Financing, the second component of the capital cost, is derived from the overnight costs (discussed above), construction time and the interest rate (approximated here by the discount rate). Programme delays from whatever source — engineering, regulator intervention or public opposition — will damage the project by increasing the financing costs. In all circumstances, expanded experience of NPP construction is likely to be beneficial. With respect to the engineering work, control and mitigation of commercial risk is achieved via the contractual arrangements and effective project management. Contracts should aim to allocate risk to the party that is best able to control it. This needs to be done at the outset because it will be difficult to change later. The duty of controlling construction delays, for instance, will normally be allocated to the main contractor who may, of course, redistribute this amongst his sub-contractors. It is usual to see fixed price contracts for construction with incentives and penalties linked to the project schedule.

A recent development is the pre-licensing of NPP designs. This aims to address any obstacles to licensing before making any investments in plant or on-site work and may be seen as a way of mitigating regulatory risk. Another method is phased financing, which recognises that the risks attendant on the various construction stages are of varying magnitude and may merit different treatment in terms of project management, method of financing, allocation of risk and mitigation measures. Financing is therefore arranged separately for each phase so as to recognise the differing circumstances. Risk mitigation may also be effected by seeking equity partners to spread the risk. These could include owners, vendors, government, banks and, as in the case of the new plant in Finland, customers.15

Unexpected increases in interest rates and inflation during the construction period may also cause concern: the first because it directly affects financing costs and the second because of its potential to reduce real returns. Finally, many NPP components are likely to be imported from abroad and a significant change in currency exchange rate of the importing country will also cause capital costs to increase.