Calculation of the levelised cost of electricity generation (LCOE) shows that the economics of nuclear power are dominated by the high capital cost of nuclear power stations, which is itself strongly influenced by the cost of capital and, therefore, the applicable discount rate. Using European and North American prices, nuclear power appears to be competitive with other forms of electricity generation so long as the discount rate remains below about 10% and carbon dioxide emissions are penalised at the rate of a few tens of US dollars per tonne. Another important variable is the price of fossil fuel since this governs the competitiveness of coal — and gas-fired generation and, to a large degree, determines the price of electricity.

Biases in the standard LCOE calculation are discussed and it is concluded that the most important of these is the adoption of the same discount rate across all technologies. Recent work argues that the added socio-political and commercial risk associated with nuclear, especially for the first-of-a-kind technologies currently envisaged, should be recognised by the application of higher discount rates. Such arguments, which have force in the context of private capital, produce high LCOE values that can make nuclear power look uncompetitive. High discount rates arise from elevated levels of commercial risk, which underlines the importance of its management and mitigation.

An examination of NPP financing indicates the importance of effective project management and risk mitigation measures during construction. The latter include allocation of risk to those parties who are best able to control it, risk sharing through wider equity ownership and government support through loan guarantees and similar devices. Once built, the profitability of a nuclear power plant is ultimately determined by the price of electricity. Fossil fuel price is a key determinant of this but policy-related matters such as the rules for electricity trading and penalties on carbon dioxide emissions are also critical. Seen from the point of view of a potential private investor in nuclear power, the role of governments in providing the necessary long-term stability to the electricity and carbon markets cannot be over-emphasised.