Investment in nuclear generation in a restricted electricity market : an analysis of risks and financing options

Since the late 1970s, the US electric power industry has been undergoing major changes. The electric utility industry had mainly consisted of highly regulated, vertically integrated, local monopolies, providing customers with all electric services at rates determined by the state regulatory agency. Deregulation and restructuring in the power industry triggered a transition towards competition in electricity generation, due to the formation of competitive markets at the wholesale level - in some states, at the retail level as well. Since utilities can no longer price at cost-of-service rates, investors in electric generation capacity, like nuclear power, will face a different set of financial risks. Moreover, the economic context of volatile coal and gas prices, increasingly stringent NOx, S02 and mercury regulations, and growing support for C02 regulations will likely positively impact the value of nuclear capacity. Conversely, unresolved issues in the nuclear industry inherent to radioactive waste disposal, decommissioning and public opposition related to security concerns will likely penalize the building of new nuclear capacity. More importantly, regulatory delays in construction, mainly caused by the plant approval process by the Nuclear Regulatory Commission, undoubtedly negatively affect nuclear power because of its capital-intensiveness.