Almost all nuclear reactors currently operational in CEE were built in the 1970s and the 1980s during the state controlled economies and regulated energy markets, where the costs and the risks were ultimately entirely borne by the end consumers. Since then, the financial and the energy markets, as well as the political systems, in the region have undergone substantial changes.

To date there has been no single case of project financing nuclear generation projects worldwide, because nuclear power plants (NPPs) have proven substantially more expensive and time consuming to build than fossil fuel powered plants. This is no longer the case: for example, the Shell LNG project in Qatar was estimated at its inception in 2007 at USD 8.1 bln1.

There are 20 nuclear reactors operating across CEE, with 19 more planned by 2035. However, final financial arrangements are not yet clear for most of new projects.

Risks and allocation

The banks and the nuclear industry will typically look at the following risks when assessing a nuclear power project:

  • licencing and regulatory;
  • construction;
  • operation and maintenance (O&M);
  • fuel supply;
  • electricity pricing and volume;
  • waste management and decommissioning; and
  • reputational risk.

This article briefly looks at the risks associated with project financing and their proposed allocation so banks consider a project bankable.

Typically, licencing and regulatory risk is associated with political risk in the absence of an effectively independent regulatory authority. From the financiers perspective this risk must be allocated to the designer or vendor in the designing phase, to the constructor during the construction phase, and to the operator during the operation phase. To mitigate the risk, banks will want to see transparency and predictability in the licencing steps, clear timelines, and the associated costs of each licensing step. Sites with existing licenced units will be favoured against newly established nuclear sites. The banks will also want to involve the regulatory authorities from an early stage of the project.

Risks that can arise in the construction phase include delays, costs overruns, and force majeure that is not reflected back-to-back in the off-take agreement. The risk should be allocated to the constructor, perhaps shared with the sponsors (or additional equity participants) or with the project company. To mitigate this risk, the financier will ideally want to see: a fixed price and term EPC or turnkey contract, a performance bond or retention money guarantee from the constructor, liquidated damages, and back to back force majeure reflected in the off-take agreement or "resurrection" clause2. Also, projects where the bank is satisfied with the experience and creditworthiness of the constructor will be preferred.

At the O&M phase, the following incidents can typically occur: unplanned shutdowns, increases in operation costs, fuel supply risks related to the Euratom Supply Agency3, third party liability insurance issues4, and force majeure. The risks must be allocated to the operator and, depending on the structure of the project, can also be shared with the sponsors or additional equity participants. The risks can be contained if the project documents include: a clear scope of work and performance criteria, the O&M fee for all works, performance bond and liquidated damages, mandatory third party liability insurance, and back to back force majeure reflected in the off-take agreement or "resurrection" clause.

The reputational risk of the lenders (especially banks with strong retail divisions) must always be considered given the sensitivity of the topic for the general public (especially after the recent events at Fukusima Daiitchi in Japan). Here mitigation alternatives are scarce and a project will not normally be developed in a region where there is little support for nuclear power. Strong public and political support is a pre-requisite rather than a risk. These risks can affect either the construction phase, which ultimately translates into cost overruns, or the operation phase, with impact on the cash flow, and hence could ultimately affect debt servicing and the return on the investment.

Structure and funding

Although there has been no precedent of project financing NPP projects, the structures and the sources should, with some variations, be similar to any other large-scale energy project. Project capital will most likely be a blend of equity and debt. Given the large capital costs, a syndicate of banks would stand as lenders. Also, access to the capital markets could be set in place, most likely via one of the sponsors or investors rather than a bond issue of the project company. Like other power projects in the region, it is typical to see the large European utilities as sponsors. The constructor would most likely be the vendor of the reactor (eg, Areva at Olkiluto, Atomstroyexport for Belene, AECL for Unit 2 at Cernavoda).

Financing is potentially available from the European Investment Bank and under the Euratom Treaty (currently with a EUR 4 bln ceiling).

Given the budget deficits of some of the countries in CEE, it is very unlikely that the state will offer any direct financing or guarantees.


1 The costs of a NPP are by and large estimated at USD 4 bln.

2 Absent consistency in force majeure clauses across the project contracts, this clause provides that the constructor/operator will not receive greater relief than the relief available to the project company under other relevant contracts.

3 In the EU the fuel supply is channeled through the Euratom Supply Agency who is responsible for the "regular and equitable" supply of uranium. All supply contracts must be approved and signed by the Agency.

4 Under the Vienna and Paris Conventions on civil liability for nuclear damage a mandatory insurance regime is imposed on the operator.

This article was originally published in the schoenherr roadmap`12 - if you would like to receive a complimentary copy of this publication, please visit:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.