The role of governments in de-risking economic and financing concerns of nuclear power projects
Government officials from the ASEAN Member States and nuclear experts convened in a workshop on “Economics and Financing of Nuclear Power in the ASEAN Member States” co-organised by the ASEAN Centre for Energy (ACE) and World Nuclear Association (WNA) on 9 March 2022.
“Over the years, nuclear power has proven to be economically competitive with other types of electricity generation”. During the workshop’s opening ceremony, Undersecretary Gerardo D. Erquiza, Jr. from the Department of Energy Philippines as the Chair of the ASEAN Nuclear Energy Cooperation Sub Sector Network (NEC-SSN), highlighted the importance of the workshop with the trends of an energy transition to increase clean energy towards low carbon future. Moreover, he expressed the need to assess various financing models to mitigate project and market risk for new nuclear infrastructure projects.
In the workshop, the speakers highlighted the importance of identifying and reducing project risks as one of the main drivers of increasing the financing benefits of nuclear energy projects. Additionally, they also emphasised the importance of measuring the costs of nuclear power generation against the costs of variable energy sources across the whole energy system to have a clearer picture of the economic benefits of nuclear power generation.
The risk of nuclear energy projects varies among AMS due to the differing levels of policy readiness and acceptance of nuclear energy. To address the issue, AMS has taken a regional approach through the ASEAN Plan of Action for Energy Cooperation (APAEC), with Civilian Nuclear Energy as one of its main Programme Areas.
With the nascent stage of nuclear energy development and interest among AMS, the framework focuses on building human resources capability on nuclear science and technology for nuclear power generation, including through the ongoing study by ACE and WNA on regional economics and financing opportunities for nuclear energy.
Project and policy-level risk-reduction strategies in newcomer countries
Speaking at the workshop, Mr Nasser Al Nasseri, CEO of Barakah One Company, United Arab Emirates, mentioned that their experience reducing the risk of new nuclear power projects relied on having a clear project-level strategy and operational framework.
“The project framework and governance have enabled a high transparency with the lenders and equity shareholders,” said Mr Al Nasseri. He further noted that the Barakah Plant project continues to meet international standards, including safety, commercial, and financial measures, which are detrimental to attracting and maintaining financiers toward a joint-venture scheme for the project.
Providing insights from a national policy standpoint, Mr Zbigniew Kubacki, Advisor to the Minister, Poland Ministry of Climate, showcased the Polish Nuclear Power Program (PNPP), which sought to construct nuclear power plants (NPP) with a targeted annual electricity production of 70 TWh per year on a strategic co-investment model in the Polish clean energy transformation. He conveyed that risk-reduction strategies within the policy-sphere could be achieved through securing affordable and accessible technology, projecting macroeconomic multipliers, and ensuring public acceptance.
“Public acceptance increases with a stable and determined government policy,” said Mr Kubacki. To that end, Poland has established a 10-year implementation schedule that covers technology selection, siting, financing, construction, and operation of its planned NPPs.
Different paths towards nuclear power generation in ASEAN
Speaking from the perspective of an AMS, the representative of The Philippines showcased their “Four cornerstones approach/strategy” towards the inclusion of nuclear power in the energy mix, which is composed of national policy, legislative framework, alignment with international standards, and public awareness and acceptability. The recently adopted Philippines’ national position for a nuclear energy program through Executive Order No. 164 is seen as the critical national policy in creating an enabling environment for the development of NPPs. In line with the good practices shared in the workshop, the Philippines’ approach to formulating a firm national policy and the other three cornerstones strategy would be detrimental to reducing nuclear project risks.
A different path was brought up by the representative of Indonesia, who mentioned that “The use of nuclear energy is open under current regulations as a last resort”. Such a position reminds the differing policy readiness and acceptance of nuclear energy in ASEAN. However, cautiousness cannot be equated to stagnation. Indonesia is currently developing essential readiness items for NPP infrastructure development, namely: adopting a national position, structuring management arrangements, and coordinating stakeholder involvement.
A new approach to cost-benefit analysis
“Levelised cost of energy is not sufficient to compare costs as systems become fully decarbonised”. With the introduction of variable energy sources to energy systems, Mr Caplan Milton, President of MZConsulting, emphasised the need to account for their total operational costs, including profile, balancing, and grid-connection costs. Having considered such costs, preliminary findings show that the low operating prices and high-capacity factor of nuclear energy make it cost-competitive to be integrated with a system composed of variable energy sources.
In terms of nuclear energy financing, Mr Caplan highlighted that the typical nuclear project financial structure tends to shift risks towards contractors, which would result in a high cost of capital. He remarked that a risk-sharing financing modality would reduce the cost of capital in financing nuclear power whilst also ensuring project success. This is seen as necessary in the long run, as an otherwise high cost of capital would ultimately result in a high energy cost.
The future of nuclear power project de-risking in ASEAN
While the workshop provided an ample number of good practices and lessons learned in reducing nuclear projects risks, other factors would affect the implementation of nuclear energy in the region. ACE and WNA will continue to work closely in completing the study on regional economics of nuclear power and financing arrangements for nuclear projects, which is targeted to be completed in 2022.
(Equilibrium Tampubolon, Alfred Gurning)