Last month, the IAEA released its forecast for a significant increase in global nuclear power capacity by 2050 by 2.5 times current levels.
The agency said a “more aspirational goal” would require more than $150bn in annual investment to triple global nuclear capacity – a pledge made by 22 countries in December 2023 at the Cop28 United Nations (UN) climate conference in Dubai.
The new report highlights the financial challenges and opportunities in scaling up nuclear energy, underlining the need for innovative financing mechanisms to meet the growing demand for clean energy.
A main focus of the report is the financial complexity surrounding nuclear projects, particularly the large upfront costs and long construction timelines. The report said these two aspects “exacerbate the perception of investment risks.”
According to the report, costs for new nuclear power plants can be highly project-specific, varying across countries and reflecting not only differences in technologies, labour costs, project scope and financing mechanisms but also different recent experiences in plant construction. The UN agency based its report on financing and cost estimations by the International Energy Agency (IEA).
The IAEA said “reported” capital costs (excluding financing costs) for a first-of-a-kind (Foak) reactor unit after many years in the EU, UK and US range between US $8,000-11,000 per kW or more.
In countries with ongoing experience in nuclear plant construction and “mature expanded” nuclear energy supply chains, and often lower labour and regulatory costs, construction costs and construction times have been comparatively lower, the agency said.
The IAEA gave examples recent new-builds in China, South Korea and Russia where reported capital costs have been closer to $2,500-5,000 per kW.
According to the report, quoting IEA estimates, by rebuilding nuclear supply chains, scaling up deployment volumes, and reusing the same design from one project to the next China and India will be able to deliver nuclear projects for less than $3,000 per kW, while in the EU and the US, new build costs could be reduced to around $4,500 per kW by 2050.
Government Backing Is Essential
The report calls for governments to play a role in ensuring financing availability for nuclear power projects. This includes providing loan guarantees, subsidies, and regulatory support to attract private investors. Public-private partnerships are seen as a potential model for distributing financial risks while making nuclear energy projects more bankable.
According to the IAEA, nuclear power projects have the potential to be attractive to private investors because of their long-term stability and predictability in energy generation, which can translate to consistent revenue.
Despite private investors having been “historically averse” to engage in nuclear energy projects due to their specific risks, various financial instruments can help mitigate these risks and make nuclear ventures more appealing to private capital.
Government backing is essential for nuclear expansion, particularly in managing the risks of new-build projects. Such support is important also for emerging markets and developing economies which can be “newcomers” to nuclear power.
The report says government backing can also come though export credit agencies, with export credit having become increasingly important for all parties involved in nuclear energy projects. “For technology exporters, the ability to provide financial solutions has become a critical competitive advantage, especially in new or emerging markets that lack the access to the large funding required in nuclear energy projects,” says the report.
Innovative financing mechanisms, including green bonds and sustainable finance, could be used to unlock the required capital. The inclusion of nuclear energy in sustainable investment taxonomies, such as in the European Union, is seen as a potential catalyst for drawing commercial banks into the sector.
The IAEA also sees a growing role for multilateral development banks, especially in emerging markets, to bridge financing gaps in countries with less developed financial systems.
“The IAEA is engaging multilateral development banks, including the World Bank, to highlight their potential role in making sure that developing countries have more and better financing options when it comes to investing in nuclear energy,” says the report.
The Potential Of Small Modular Reactors
The report highlights the potential of small modular reactors (SMRs) to attract new types of financing. Although these reactors promise lower initial capital costs and reduced construction risks, no large-scale commercial deployment of SMRs has yet provided a clear picture of their cost competitiveness.
“The cost structure of SMRs in many ways mirrors that of their larger counterparts,” the report said adding that “both have relatively high upfront capital investment requirements and stable and predictable operating expenses.”
“However, SMRs offer the potential for simplification, standardisation and predictability that holds the key to unlocking their economic competitiveness, overcoming their main disadvantage compared with traditional large reactors, which have evolved towards larger units to take advantage of economies of scale.”
The timeframe for investors to see returns is expected to be shorter for SMRs because of their faster construction period, says the report.
The report concludes that collaborative efforts between policymakers, regulators and the nuclear industry could facilitate the broader financing and deployment of SMRs.
