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Nuclear electricity investment could risk utility credit ratings – analysts

20 Mar 2012 18:20:53 | edem


Appetite for investment in nuclear new build is weaker than for other types of electricity generation because of the huge capital costs involved, but also because ratings agencies appear to view the projects as risky, analysts told ICIS Heren on the sidelines of the European nuclear forum in Brussels on Tuesday.

One senior analyst told ICIS Heren that while the views of ratings agencies alone would not be enough to dissuade a company from investing in nuclear, a potential ratings downgrade might give a utility considerable pause for thought.

"If [a utility] is already on the edge of a ratings band, a nuclear project could be the thing that pushes them over the edge - it's just another negative factor," he said.

The source suggested that ratings agencies such as Moody's or Standard & Poor's viewed nuclear as high-risk because of their limited tolerance for debt.

"A lot of European utilities have spent the last decade buying [generation assets] everywhere, building things in all sorts of places, and they've got a lot of debt. And ratings agencies by and large encourage them to reduce that debt," he said.

Nuclear projects necessitate massive expenditure and considerable patience on the part of investors.

"For a [European Pressurised Reactor] you're talking €6bn, and maybe more by the time you've built it. But also you've got to spend hundreds of millions just getting planning permission and licensing. Then you start spending the real money, and by the time you've done that, seven or eight years have passed and you've had nothing back - even for a really big utility, that's a long time," he added.

Moody's and Standard & Poor's did not immediately respond to a request for comment.

Price signals

The source suggested that markets are not sending the right price signals to support investment in nuclear new build anyway.

The analyst acknowledged that appetite for investment in any type of generation is limited at present, but suggested that nuclear would prove tough to finance even compared with gas-fired generation, for which margins are currently unfavourable (see EDEM 15 March 2012).

"If you take a combine-cycle gas turbine over a timeframe of about 25-30 years, about a third of the average unit cost is the cost of capital, whereas with a nuclear plant it will be about 75-85% over the same period. So there are no strong price signals at the moment," he told ICIS Heren.

The analyst recommended a change in European emissions policy as a means of improving the nuclear investment picture.

"If people were confident there was a European carbon price which was going to last 20 or 30 years, that would be a powerful signal. As it is, we have a carbon price market that doesn't work - it doesn't send the right signals."

UK investment questioned

A second analyst agreed that investment in nuclear is "a hard sell".

He questioned whether the two of the three consortia in the running to build up to 3GW of new nuclear capacity in the UK (see EDEM 29 February 2012) would go through with the job."One consortium is led by [Germany's] E.ON and RWE - is it likely they will invest as they're exiting nuclear in their country? The second involves GDF SUEZ, who are in Belgium, where there is strong anti-nuclear sentiment - so investment from them seems uncertain too."

The first source was also doubtful of UK investment, concluding, "[Whether] what the UK government is prepared to do and what the utilities want can be brought together, I can only speculate, although it will be very interesting to see." TH

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