monitoring
role under the EPC Turnkey structure), in order to ensure the
successful completion of the project.
6.1.3. Multi-contract
Under this contract, construction of new nuclear power plant is
organised by the owner of the project. The owner is also the
architect-engineer, whereby it enters into multiple contracts for
various services (engineering, design, and construction) and
equipment. There are numerous (hundreds) separate smaller contracts
which are managed and signed by the owner, who is also
responsible for coordination during preparation and construction.
Under this approach, the owner needs to be experienced and have
the capability to manage multiple contract. Hence, like the splitpackage
contract one of the key risk is the interface risk, e.g. the
management of the interface between many complex contractual
arrangements.
The main advantage of this contractual arrangement is that it
gives the owner more control of managing the procurement of all
equipment. This transparency, may lead to signiﬁcant cost efﬁciencies,
given the owner knowledge of the supply chain. However,
all the risks are borne by the owner, so requires a robust risk
Fig. 8. Phased ﬁnancing [40].
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140138
management strategy.
This type of contractual arrangement is more suitable for large
experienced utilities, with large new built programs. In France, it
has been utilized by the French utility EDF for the Flamaville project
because it had vast nuclear engineering resources (for managing its
operating ﬂeet), prior experience in managing such large-scale
nuclear projects.18
Another example is the United States, where
TVA (USA Tennessee Valley Authority), has been responsible for
project development and construction, as well as owner and
operator role, following the completion of the construction of the
nuclear power project. Successful examples are KEPCO and CGN,
who have used this approach, but over time have split off some of
their competences into specialised engineering and construction
subsidiaries.
It is not likely that this approach could be used by an owner who
is looking to develop its ﬁrst nuclear power plant project, since it
would lack the necessary expertise. A special scenario is where the
newcomer partners with an experienced third party utility, like in
Alternative Contracting, discussed below.
6.2. Alternative Contracting and ownership practices
There are also alternative contractual arrangements emerging in
the nuclear industry, these are classiﬁed as public private partnership
(PPP) arrangements. Where, PPPs are a “cooperative venture
between the public and private sectors, built on the expertise
of each partner, that best meets clearly deﬁned public needs
through the appropriate allocation of resources, risks and rewards.”
[52] The PPP can take various form, like supply management, lease,
concession and private ownership of assets. The concession contracts
are generally Build-Operate-Transfer (BOT) and the ownership
of assets can be Built Own Operate (BOO), see Table 5.
The BOT and BOO contracts have been very common across a
spectrum of industries (water, energy, transport, health, communication,
education, etc.) and have been employed across the world.
In the case of BOT contract, the project company undertakes the
construction, including ﬁnancing, of a given infrastructure facility,
the operation and maintenance. The project company operates the
facility over a ﬁxed term and charges facility users (customers)
appropriate rates, fees, rentals, etc. The charges are ﬁxed and do not
exceed those proposed in the bid or as negotiated to recover the
company's investment, operating and maintenance expenses, there
is an inﬂation and escalation factor included and agreed at the time
of negotiation of the contract. At the end of the ﬁxed term, the
contractor or developer transfers the facility to the government,
generally at a pre-agreed price.
Under the BOO scheme the project company is authorized to
ﬁnance, construct, own, operate and maintain an infrastructure.
The project company is allowed to recover its total investment,
operating and maintenance costs plus a reasonable return thereon
by collecting rate, fees, rentals or other charges from facility users.
This type of model is requested by newcomers with limited
ﬁnancial resources, as the nuclear power plant is built, ﬁnanced,
owned and operate by the contractor or vendor. The local content
depends on the level of maturity of the industry in the country.
Mostly local companies can participate as subcontractors for civil
construction part. The operating personnel are provided by the
contractor, who must be ﬁnancially very sound because the investment
costs are enormous and the return of capital investment
might take more than a decade. Proﬁt by the contractor/vendor is
made through purchasing electricity, through a long-term PPA,
after connection to the grid.
The BOT/BOO arrangements are becoming more popular among
countries that lack the funds to construct nuclear power plants, as
one of the attractive features of such arrangement is that the
contractor also arranges the ﬁnancing, which is part of the BOT/
BOO arrangement, hence delivers the whole package. Generally,
multiple investors, ﬁnanciers, vendors, etc., form a consortia to
BOO/BOT a project for large-scale infrastructure projects, which is
important for risk diversiﬁcation.
The Akkuyu project in Turkey, which started in 2008 with the
Russian supplier consortium, is an example of the ﬁrst BOO project
in the nuclear industry (discussed earlier). Another potential
example is the Jordan project, to build two 1000 MWe VVER units in
Az-Zarqa where the Russian government is providing partial
funding. A joint project company is to be established that will own
and operate the plant. This will be the ﬁrst nuclear power plant of
this technology in the Middle East region. Through it is early to
state, but the agreement appears to have similar characteristics as
of BOO arrangement [44].
7. Conclusion and policy implications
The traditional ﬁnancing methods of government ﬁnancing still
dominate the industry but governments are increasingly looking
for private sector participation to initiate new innovative ﬁnancial
structures for the nuclear industry. However, initial government
support is imperative to ﬁnance new nuclear power plant projects,
under all ﬁnancing options.
As a risk diversiﬁcation strategy, new models have emerged to
increase the number of equity partners to diversify the risk. Like the
Finnish Mankala Model, or investor ﬁnancing where a consortium
formed by the large industrial consumers and municipal utility
companies are contributing to the project investment, who share
the risk and eventually the reward once the project is completed
and starts to generate revenues. In addition to this, vendor
ﬁnancing has really picked up in recent years, as the market demands,
where single vendor or consortia of vendors are joining to
ﬁnance nuclear power projects.
As new plants are built, hybrid style ﬁnancing models might
Table 5
Contractual arrangements.
Broad Category Main variants Ownership of capital
assets
Responsibility of
investments
Assumption of risk Duration of contract
(years)
Supply and Management
Contracts
Operational/Maintenance
Management
Public Public (O) Public/Private
(M)
Public (O) Public/Private
(M)
1e5
Lease Lease Public Public Public/Private 3e20
Concession** BOT* Public/Private Public/Private Public/Private 15e30
Private Ownership of Assets BOO Private Private Private Indeﬁnite
*) Build-Own-Operate (BOT) has many other variants such as Build-Transfer-Operate (BTO), Build-Own-Operate-Transfer (BOOT) and Build-Rehabilitate-Operate-Transfer
(BROT). **) Franchise contracts are also a type of concession arrangements with 3-7 years of durations.
18
In the case of Flamanville 3 project, EdF has failed to implement this approach
successfully and has suffered in credibility with investors, with considerable construction
delay and cost overrun.
N. Barkatullah, A. Ahmad / Energy Strategy Reviews 18 (2017) 127e140 139
become more apparent in the nuclear industry where multiple
equity partners share the risk. Investors are also tapping into the
capital markets as risk mitigation option by issuance of corporate
bonds, and raising equity by offering ownership to strategic and
industrial partners or through IPO.
Under current conditions, there are some signs of a shift away
from traditional government ﬁnancing, but project sponsors are
still looking towards some support or guarantee from governments,
as sponsors of new nuclear power plants may not be able to pay the
yield needed to attract equity holders. For commercial investors
and lenders, concern about delays and cost overruns in the face of
the industry past performance has always been a major factor.
Design readiness and construction duration is still the key inﬂuencing
factor to impact the total investment cost, where construction
risk is still rated number one, hence to gain conﬁdence of
investors more projects on “Schedule and within Budget,” are
becoming a priority.
The ﬁnancial industry is going through some restructuring after
the global ﬁnancial crisis of 2008, with stringent regulation to avoid
similar future crises, such as increased capital requirements for
banks (Basel III), US Financial Regulatory Bill, the change in trading
rules in Germany, stern banking liquidity rules in China and the
Bank Levy in the UK. These are intended to protect investors but
may also add to project ﬁnancing costs and impact on market
liquidity. In the short-term it will make ﬁnancing for investors very
challenging, especially for large scale infrastructure projects like
nuclear power plants. Regulators are also going to be excessively
vigilant regarding new risky investment projects. The ﬁnancial institutions
are going to be very cautious with any new investment
venture.
Acknowledgments
The work of Ali Ahmad was supported by The John D. and
Catherine T. MacArthur Foundation (Grant: G-1511-150437). The
authors would like to thank Xavier Rollat, Director of Alet Business
Services Limited and Ruediger Koenig, Principal at QENIQ Advisory,
for useful comments and suggestions on an earlier draft.
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