Security of Energy Supply in Europe
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Security of Energy Supply in Europe

Natural Gas, Nuclear and Hydrogen

Edited by François Lévêque, Jean-Michel Glachant, Julián Barquín, Christian von Hirschhausen, Franziska Holz and William J. Nuttall

In economic, technical and political terms, the security of energy supply is of the utmost importance for Europe. Alongside competition and sustainability, supply security represents a cornerstone of the EU’s energy policy, and in times of rising geopolitical conflict plays an increasingly important role in its external relations. Within this context, the contributors analyse and explore the natural gas, nuclear, and hydrogen energy sectors, which will be of critical significance for the future of energy supplies in Europe.
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Chapter 6: Contractual and Financing Arrangements for New Nuclear Investment in Liberalized Markets: Which Efficient Combination?

Dominique Finon and Fabien Roques


Dominique Finon and Fabien Roques1 INTRODUCTION 1 All the nuclear power plants operating today have been developed by vertically integrated regulated utilities. Many developed countries, and an increasing number of emerging countries, are in the process of moving away from an electric industry structure built upon vertically integrated regulated monopolies to an industry that relies primarily on competitive generation power plant investors. Under traditional industry and regulatory arrangements, many of the risks associated with construction costs, operating performance, fuel price changes, and other factors were borne by consumers rather than suppliers. The insulation of investors from many of these risks had significant effects on the cost of capital used to evaluate alternative generation options. While vertically integrated monopoly utilities could pass on costs to consumers, and had no problem in financing capital-intensive investments, utilities in liberalized markets have to bear the construction and operating risks associated with new investments in power generation. The current context for new nuclear build is significantly different from that in the days of the vertically integrated monopolies. The electricity industry structure has been transformed by gradual liberalization in developed and developing countries over the past 20 years. In a competitive market, investors bear the risk of uncertainties associated with obtaining construction and operating permits, construction costs and operating performance. Part of the electricity price risk can be shifted to electricity marketers and consumers through long-term contracts in vertical integration. Depending on the proportion of the construction and operating risks which are borne by the power...

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