Europe’s nuclear-energy sector has a new lease of life. Nuclear reactors will provide cheap, reliable electricity without the environmental cost of firing up old coal-fired plants or relying on Russia. But delaying the closure of nuclear power plants or extending the lives of others offers only near-term relief from the region’s energy crisis.

For Europe to increase its nuclear-generation capacity in the long term will demand solutions to formidable technological, financial and political challenges; not least because nuclear reactors with a total capacity of around 18GW are scheduled for decommissioning by 2030. Russia’s weaponisation of natural gas exports in retaliation for international sanctions and support for Ukraine forced Europe into a profound rethink of nuclear power. Increasing supplies is one of the few responses Europe has.

Belgium is extending the lives of two reactors to 2035 following Russia’s escalation of the war in Ukraine, France wants to spend EUR 50bn on a new generation of nuclear plants, and the UK wants to develop up to 24 GW of new capacity by 2050, up from around 7 GW today. Even policymakers in Germany, until recently the country most dedicated to abandoning nuclear energy, are talking about extending the lives of one or more nuclear power plants slated for early closure.

Environmental policy has played its part in the reassessment of nuclear power. The European Commission’s labelling of nuclear energy as sustainable in its taxonomy was swayed by the realisation that Europe needs time to build more renewable energy capacity, develop new technologies and improve energy infrastructure to meet long-term goals for reducing carbon dioxide emissions.

Having nuclear power in the taxonomy should ease funding conditions for relevant European utilities over the medium and long term. Investors and lenders who use exclusion and/or negative screening in ESG-focused investment approaches can continue to lend to nuclear-power companies or invest in their green and conventional bonds. Government co-investment is now more likely to help utilities, considering the overall high up-front investment required for new reactors.

Challenging

The scale of the challenge should not be underestimated. First, investment is needed just to keep nuclear power production stable. Europe needs alternatives to the projected net 9.8 GW loss in nuclear capacity by 2030 (excluding output from the Belgian reactors whose lifetimes have been extended).

Second, looking after Europe’s existing nuclear reactors is proving difficult, judging by the woes of Eléctricité de France. The French government is re-nationalising EDF at a cost of around EUR 10bn to stabilise the finances of Europe’s biggest nuclear-power generator by far with a fleet of more than 50 nuclear plants. The unprofitable utility, which has net debt of around EUR 43bn, has half of its reactors out of commission due to a widespread corrosion problem. This has forced the company to buy power on the spot market at high prices, set to cost EUR 7.3bn in lost EBTIDA this year.

The latest generation of nuclear reactors that France, Finland and the UK are counting on for new capacity is proving difficult to bring into service. European Pressurised Reactors under construction in Finland and France are years behind schedule and billions of euros over budget. EDF has proposed building four new reactors but with no clear timeframe so far.

Nor will new reactors, based on existing or new designs, come cheap. We estimate capex at EUR 6m-10m per MW at current prices; sums that would put significant pressure on utilities’ balance sheets given that there are no cash inflows from power plants under construction. Hence the importance of government financial support. The UK government’s approval of the new Hinkley Point twin-reactor, expected to come into service in the 2030s at a cost of more than GBP 20bn, is financed in part by an electricity surcharge and public funds.

Europe’s power utilities, including those with nuclear ambitions, face daunting medium to long-term capital requirements related to energy transition, from upgrading transmission and distribution infrastructure for handling more intermittent wind and solar energy to integrating national electricity markets through interconnectors.

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