New nukes question raises concerns for UK power market: S&P

London (Platts)--8Dec2005

Building new nuclear power plants in the UK could "significantly affect
the future structure of the country's liberalized generating industry,"
Standard & Poors, the ratings agency owned by Platts parent company
McGraw-Hill said Thursday. 
     In a new report, "UK security of supply fears spark renewed interest in
nuclear energy," S&P said concerns over high energy commodity costs and
security of supply, as well as the long term impact of climate change
abatement programs, meant that nuclear was back on the agenda. 
     "If new construction of nuclear power is to become a reality in the UK,
we have significant concerns over the future structure of the generating
industry," said S&P's credit analyst Paul Lund. 
     S&P said that of particular concern were the potential for increased
regulation of the liberalized generating industry, a higher level of political
interference in the market structure, and the ongoing prospects for nuclear
power in a competitive power market. 
    "We expect that investment in nuclear power will rely on the long-term
sustainability of high electricity prices in the UK energy market," said Lund.
     S&P warned that the biggest obstacle to the long-term profitability of
nuclear power stations was the uncertainty about the future costs of storing
radioactive waste, decommissioning power stations, and processing spent fuel.
The ratings agency warned that these costs were not easily factored into the
cost of nuclear power and could be much higher than estimated. 
     "The bulk of nuclear liabilities and asset-retirement obligations in
Europe are on balance sheet, but are unfunded. The obligations usually have no
impact on day-to-day cash flows, and are very long-dated. Nevertheless, the
legal obligation to finance decommissioning costs creates significant future
liabilities, the ultimate cost of which can be higher than that provided for,"
the ratings agency warned.
     It added that the liberalized nature of the UK generation market could
deter private companies from investing in new nuclear: "Ultimately,
investor-owned utilities will not get involved in investing in any form of
infrastructure unless risk-adjusted returns on capital meet internally set
hurdles. This becomes even more of an issue where the investment is exposed to
a fully competitive wholesale power market, particularly where predictability
is an issue."

For more news about the UK power market, request a free trial to Platts Power
UK at http://www.platts.com/Request%20More%20Information/

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.