A Swedish government study, Financing and Risk Sharing for Investments in New Nuclear Power, proposes that state aid should be given to companies for investments in new nuclear power following an application procedure. A new law to regulate the conditions for access to support, the forms of support and what an application should contain, is proposed to enter into force on 6 May 2025.
In December 2023, the government appointed Mats Dillén to submit proposals for models for financing and risk sharing for new nuclear reactors, so that the electricity market players in competition have the opportunity to build new nuclear power. The model must be designed so that nuclear power with a total power of at least 2,500 MWe, corresponding to the power of two large-scale reactors, is be in place by 2035.
This came after Sweden’s new centre-right coalition government in 2022 adopted a positive approach to nuclear energy, outlining a roadmap in November 2023 for the construction of new nuclear generating capacity. In January this year, Swedish Energy & Industry Minister Ebba Busch appointed Carl Berglöf as national nuclear power coordinator to support the government in following up and analysing how the work with the expansion of nuclear power is progressing and identifying the need for supplementary measures. His assignment must be completed by the end of 2026.
Dillén has now presented his proposals in a 297-page study. The details were outlined at a joint press conference with Finance Minister Niklas Wykman. The study “identified conditions which give rise to a discrepancy between a private investor’s business case for new nuclear power and the socioeconomic equivalent. It is concluded that efficiency reasons give a rationale for the state to support investments in nuclear power”.
The study says nuclear power projects are characterised by high construction costs and long construction times. The cash flows associated with a nuclear power project therefore give rise to a large financing gap to bridge the time lag between expenditures and incomes. Furthermore, nuclear power investments are associated with several risks. The study assesses construction, market, and political and regulatory risks as particularly significant. Uncertainty about realising economies of scale with the construction of several successive reactors, so-called prograemm risk, is also considered an important factor.
An investment decision in new nuclear power is based on an assessment of the project’s expected cash flows and the uncertainties surrounding them. Costs and revenues over the long horizons of a nuclear power project are difficult to forecast for several reasons. The last nuclear reactor in Sweden was completed in 1985, meaning that cost estimates to a large extent have to be based on projects in other countries.
Several recent nuclear power projects have experienced large schedule and cost overruns, although there are examples of successful projects, especially when several reactors of the same design were built in series. However, the informational value of previous project outcomes is limited – partly due to a lack of comparability between different countries’ regulatory environment, partly because the prices of input goods used in nuclear projects have increased in recent years.
On the revenue side there is uncertainty about future demand and the price of electricity. This means that decisions about investments in new nuclear power are based on uncertain estimates of both revenues and costs. For these reasons, investors in new nuclear power demand a significant risk premium, which in practice makes investment in nuclear power projects on commercial terms impossible. A model for financing and risk sharing is therefore required to facilitate investments in new nuclear power.
By analysing the financing models used in other countries, with a focus on European projects, the investigation concludes that models that allocate most of the risks to the electricity producer provide strong incentives for cost-efficiency but come with a high capital cost. In designing a financing and risk sharing model, there are potential benefits in using forms of support that have already been approved by the European Commission, for a more efficient state aid assessment process.
The proposed model aims to provide electricity production at a low cost in relation to the investment cost of new nuclear power and to ensure that there are strong incentives for cost-efficiency during the construction phase. It should preserve incentives to respond to market price signals during the operational phase and design support measures that address identified market failures. The model should provide a sufficient return so that private actors are willing to invest in new nuclear power.
The financing and risk sharing model consists of three main components that lower cost of capital and facilitate new investments at a low cost. These are: state loans to finance investments in new nuclear power; a two-way contract-for-difference signed between the state and the nuclear power producer; and a risk and gain-share mechanism that gives investors a minimum return on equity. The investigation proposes that the contract-for-difference for new nuclear is financed by all electricity customers. The cost is expected to amount to under SEK0.02 ($0.002) per kWh.
“The financing and risk sharing model contains several parameters that need to be determined and regulated in civil law agreements between the state and the project owners,” the report says. “Ultimately, the parameters will be decided through negotiations between the state and investors in new nuclear power. At that time more precise cost estimates should be available based on tenders from selected suppliers. Moreover, both model design and parameter values will need to be justified in a future state aid assessment.”
As to instructions to propose a timeline and activity plan for implementing the model, as well as highlighting other measures that could reduce costs and shorten permitting and construction processes, the study “concluded that these tasks are best handled by other investigations that have been initiated by government”.
“It is about 40 years since the last nuclear power plant was built in Sweden,” the study notes. “The first new reactors are expected to be relatively expensive due to the lack of current experience and the need to build up supply chains. The model is intended to finance a nuclear programme of 4000-6000 MW, corresponding to about four large-scale reactors. After that, it is expected that the costs and risks associated with building new nuclear will decrease, and with that the need for government support.”
The investigation assesses that the value of adding new nuclear to the electricity system, relative to wind power, can be significant. In a future where electricity production is significantly higher than today, the costs for network expansion, system operation and flexibility will be higher with a wind power-dominated electricity system than with a system where nuclear power has also been expanded. At the same time, the production cost of nuclear power is higher than that of onshore wind power.
The study concludes that it is therefore difficult to draw any unequivocal conclusion about the impact of nuclear power investments on the total economic cost of the electricity system. The study shows that there is a necessary trade-off between different risks. An expansion of nuclear power mitigates the risks of a scenario where it turns out to be very costly to balance and operate a completely renewable system. “This should be weighed against the risk that the cost of new nuclear power is higher than expected.”
