Financing of Nuclear Power Plants: Traditional Government Funding and the Alternative Methods

Claire Zau
March 1, 2018

Submitted as coursework for PH241, Stanford University, Winter 2017


Fig. 1: Signing of the 2005 Energy Policy Act. (Source: Wikimedia Commons)

In many nations today, nuclear power has the potential to play a crucial role in reducing carbon dioxide emissions. In particular, the social, health and environmental advantages of security, reliability and very low greenhouse gas emissions make nuclear power a very cost-competitive alternative to other forms of electricity generation. [1] Though such benefits are clear, there remains a larger issue of financing such nuclear power plants and the economics of maintaining them.

The primary issue with nuclear power is the enormous upfront cost. There are certain obstacles specific to the nuclear industry, such as the "ballooning cost estimates for construction of reactors", that make it harder to get investor funding. [2] Although the returns have potential to be very high, they are also very slow and can take up to decades to recoup initial costs. Nuclear power plants have a very high capital cost and technical complexity, subsequently leading to high construction and operation risks such as delays, cost overruns, unplanned outages and equipment failures. [1] Economically speaking, higher risks demand higher returns, meaning that the cost of capital depends significantly on the risks involved. For example, two of the four nuclear power plants under current construction are extremely behind schedule and have run over cost. Furthermore, the 2011 Fukushima nuclear disaster created new requirements for on site spent fuel management and elevated design basis threats, therefore significantly increasing costs for both current and potential power plants. [3] This combination of financial volatility in the electricity market and long-term investment requirement do not necessarily benefit getting more nuclear reactor projects off the ground, particularly when other forms of natural energy are relatively cheap in the electricity market.

Provision Section No. Key Attribute and Effect
Tax Production Credit 1306 The first 6000 MW installed is eligible, up to $125 million per 100 MW per year
Loan Guarantees 1703 Loans may cover up to 80% of investment value, allowing nuclear plant developers to reduce financing costs and increase leverage
Extension of Price Anderson Act 602 Nuclear liability insurance extended to 2025
Insurance Against Regulatory Delays 638 Available for first six plants. Covers financial costs and consequences prior to operational date
Table 1: U.S. Energy Policy Act of 2005, key provisions and consequent effects. [5]

Traditional Government Funding and Involvement

Historically, the national business model dominated the type of financing schemes used to fund nuclear power plants, particularly because it generated the most efficient risk allocation in what used to be regulated national electricity markets. The national model was especially dominant during the 1960s - a period in which governments were not only enthusiastic about nuclear energy development, but also highly regulated electricity markets, if not already owning a national monopoly on utilities. [4] This ultimately gave " visibility to the viability of the projects over the operational phase and thus reduced perceived risk" and allowed for the rise of significant programs in USA, France, Russia, Germany, Canada, Japan, and Korea in the 1970s and 1980s. [4]

Even as nuclear power became favorable with growing international efforts to curb carbon dioxide production, proven nuclear operational success as well as the volatility of fossil fuel prices, there remained consequential changes in the electricity market that would ultimately impact the initial success of financing nuclear power plants. Electricity markets were gradually deregulated and government owned utilities decreased significantly.

To counter such uncertainties and create support for the industry, the US government set up a regulatory and financing framework. The 2005 Energy Policy Act provided money for loan guarantees, subsidizing for production from the first few reactors and insurance against regulatory delays. [2] The act, signed by President George W. Bush in 2002 as seen in Fig. 1, was a joint government and industry cost-shared effort to develop and support the market for nuclear power plant technologies. [5] This initiative generated four key provisions that encouraged the financing of new nuclear power plants as seen in Table 1.


There is ultimately no one-size-fits-all solution to the problem of financing nuclear power plants but the current issues definitely point toward an approach of increasing government policies and regulation as well as balanced engagement with market, equity and financiers. In order to promote the expansion of a successful nuclear power program, the industry must move toward a larger goal of innovative financing methods in combination with strong government support.

© Claire Zau. The author grants permission to copy, distribute, and display this work in unaltered form, with attribution to the author, for noncommercial purpose only. All other rights, including commercial rights, are reserved to the author.


[1] "Nuclear Power Economics and Project Structuring," World Nuclear Association, January 2017.

[2] D. Indiviglio, "Why Are New U.S. Nuclear Reactor Projects Fizzling?," The Atlantic, 1 Feb 11.

[3] M. Kazimi et al., "The Future of the Nuclear Fuel Cycle," Massachusetts Institute of Technology, 2011.

[4] F. P. Lucet, "Financing Nuclear Power Plant Projects: a New Paradigm?," Institut Français des Relations Internationales (IFRI), May 2015.

[5] "Energy Policy Act of 2005," Pub. Law 109-58, 119 Stat. 594, 8 Aug 05.