Nuclear industry faces financial winter

The global credit crunch is threatening the worldwide nuclear renaissance before it has even taken flight.

Financial restrictions resulting from the global credit crunch are threatening to curb the development of nuclear power plants.

The global credit crunch is threatening to clip the wings of the worldwide nuclear renaissance before it has even taken flight, raising serious questions about the UAE's nuclear aspirations. Even before the US subprime mortgage crisis rocked the world's financial institutions, banks perceived financing nuclear plants as a major risk due to soaring costs, Stephen Thomas, a professor of energy policy at Britain's University of Greenwich Business School, told an Abu Dhabi nuclear conference yesterday. Banks are now demanding to be insulated from risk, but it is unclear whether taxpayers, electricity customers or ventures backing nuclear developments will be willing to take it on. "Finance is now a serious problem for building nuclear power plants," Prof Thomas said. "The credit crunch is a major risk to the nuclear renaissance. There are serious doubts as to whether it will take place." In the past, lending money for nuclear plant construction was considered relatively safe because regulated electricity prices were linked to utility companies' costs, meaning any overruns in building plants could easily be passed through to consumers. But the current nuclear revival is different, Prof Thomas argued, because it is taking place in the context of privatised and liberalised electricity markets in which "if your costs are too high, you just go out of business". He listed several reasons for the recent surge in plant costs, which is threatening the nuclear industry's competitiveness. Commodity prices have risen sharply in recent years due to increased demand from China and other emerging economies; nuclear components are in short supply after a lack of orders for new plants have forced manufacturing facilities to close; and there is a shortage of critical skills due to the previous lack of demand. Even with commodity prices ebbing, at least temporarily, as the global economy weakens, the remaining factors have delayed government-backed nuclear programmes in the US and Britain, and are just as likely to cause problems in other regions. "Whether or not Gulf states decide to go ahead with nuclear power, now is not a good time to be doing it," Prof Thomas said. "You will certainly be entering into a most unpleasant bidding war for components and skills," he warned conference delegates, who were mostly from the UAE and other GCC countries. "Does the Gulf really want to be going it alone, demonstrating and building unproved nuclear designs?" In the West, despite a lot of talk about a nuclear renaissance, few orders for new plants have materialised. US government subsidies offered under a 2002 civilian nuclear programme launched by the administration of President George W Bush have failed to attract investment, despite mounting public concern about global warming and massive carbon emissions from coal-fired power plants. Among other problems, the UK nuclear sector is short of safety regulators. And in Europe, a Finnish nuclear project that was supposed to showcase the latest generation of plants designed by the French company Areva is three years behind schedule and plagued with problems. As a case study, Finland's Olkiluoto power development, now scheduled to come on stream in 2012 instead of next year, has become a showcase for things that could go wrong with a nuclear project. From the outset in 2005, construction proved more difficult than expected, with problems ranging from lumpy concrete to faulty welds in coolant pipes. Costs have soared to more than ?4.5 billion (Dh21.28bn) from the ?3bn originally budgeted. According to Prof Thomas, the German bank heading the project's financing syndicate is among the increasing number of financial institutions worldwide that have needed taxpayer bailouts. And because of the cost overruns and the failing European economy, the project's prospective customers - a group of energy-intensive industrial developers - may not be able to afford the electricity the plant will produce. "There is a serious risk the company building the plant could default on the loan," Prof Thomas said. An Areva employee attending the conference said the Olkiluoto project was "one of a kind" and should not be considered typical of modern nuclear developments. The designer's overriding concern had been ensuring safety and security, he said. Yet as recently as September, the Finnish nuclear safety authority ordered work to be stopped due to violations involving substandard materials. Despite such teething problems, the world's energy needs are rising, and more nuclear power will be needed as a cleaner alternative to burning fossil fuels, Hans Blix, the chairman of the Weapons of Mass Destruction Commission, said in response to Prof Thomas's presentation. Youssef Shatilla, a professor of nuclear engineering at the Masdar Institute of Science and Technology in the UAE, said the country was already moving to tackle the potential problem of a skills shortage for its nuclear programme by launching its own advanced education and training programmes for the nuclear industry in association with the Massachusetts Institute of Technology. [e-mail]