A recent study commissioned by the Swedish government has put forward a proposal for state aid to support companies investing in new nuclear power.
This proposal, which would require companies to go through an application process, suggests that a new legislative act should be established to govern the conditions under which this support would be granted.
The act would also define the specific support measures and detail the required content for applications.
Background: Sweden’s Shift Towards Nuclear Energy
In October 2022, Sweden’s newly formed center-right coalition government expressed a favorable view of nuclear energy.
By November 2023, the government had laid out a roadmap aiming to establish new nuclear generating capacity.
This roadmap envisions the construction of reactors equivalent to at least two large-scale facilities by 2035, with the possibility of up to ten new reactors coming online by 2045.
On December 20, 2023, the government assigned Mats Dillén the task of developing and presenting proposals for financing and risk-sharing models for new nuclear reactors.
The mandate required that these models ensure that nuclear power plants with a minimum total output of 2500 MWe, which is equivalent to two large-scale reactors, are operational by 2035.
The Investigation and Key Findings
The investigation led by Dillén focused on designing a financing and risk-sharing model by analyzing similar models used in other countries, particularly in Europe.
The proposed models had to comply with existing regulations on state aid and competition, while also including necessary legislative suggestions.
The study highlighted a key issue: a gap exists between the business case for private investors in nuclear power and the broader socioeconomic benefits.
The investigation concluded that, for efficiency reasons, there is a strong justification for the state to provide support for nuclear power investments.
By examining financing models from other countries, with an emphasis on European experiences, the investigation made several observations:
- Risk Allocation: Models that place most of the risk on electricity producers encourage cost-efficiency but lead to high capital costs.
- Government Involvement: There is a trend in Europe for states to take on more risk in nuclear projects to lower capital costs and stimulate investments.
- Monitoring Costs: Increased government involvement in nuclear projects comes with the added cost of monitoring.
- Existing Support Mechanisms: Utilizing already approved support forms by the European Commission could streamline the state aid assessment process.
Proposed Financing and Risk Sharing Model
The financing and risk-sharing model proposed by the investigation has several objectives. It aims to deliver low-cost electricity relative to the investment required for new nuclear power, maintain strong cost-efficiency incentives during construction, and preserve the ability to respond to market price signals during operation.
Additionally, it seeks to provide private investors with sufficient expected returns and meet the criteria for state aid approval.
The proposed model comprises three key components designed to reduce capital costs and promote new nuclear investments:
- State Loans: Government loans to finance new nuclear investments, reducing capital costs.
- Contract-for-Difference: A two-way contract-for-difference between the state and the nuclear power producer.
- Risk and Gain-Share Mechanism: A mechanism that ensures investors receive a minimum return on equity.
The investigation suggests that the contract-for-difference for new nuclear projects should be funded by all electricity consumers, with the cost estimated at less than SEK0.02 (USD0.002) per kWh.
Legislative and Implementation Recommendations
The report emphasizes the need for civil law agreements between the state and project owners to determine and regulate the parameters of the financing and risk-sharing model.
These parameters will ultimately be shaped by negotiations between the state and nuclear investors, informed by precise cost estimates from selected suppliers.
Furthermore, both the design of the model and the specific parameter values will need to be justified during the state aid assessment.
The investigation recommends that a new legislative act be enacted by May 6, 2025, to regulate the conditions for receiving support, the support measures, and the necessary application content.
Future Considerations and Long-Term Outlook
Regarding the implementation timeline and activity plan, the report suggests that other government-led investigations, already in progress, are better suited to address these aspects, including identifying measures to reduce costs and expedite permitting and construction processes.
The report notes that it has been approximately 40 years since Sweden last constructed a nuclear power plant.
Consequently, the initial reactors are expected to be relatively expensive due to the lack of current experience and the need to rebuild supply chains.
The proposed model is designed to finance a nuclear program of 4000–6000 MW, equivalent to about four large-scale reactors.
After this initial phase, it is anticipated that the costs and risks associated with new nuclear construction will decrease, along with the need for government support.
National Nuclear Power Coordination
In January 2024, Swedish Energy & Industry Minister Ebba Busch appointed Carl Berglöf as the national nuclear power coordinator.
Berglöf’s role is to support the government continuously by monitoring and analyzing the progress of the nuclear expansion program and identifying the need for additional measures. His assignment is set to conclude by the end of 2026.