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New nuclear electricity costs hit utility ratings - Moody’s

27 Mar 2012 18:04:13

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Building a nuclear power plant is perceived as risky by credit rating agencies - and in some cases could lead to a ratings downgrade of the utility concerned, a senior analyst at US-based Moody's told ICIS on Tuesday.

The analyst, who wished to remain anonymous, said an unfavourable attitude towards nuclear power stemmed largely from the scale of investment required, together with future uncertainties surrounding power prices.

"The risks are writ larger when you think of a nuclear project [than for other forms of generation], because construction and planning is that much more tortuous, construction risk is higher and from an operational point of they have a high fixed cost base," the source said.

The source added that Moody's pays particular attention not only to nuclear power but to any large capital investment projects where the financial risk profile of a given utility may be affected by whether or not the project is completed on time and on budget.

He noted that appetite for investment in nuclear power may have waned in recent years owing to the large sums of money utilities spent on other forms of generation assets in 2008-2009 - when power prices across Europe were considerably higher than their current level.

Political risk

The analyst also pointed to political risk as another factor acting as a "turn-off" for nuclear power.

"We became aware that political risk [regarding nuclear power] is there and may be rising - it's something that plays into our view of future cash flows. If there's a risk that plants will be closed down then clearly they won't be generating cash flow as we thought they would be," the source continued.

The comments coincided with the release of a report on Tuesday by UK-based think tank Energy Fair into the financial risk of investing in new nuclear facilities.

The study pointed out that nuclear power is "vulnerable to political action" arising from events like the Fukushima disaster in Japan.

It highlighted political risk as one "major type of risk for any investor considering putting money into new nuclear plants."

Downgrade

The Moody's analyst confirmed the views of a second analyst ICIS spoke to last week at the European nuclear forum in Brussels (see EDEM 20 March 2012), who said any increase in a utility's debt can place downward pressure on its ratings band.

"It depends how much flexibility they have," the Moody's analyst commented. "If debt is rising extremely quickly on top of an already indebted balance sheet that will bring more pressure to bear on a rating."

The downgrade of Italian utility ENEL, the source explained, was strongly influenced by the lowering of Moody's rating of the Italian republic.

But he was keen to stress that any downward pressure on a country's rating does not necessarily mean the same for its utilities - especially if they are not state-owned.

"Whatever happens to Germany isn't going to be pushing down on the German utilities [credit rating] for a while, as there's no ownership there, so there isn't that method of transmission," he said. TH

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