Consultancy firm KPMG on 7 July released a report on nuclear energy market consultation, which discusses the conditions under which market parties are prepared to invest in NPPs in the Netherlands, what public support is required for this, and which regions are interested in establishing a nuclear plant. The 151-page report was compiled at the request of the House of Representatives in response to a motion by Klaas Dijkhoff put forward in September 2020. KPGM began work on the study on 8 February this year.

KPMG interviewed 41 national and international market participants, including contractors, core technology suppliers, operators, decommissioning specialists and financiers. Interviews were also conducted with 14 Dutch regions. In response to the study, State Secretary for Economic Affairs and Climate Policy Dilan Yesilgöz-Zegerius has requested a study into the possibility of including nuclear power in the Netherlands’ plans for meeting energy and climate goals.

Having looked at the reactors operating, under construction and planned, KPMG says the vast majority of market parties emphasise “the importance of choosing proven technology that meets the applicable standards safety requirements” and that “there is broad consensus among market parties that the Netherlands should opt for a generation III+ reactor with a proven design” so there would be “fewer issues with first of a kind (FOAK) issues leading to cost overruns and delays”.

KPMG says market parties indicated that the Netherlands should opt for a generation III+ reactor now and in due course for a generation IV reactor after the technology has been proven. “To avoid problems in terms of costs and delays as much as possible, a choice will have to be made from generation III+ designs of which (a number of) reactors have already been built or are under construction.” Having listed reactor technologies from EDF (Olkiluoto, Flamanville, Hinkley Point C), Westinghouse (Vogtle), Kepco (Barakah), and Rosatom (Ostrovets, Akkuyu, Hahnikivi, Paks II), KPMG notes: “Rosatom has been placed out of scope at the request of the Ministry of Economic Affairs, just like the Chinese reactor technologies.”

Market parties indicate that all the above designs are robust. A final choice is not expected to be made until 2021-2023 when one or more reactors of all designs are realised. Because the designs of these generation III+ reactors are mature and knowledge and expertise are being built up in Europe, costs will be expected to be lower. It is estimated that in an optimistic scenario it is possible to save up to ~28-40% per MW) compared with a FOAK reactor in the construction of a two-reactor nuclear power plant based on a proven design.

Preventing FOAK problems in engineering and construction is estimated to yield savings of ~20-30%. The saving is in learning effects with the design during construction and building on permits from the earlier processes. Productivity effects when building in series can reduce build costs from ~2% on a second reactor, increasing to ~8-13% on a fifth reactor. If that second reactor is built in the same plant, it will potentially yield an additional ~6-8% savings. KPMG says these savings are supported by experiences in France and the United Arab Emirates (UAE) among others.

As to small modular reactors (SMRs) KPMG says market parties see SMRs as an interesting option, because they can potentially be built faster and with a smaller investment size which may make them easier to finance. The small size makes SMRs easier to integrate into the energy system and possibly closer to customers. This provides advantages in terms of investments in infrastructure. Because more nuclear power plants can be installed, more flexibility is also created in the deployment of the power stations (including as adjustable power). However, commercial availability of SMRs is still pending

Of the more than 70 SMR concepts under development worldwide, the International Atomic Energy Agency (IAEA) sees the designs by NuScale Power, GE-Hitachi Nuclear Energy, KAERI and Terrestrial Energy to be the most promising to become commercially available in a relatively short period of time. In addition, the market participants view the UK SMR of Rolls-Royce mentioned as potentially interesting due to the support from the British government and the NUWARD SMR which is being developed by EDF. It is expected that from 2027 to 2033 the first SMRs can be fully operational as a FOAK power station “which makes it unclear how vulnerable they are to FOAK problems”. KPMG notes: “The Netherlands is expected to run the least risk if we wait until any FOAK problem is over and becomes clear which developers successfully build SMRs. In that case, it is only possible after 2027-2033, when the first SMRs become operational, that a possible process for the construction of an SMR can be started. Cooperation with other European countries is an option.”

As to financing for NPPs, the interviews show that “market parties are expected to set various conditions for any participation”. They indicate “that private financing is impossible or difficult to achieve without far-reaching guarantees from the government”. In addition, a large NPP is too big for many private investors and has too long a horizon. “A number of market parties suggest that the government should build a new reactor under its own management and largely finance it itself (through its own equity, with cheap, possibly 0%, loans or a combination of both). Upon delivery and after the start of operation, the risk profile of the reactor for private financiers is reduced, and a sale could therefore be considered. Private financiers are wary about construction risks but are prepared to run regular operational risks after the start of operation.

Market parties require a certain degree of return certainty and KPMG looks at various financing structures including price guarantees (Contract for Difference, 'CfD', or Power Purchase Agreement, 'PPA') or certainty of power purchase (Mankala model or PPA). Market parties indicate that they prefer the Regulated Asset Based (RAB) model although it is untested in nuclear energy. Looking at the Mankala model (for example Hanhikivi in Finland) a substantial part of the financing is provided by the supplier during construction of nuclear technology (through equity or subordinated loans), possibly in combination with export financing but “this model appears to be less applicable in the Netherlands, partly due to the lack of sufficient participants (i.e. large consumers)”. With respect to a PPA or CfD model, KPMG says that, in addition to security of turnover, it is expected that financiers will request various guarantees from the government. “A situation such as at Hinkley Point C, where the entire construction risk lies with the vendor (EDF), is not expected to be realistic for a new project.”

In the RAB model, income is already generated during construction. “These must offer a reasonable return to financiers in order to compensation for, among other things, construction risk and decommissioning risk”. Within the RAB model, construction risks for private financiers are limited. The government can hereby issue a guarantee ('funding cap'), whereby investments above a certain amount are borne by the government. In that case, the government receives an equity stake in the project in exchange for the investment.”

KPMG notes that various existing projects involve a significant degree of financing from the supplier of nuclear technology. “Market parties indicate that this is not realistic for new projects, due to the financial capacity of these parties. In addition, the financing often had the aim for the supplier to develop a first reactor (FOAK) with its own technology to prove this technology.” Russian or Chinese suppliers may still be willing to provide such finance but these parties are not acceptable to the government.

Market parties argue for transparency, harmonisation and predictability in the Dutch permit granting process.To reduce costs, market parties indicate that they have a strong wish for the Netherlands to connect as much as possible with international standards as well as making use of as much evidence as possible from the licensing process in other western countries. Although market parties do not want any changes to the design during construction, the construction period of a nuclear power plant is long and there may be relevant developments. “It is important to determine in advance how this will be handled and who will bear the costs.” In the event of a positive decision to develop a nuclear power plant, the licensing authority must be notified as soon as possible and must enter into discussions with the possible suppliers in order to align expectations and timelines. “Market parties are cautiously optimistic that this will happen in the Netherlands.”