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SMRs are attracting growing attention from governments, investors, and financiers as a means to power the energy transition, offering the promise of shorter construction times, scalability, and reduced financial risk compared to traditional nuclear reactors.

By Tom Bartlett, Beatrice Lo, JP Sweny, Simon Tysoe, Sam Burleton, and Tom Glynne-Jones

Nuclear power is attracting growing interest in the energy and investment sectors, driven by the rising global demand for low-carbon energy and the growth of artificial…

By Beatrice Lo and Heeran Caselton

The Expert Finance Working Group on Small Nuclear Reactors (EFWG), an independent group convened in January 2018 by the Department for Business, Energy & Industrial Strategy, recently published its report with recommendations for a market framework to enable the development of small nuclear projects in the UK with private financing and investment. The report follows the publication of the UK government’s Nuclear Sector Deal (see Latham’s related blog post).

The EFWG report considered small nuclear projects ranging from micro-generation projects through to 600 MW reactors. In contrast to “megaprojects”, such as Hinkley Point C, which is estimated to cost almost £20 billion, the costs of small nuclear projects typically range from £100 million to £2.5 billion. Small nuclear projects can benefit from lower capital costs and quicker build times through modular construction and factory build (as opposed to on-site build) and are generally less complex than a GW nuclear project. These factors render a number of the risks more manageable, and the lower costs involved make the investment required for a small nuclear project within the range of a greater number of market participants (compared to larger projects).

Although the EFWG report focuses on small-scale nuclear new build projects, a number of the considerations and proposals may also be relevant for conventional large-scale nuclear power projects.

By Beatrice Lo and Heeran Caselton

The UK government recently published its Nuclear Sector Deal (Sector Deal) as part of the UK’s modern industrial strategy. Recognising the sector’s strategic importance in delivering future energy security, the Sector Deal reconfirmed the government’s commitment to upgrading the UK’s nuclear infrastructure and support for new build nuclear projects.

Amongst a number of other policy initiatives, the Sector Deal includes:

  • Industry action to reduce the cost of new build nuclear projects by 30% by 2030.
  • Targeted cost savings of 20% by 2030 for the decommissioning of old nuclear sites.
  • Up to £56 million in funding for R&D in advanced modular reactors and support for the development of small modular reactors. Furthermore, the industry awaits the Expert Finance Working Group’s findings on financing models for small reactors, which is scheduled for this summer.
  • The government will keep under consideration a range of financing options for new nuclear projects, including a direct equity stake in Wylfa and assessing use of a regulated asset base financing model.

By JP Sweny, Matthew Brown and Rachel Croft

A number of recent English court decisions have recast the test for determining when a contractual provision may be unenforceable under English law as a “penalty clause”.

The rule against penalty clauses is particularly important in project finance transactions, which typically involve a complex set of commercial contracts and contractual terms that allocate risk between the parties. For example, liquidated damages provisions (often included in construction and supply contracts), “take-or-pay” or “use-or-pay” provisions (often included in offtake agreements, power purchase agreements and agreements for the use of port or transhipment services), and joint venture provisions that require a defaulting party to forcibly transfer its interest in a joint venture, all provide for a pre-agreed contractual outcome. This provision prevents the parties from needing to seek damages or other redress from the courts (or an arbitral tribunal) in certain prescribed circumstances.

Until recently, the general test for determining whether a provision is an unenforceable “penalty” was whether the provision was excessive in its operation, or was intended to deter a breach of the contract by the other party, and/or was not a “genuine pre-estimate” of loss.

By Rachel Croft

What is a sovereign credit rating and why is it important?

A sovereign credit rating is a country’s credit rating as determined by credit rating agencies at the request of that particular country. Credit rating agencies consider a number of factors when determining a country’s credit rating, including such country’s economic and political environment and any associated risks.

From an investor’s perspective, sovereign credit ratings are important as they give investors an insight into the economic and political risks associated with investing in a particular country. From a country’s perspective, particularly developing countries, it is often critical to obtain a good sovereign credit rating in order to attract foreign direct investment and funding in external debt markets.

By Utku Kirklar

The Republic of Turkey has been undergoing a largescale reform in the healthcare sector in the past decade, spearheaded by the Ministry of Health under its Health Transformation Program which was launched in 2003. The EUR 20 billion investment pipeline for construction of around 40 “integrated healthcare campus projects” through public private partnership model, the largest pipeline of hospital PPPs in the world, has been a major component of this program. With over 20 projects already tendered and nearly 10 having reached financial close, the government is now considering to revisit the risk allocation provided under the existing legislation.