Will Chinese companies invest in British nuclear power?

The papers are now almost swimming with stories that leading Chinese nuclear companies are about to step in and buy up concessions for building nuclear power plant abandoned by the German companies RWE and E.ON in Anglesey and Gloucestershire. See for example http://www.businessgreen.com/bg/news/2193381/china-in-talks-to-build-uk-nuclear-power-plants
This makes interesting coverage of course, something bound to distract attention from the near-impossibility of funding new nuclear power under British liberalised electricity markets - without, that is, somebody agreeing to write a blank cheque to the nuclear developers. Attention thus shifts from the incredible stories of nuclear needing over £160 per MWh for 25-30 years to debates about the ethics and security issues surrounding Chinese control of our forthcoming nuclear power stations.

Chinese companies (Russian, or whoever) may or may not buy up concessions for nuclear sites, but they are no more likely than E.ON, RWE, GDF Suez or EDF to actually build on them. As has been pointed out elsewhere financial markets are global (they have been for a long time actually) and the rate of return required by Chinese investors will be no less than anybody else. Chinese citizens and electricity consumers have even less of an incentive to give very very large subsidies to build nuclear power stations in Britain than, well, British people. The Chinese are busy trying to raise money for their own nuclear power programme, see
http://online.wsj.com/article/SB10001424052702303665904577449784005256706.html

However, in China they do not have liberalised electricity markets. There the state, the electricity consumer, or a mixture of the two, will be guaranteed to pick up the tab for power station construction. Not so in the UK.
In the UK any company is going to have to take a lot of debts onto its balance sheets to pay for new nuclear power stations, with no guarantee of paying back these debts. Banks, including Chinese ones are only going to risk their money on nuclear power in a conventional 'project financing'  operation where the debts are kept of company balance sheets. But the banks will not touch such an arrangements. Developers will have to raise the money to do this, and it will linger mightily on their balance sheets traising the alram of the credit rating agencies. Of course the Chinese can riase money through bond issues - so can EDF, relatively cheaply. That is not the problem. The problem is that the resulting debts will be borne by the equity investors, the shareholders.

So any developing company is going to have to invest equity and that means deferring profits and dividends in order to repay the debts with interest. In the case of nuclear power stations this means building up very large debts to build the plant without any prospects of getting any money back for several years. The costs and build-times for the plants are highly uncertain. Rates of return to equity have to be high to avoid profits, dividends and share prices from tumbling.

So if you mix togather the spiralling construction costs of nuclear power plant and the high rates of return to equity, you get the incredibly high prices that British electricity consumers would have to pay for new nuclear power. Offshore wind is a breeze by comparison.

Will the Chinese actually build any nuclear power plant in the UK? No, they won't. Essentially this is another of a contimuing (and for the forseeable future) never-ending stream of hopeful stories pushed out by a nuclear industry and struggling nuclear-dominated Department of Energy and Climate Change designed to persuade us all that nuclear power is till a going concern. It is not. Not without givernment agreeing to underwrite the construction costs. But this is also very unlikely.

Some rumours suggest that Treasury guaranteed money will come from the 'infrastructure funds'. But the design of the scheme, to put it briefly, will not help nuclear power. But the nuclear industry are ever hopeful. 'Nuclear before homes' is what they cry. But the most anybody is likely to get is around 10 per cent of the funds guaranteed. Nuclear needs more like 100 per cent! Ed Davey has said that nuclear will not get a blank cheque. and the Tories have specifically promised not to underwrite nuclear construction costs in an energy policy document issued just before the 2010 General Election. In an answer to a Parliamentary Question ministers have said they have not discussed loan guarantees with EDF. See

http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm120716/text/120716w0003.htm#12071634001439

The latest news from unidentified spokespersons (probably within DECC), according to the Financial Times of July 23rd, is that the Government will set a 'strike price' of £100 per MWh for nuclear power.It could hardly set it any higher considering that this is the figure the Treasury wants offshore wind power to come down to, and it is a lot more than offshore windfarms are going to be paid.

Yet even this is a soft landing for a policy retreat. The Government may say that £100 per MWh is profitable for nuclear power, but it is unlikely to lead to any being built. Lots of rumours, hopeful stories, yes, because the British Government (and the nuclear industry) does not want to admit that nuclear power is a dead duck - this would threaten lots of nuclear interests who want money from the Government and hopeful punts from Chinese and other interests to keep them in some sort of buisness. Indeed, without the appearance of the possibility of nuclear power the Government might be pushed into investing more in wind power and solar power! Just at a time when the Treasury prefers to subsidise gas fired power stations.