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UTILITY WEEK | 1ST - 7TH MAY 2015 | 21 Finance & Investment N uclear energy must play a significant role in gen- eration worldwide to meet our global needs for reliable, affordable and clean electricity. Operating and fuel costs for nuclear generation are a relatively small component of overall generation costs, so the long-term predictable and affordable nature of nuclear generation will become increasingly attractive. And concerns about security of supply and increases in carbon pricing make the economic attractiveness of nuclear clear. But volatility in energy prices is leading investors in deregulated markets to be conservative, to prioritise short-term returns over more environmentally sustain- able and economically sound long-term investment. The situation doesn't just affect nuclear energy. Investment in any major energy infrastructure is chal- lenging in deregulated markets, but nuclear is particu- larly affected because of the initial capital investment. Electricity brings incredible benefits, but many current technolo- gies are a source of harmful pollution. Policies must steer us to an environ- mentally sound energy mix. There are some policies already in place, but these are oen piecemeal and flawed. There are examples of positive national poli- cies, but too oen nuclear energy loses out to renewa- bles for perceived political expediency. But the challenges facing the nuclear industry in parts of Europe and North America should not distract us from positive developments seen elsewhere. China has restarted approvals for new nuclear con- struction and remains on track to develop nearly 60GW of electrical capacity by the end of this decade. And yet, even with this remarkable development, nuclear energy will only supply a fraction of China's electricity needs. At Barakah, Abu Dhabi, three of the four planned reactors are under construction. In Turkey two new-build projects have recently made major progress. Ground has been broken at Akkuyu on four reactors supplied by Rosatom. And in Sinop construction should start soon on four Atmea 1 reactors supplied by Areva and Mitsubishi. Agneta Rising, director general, World Nuclear Association "The challenges facing the nuclear industry in Europe and North America should not distract us from positive developments seen elsewhere." Investor view Agneta Rising Too often nuclear energy loses out to renewables for political expediency More generally, political and regulatory issues continue to affect investment. As a rule, long-term investors in new plant seek decent and sustainable returns. Such a scenario is very difficult to replicate within a political environment that is increasingly short-termist and a regulatory regime that is frequently adjusted to meet such concerns. As capacity shortage becomes an increas- ingly serious problem, the government may have to intervene directly in the generation market. Although the wheel will not turn back fully to the pre-privatisation days of the monopolistic Central Generating Board (CEGB) in the 1970s, recent developments – with state subsidies driving investment decisions – are moving in the direction of CEGB-type centralised control. Even fervent advocates of the privatisa- tion of the electricity supply industry have to concede that the so-called free market in generation has fallen a long way short of their cherished aspirations – with profound implications for keeping the lights on 24/7. Nigel Hawkins, director, Nigel Hawkins Associates The latter had been privatised in 1991. Second, most early IPP investments earned decent returns. However, once the gas price started to rise, IPP invest- ment in CCGTs became less attractive and eventually dried up. As the mid-1990s progressed, all 12 Recs lost their independence, while both National Power and Powergen were also taken over. While some CCGTs have been built subsequently, along with a host of renew- able generation plants, the IPP concept in the UK has been largely lost. In the lead- up to privatisation, it had been envisaged that IPPs would be undertaken by a wide variety of investors, including several leading manufacturing companies. For a decade or so, IPPs did flourish before a combination of factors, includ- ing industry consolidation, rising gas prices, enhanced gas transport costs and the prevalence of renewable power subsidies, not forgetting political and regulatory uncertainty, brought the IPP era to a virtual close. What new generation investment there is today is driven not by a genuine competitive market, but primarily by the level of government subsidies – the gen- erous contract for difference for Hinkley Point C being an obvious example. As for CCGTs, few are now either planned or being built, despite plummet- ing gas prices. While the latter feature could spur a return to the dash for gas of the 1990s, few believe that the IPP era will return in earnest. Instead, major generation invest- ment, especially of the baseload variety, will be effectively overseen by govern- ment and financed accordingly. 2% Current plant margin 70% the gas input price represents 70 per cent of the total operating cost of a gas plant IMPORTANT NUMBERS May 14 Jul Sep Nov Jan 15 Mar BRENT CRUDE OIL PRICE, ONE YEAR (US$) 120 110 100 90 80 70 60 50 40