Johnson’s big push on UK nuclear power leaves investors wary

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(Bloomberg) – Private investors are not yet convinced that the returns from nuclear power are attractive enough to invest billions of pounds in a new reactor fleet pushed by the British government.

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According to those involved in the talks, unclear policy, competition from renewables and worries about the attractiveness of financial returns will make the case for nuclear investment less compelling. This could be a major stumbling block for the government as it seeks to raise private capital to help fund projects like Electricité de France SA’s Sizewell C power station.

A UK energy security strategy that was due to be unveiled this week now looks likely to slip into next week at the earliest. Prime Minister Boris Johnson told LBC Radio last week that the UK needed to “do big” on nuclear power, in order to wean the economy from fossil fuels, including imports from Russia. But the country has struggled to advance new nuclear power plants, with funding for the 20 billion pound ($26 billion) projects a huge hurdle.

Ministers want private capital for 60% of the construction costs of Sizewell C on the Suffolk coast, with the state and EDF both taking a 20% share, according to a person familiar with the matter. Britain has pledged to secure a funding deal by 2024 to build a factory – which would be Sizewell C – and that target is set to be expanded in the new strategy.

But for investors, the lack of expertise in investing in nuclear energy and potential conflicts with their existing environmental, social and governance policies are additional concerns, people familiar with the matter said. Renewable technologies like offshore wind – which will be another focus of the new national plan – are competing for investor capital and the case is much clearer, one of the people said.

industry meeting

Johnson held a meeting with the nuclear industry and potential investors last week to discuss how quickly new projects could be built. EDF Energy, Balfour Beatty Plc, Rolls Royce Plc and Aviva Investors were among the companies present.

EDF, the main nuclear developer in Britain, is facing financial difficulties at home and the French government is considering nationalizing some of its assets. Without the support of private investors, the Sizewell C project risks stalling. It wouldn’t be the first time – a project at the Wylfa site in Wales was scrapped in 2020 due to a lack of private funding to back what was the most generous package offered by the government to the era.

The EDF unit in the Sizewell C building declined to comment.

Nuclear will be a key part of the energy security strategy, alongside renewables, the government said in a statement. The government is committed to increasing the country’s atomic production capacity, Sizewell C being an important part of this programme.

EDF is already building Hinkley Point C in the South West of England and Sizewell C is designed to be a copy to reduce construction costs. That said, the cost is still likely to be around £20 billion. The government is trying to figure out what to do with the 20% stake that Chinese company China General Nuclear Power Corp. holds in the development of the project.

The UK has for years said it supports nuclear, and the energy security plan aims to demonstrate the government’s commitment to the industry. But it is being blocked by Chancellor of the Exchequer Rishi Sunak, who is reluctant to commit new funds to fund the plans, according to two people familiar with the matter, who asked not to be identified as the discussions are private.

A lack of interest from pension funds and other investors would be a blow to Johnson and his plan to eliminate UK emissions by 2050.

Many pension and infrastructure funds now have an environmental-social governance mandate and it is unclear how the nuclear waste aspect of the technology fits into this. The decision to label nuclear as a sustainable investment in European Union energy plans has been controversial. A number of investors and lenders, including the European Investment Bank, have said they are likely to avoid tech in portfolios.

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