The deal on the financing of the new nuclear facilities at Hinkley Point has some interesting features. If EdF can manage the construction risk ( a big if, given the sagas at two other plants) they should earn a healthy (long term) rate of return, given the guaranteed, index-linked price offered for the electricity.
Unfortunately there are no obvious ways in which long term UK investors can take a punt on this. They could presumably buy the new bonds issued by China General Nuclear Power, priced at a mere 2.4% over treasuries, but they are only for five years and are dollar-denominated ( see http://goo.gl/DRPFnO).
The government could, of course, have structured the deal differently, and commissioned EdF to do the build while financing some of the costs by issuing its own sterling nuclear bonds – either on a conventional basis (as with China General) or as a kind of Social Impact Bond (see http://en.wikipedia.org/wiki/Social_impact_bond). The SIB could pay a coupon when the plant comes on stream, and link the coupon to the guaranteed electricity price. If the place suffers a Fukushima-style disaster both capital & coupon on the SIB would be lost.
So far SIBs have been limited to non-energy programmes, but given the scale of the investment required there must be a case for looking at them here. For pension funds, they could be attractive, as they are a deferred, index linked asset to match their deferred, index-linked liability. And given the carbon benefits, even Prince Charles might be happy (last week, he was lecturing pension fund managers on the need for longer term, sustainable investments – hence the picture above). Come to think of it, perhaps he’s got room for some nuclear at Highgrove??.
The Thatcher government was bold enough to start index-linked bonds. It’s time for the coalition to step up to the mark and allow investors and taxpayers some upside on nuclear energy investment.
gleedsaling 
Leave a Reply