The Dutch government recently announced its intention to build four new nuclear power plants by 2040, as part of its strategy to achieve climate neutrality by 2050 and reduce its dependence on natural gas imports.
This is a bold move that reflects the growing interest in nuclear energy across Europe and acknowledges that nuclear energy is an essential low-carbon and reliable source of electricity. These projects raise a myriad of challenges and a high-profile political discussion seems inevitable. Careful planning and coordination among various stakeholders is key and in this blog we discuss the key challenges nuclear projects will face.
There is clear momentum for new nuclear power projects in the Netherlands as well as abroad, with the coming period likely to only ramp-up interest as feasibility studies are conducted and broader project preparations begin. That said, the inherent complexity of nuclear power projects means that numerous commercial, regulatory, financing and development arrangements will need to be put in place in the short term so as to make the completion of four projects by 2040 a reality. An in-depth understanding of the features which differentiate nuclear power projects from other energy projects is critical. However, given the scarcity of nuclear new build projects outside of China, there are very few law firms that can lay claim to a credible track-record in this very specialised sector. Our dedicated nuclear team has worked on numerous nuclear projects around the world, truly understands the market and would be happy to discuss the unique challenges encountered in developing, constructing and financing nuclear power projects.
The key challenges for nuclear power projects
Financing
The financing requirements for new build nuclear are well understood to be the biggest challenge for greenfield projects. According to a report commissioned by the Dutch Ministry of Finance and focusing on the financing of nuclear plants, the involvement of the state is necessary to make the financing of the construction of the new nuclear plants possible. The report identifies several risks that private investors are unwilling or unable to bear, such as the risk of changes or delays in permitting requirements, the risk of cost overruns and delays during the construction phase, the risk of price fluctuations or low demand during the operational phase, the risk of early closure or decommissioning costs, and the risk of political instability or opposition.
The report also explores different financing models that could be used to share the costs and risks between the public and private sectors, such as regulated asset base models, contracts for difference, the Mankala model (which is the model utilised in Finland for its successful nuclear programme), power purchase agreements, and state participation or ownership. Each of these models has its own advantages and disadvantages, and none of them in their more standardised form fully addresses the specific challenges of the Dutch context, such as the liberalised energy market, the limited availability of vendors, the lack of a state energy company, and the relatively small scale of its energy market and economy compared to other countries (France is planning up to 14 new builds). Therefore, the report suggests that a combination of models or variants of existing models could be more feasible, along with additional measures to reduce the risk profile of nuclear power projects so as to attract private sector investment, such as working with proven technology and designs, developing and committing to a long-term vision on the role of nuclear energy, providing guarantees or compensation in case of early termination and otherwise creating an investment proposition which is reasonable for the private sector. This view aligns with Allen & Overy’s own experience across numerous greenfield nuclear power projects, where we have acted for host governments, private sector developers, lenders and technology providers. Fundamentally, an early and realistic appreciation of the critical limitations and requirements associated with the financing of nuclear power projects is an essential pre-requisite to converting policy ambition into new low-carbon gigawatts into our electricity system.
Planning
Another key challenge for new nuclear power projects is the complex and lengthy planning process that involves multiple stakeholders and authorities at the (inter)national, regional and local levels. Similarly, the selection of suitable sites for new nuclear plants will depend on various factors, such as environmental impact, safety, security, grid connection and public acceptance. The developer of the projects will also need to ensure that the new plants comply with the relevant international and European standards and regulations on nuclear safety, waste management and non-proliferation. Overall, these planning and approvals processes could take several years and, together with other governmental decisions or actions with respect to any nuclear project, could face legal challenges and appeals from opponents of nuclear energy.
Construction
Next to planning and financing, the actual construction of the new plants is a considerable endeavour, which will require a high level of technical and managerial expertise, as well as robust supply chains and quality assurance of the highest level. The construction of nuclear plants is notoriously complex and costly, and often subject to delays and cost overruns. However, depending on the technology ultimately selected, the Dutch projects should benefit from replication effects (which are often viewed as being the cure to the history of cost overruns and delays on nuclear power projects) and increased modularisation techniques. Technology providers and contractors for the new plants will, in any case, have to be carefully selected, as there are few parties in the market that have a significant track record. Having the new plants adequately insured and protected against potential liabilities and damages will be another challenge, and any need for a state to bridge any gaps in the market in these respects will also require close consideration.
