Investment in nuclear generation in a restricted electricity market : an analysis of risks and financing options

Abstract

Since the late 1970s, the US electric power industry has been undergoing major changes. The electric utility industry had mainly consisted of highly regulated, vertically integrated, local monopolies, providing customers with all electric services at rates determined by the state regulatory agency. Deregulation and restructuring in the power industry triggered a transition towards competition in electricity generation, due to the formation of competitive markets at the wholesale level - in some states, at the retail level as well. Since utilities can no longer price at cost-of-service rates, investors in electric generation capacity, like nuclear power, will face a different set of financial risks. Moreover, the economic context of volatile coal and gas prices, increasingly stringent NOx, S02 and mercury regulations, and growing support for C02 regulations will likely positively impact the value of nuclear capacity. Conversely, unresolved issues in the nuclear industry inherent to radioactive waste disposal, decommissioning and public opposition related to security concerns will likely penalize the building of new nuclear capacity. More importantly, regulatory delays in construction, mainly caused by the plant approval process by the Nuclear Regulatory Commission, undoubtedly negatively affect nuclear power because of its capital-intensiveness.

(cont.) This thesis evaluates the main drivers impacting investments, and especially new investments, in nuclear power technologies to meet the increase in electricity demand in the United States. For that purpose, the ongoing change in the electric power sector and the potential evolution in all regulations concerning nuclear energy are assessed. The new risk factors facing investment in nuclear power, as well as the possible financing options, are examined. The company characteristics that most favor investment in new nuclear power plants in the United States are sketched. The specific issue of plant construction, regulations and licensing is considered with closer attention. An analytic investment model in power generation estimates the impact of the extended construction time caused by regulatory delay in licensing on investment in nuclear power in a context of uncertainty on demand. The case study compares the dynamics of investment in nuclear power plants with gas-fired power plants - which have a much shorter construction time.