Nuclear in Investment Terms
Establishing the factual foundation for evaluating nuclear energy as an infrastructure asset class.
A system value challenge
The core financing challenge for nuclear is not primarily a technology problem. It is a valuation problem.
The core financing challenge for nuclear is not primarily a technology problem. It is a valuation problem. Nuclear creates value beyond the revenues earned by an individual project. Its contribution to grid reliability, decarbonisation, energy security, price stability, industrial capacity, and the wider economy can benefit the power system and society. This broader contribution is often referred to as ‘system value’. Project economics, however, typically do not capture this value. Investors primarily price the project’s revenues, costs, risks, and liabilities, while many of the wider benefits accrue to consumers, governments, other market participants, and society. This system value gap is not unique to nuclear; other infrastructure asset classes with large upfront costs and long asset lives, such as roads, railways, and utility networks, face the same divide between project economics and wider public value.
As with other industries, this creates a central challenge for nuclear investment. The parties that finance and bear the risks of a project are not necessarily the same parties that capture its wider system value. Recognising this distinction matters when determining how nuclear projects should be financed, how risks should be allocated, and where public and private capital can each play a role.
Much of nuclear’s contribution to date has been delivered through government planning and utility vertical integration and has sat outside the investment and market frameworks that price and capture value today. Although these contributions are well understood within the sector, they have not been systematically measured or packaged into transactions and therefore are less familiar to the financial community. For private capital to take on a larger share of nuclear financing, this history needs to be translated into terms the financial community already prices and incorporated into investment and market frameworks.
Nuclear's "cost problem" is, in most cases, a financing-structure problem.
What drives the economics
Nuclear economics is driven far more by the cost and structure of financing than by fuel or operating costs. Because the costs associated with the upfront capital investment represent most of the lifetime cost of a nuclear project (fuel typically accounts for only 15-20% of total generating cost),[1] the cost of capital is the single largest determinant of a project's levelized cost of electricity. A 1% reduction in weighted average cost of capital (WACC) can lower nuclear’s levelized cost of electricity (LCOE) by roughly $10 to $20/MWh.[2]
WACC reflects the market's perceived risk of a project which is why discount rates rise when development and delivery timelines are long, and when key risks such as completion, remuneration and policy change are borne by financiers rather than by the owner and its commercial and government project partners. Risk allocation and policy design matter because they shape these underlying investment risks, and therefore the cost of capital. Where risk reduction and allocation mechanisms are in place, financing costs fall accordingly. Nuclear's 'cost problem' is, in most cases, a financing structure problem.
Lower electricity costs for every 1% cut in financing costs[2]
Nuclear's value proposition
Investors building energy transition portfolios commonly indicate that some characteristics that drive system value are underweighted in their investment choices and portfolios.
Nuclear's contribution to the power and broader system spans three broad categories of value. It delivers energy value through the characteristics of the electricity it produces; strategic and policy value through its role in energy security, industrial capacity, and long-term national planning; and economic value through its effects on price stability and the wider economy.
Note: A more complete list of the benefits that nuclear brings is presented in Annex 1.
