The economics of nuclear power

By Dianne Araral

THE Philippine government has been laying the legal, institutional, safety, and diplomatic groundwork for nuclear energy. This matters because the heavy reliance on imported fuels leaves electricity prices exposed to global commodity shocks. Coal accounts for around 60% of electricity generation, natural gas roughly 15-20%, and renewables — including hydro, geothermal, wind, and solar — about 20%. Demand continues to rise and large-scale renewables face intermittency, grid land constraints, and recently contract cancellations. Energy security is a precarious problem for the Philippines despite the recent Malampaya discovery.

In 2020, the president Rodrigo Duterte signed Executive Order (EO) No. 116, directing the development of a national position on nuclear energy, and EO No. 164 instructing the Department of Energy (DoE) to integrate nuclear power into the Philippine Energy Plan. Recently, President Ferdinand Marcos, Jr., signed the Philippine National Nuclear Energy Safety Act (PNNESA), creating an independent nuclear safety regulator. The Philippines has also secured US approval for the export of nuclear technology, including small modular reactors (SMRs), following the entry into force of a civil nuclear cooperation agreement.

These are all good. The next question now is whether nuclear energy can be deployed safely, affordably, and within the country’s fiscal constraints. This is where nuclear economics becomes decisive.

SMALLER REACTORS, NOT SMALLER RISKS
SMRs are typically defined as nuclear units below 300 megawatts. Their appeal is clear for an archipelagic country with uneven grid capacity: smaller units, potential modular construction, and the promise of faster builds.

The cost numbers are sobering. Current global estimates place SMR capital costs at roughly $4,000 to over $8,000 per kilowatt, depending on design, location, and financing terms. A single 300-MW SMR can therefore cost $1.2 billion to $2.4 billion before financing. These are first-of-a-kind costs. The price reductions often cited by proponents depend on serial production and repeat builds; they do not appear on the first unit.

Financing magnifies the challenge. Nuclear projects have long construction periods, and interest during construction can add hundreds of millions of dollars if schedules slip. Delays matter far more for nuclear than for gas or renewables because the capital base is large and revenues arrive late.

SMRs may be smaller than traditional reactors, but their economic risks are not proportionally smaller — especially for a first-time nuclear country.

Comparisons with other generation options make this clear. New coal plants typically produce electricity in the range of $70 to $200 per megawatt-hour, depending on fuel prices and environmental controls. Gas combined-cycle plants often fall in the $45 to $75 per megawatt-hour range but are highly exposed to fuel and foreign-exchange volatility. Utility-scale solar and wind are cheaper on paper, often below $70 per megawatt-hour, but require storage, backup, and grid upgrades to deliver reliable power. By contrast, SMRs span a wide range: optimistic projections for mature designs suggest costs competitive with gas and coal, while conservative assessments of first-of-a-kind projects place SMR costs well above those benchmarks once financing and delay risks are included. How nuclear is financed matters as much as the technology itself.

TECHNOLOGY RISK MEETS FISCAL REALITY
Most SMR designs remain early in commercial deployment. Some have cleared regulatory milestones in advanced economies; many have not. None has a long operating record without substantial public support. Investors therefore price multiple uncertainties at once: construction timelines, licensing outcomes, supply chains, fuel services, waste management, and decommissioning.

For government, these risks collide with fiscal reality. The Philippines operates with limited fiscal space. Debt servicing already absorbs a significant share of the national budget, while competing priorities — transport, health, education, disaster resilience, and climate adaptation — remain pressing. Any nuclear program that relies on poorly structured guarantees or implicit bailouts risks becoming a long-term fiscal burden.

This is why nuclear economics must drive design choices. If risks are misallocated at the outset, they do not disappear; they reappear later as tariff shocks, contract renegotiations, or quiet fiscal transfers.

WHY PPPS ARE TEMPTING — AND DANGEROUS IF MISUSED
Given these constraints, it is natural to look to Public-Private Partnerships (PPPs). The Philippines has used PPPs successfully for airports, expressways, and conventional power generation. The instinct is understandable: mobilize private capital, reduce fiscal pressure, and shift risk away from the state.

Nuclear breaks this logic.

Some nuclear risks cannot be transferred at any price voters will accept. Licensing risk is binary. Catastrophic tail risk is politically non-diversifiable. Long construction timelines make financing extremely sensitive to delay. When governments try to push these risks fully onto private investors, lenders demand high returns. Those returns surface as higher electricity prices, larger guarantees, or both.

International experience is consistent: fully private nuclear projects either do not get built, or they are built at prices that become politically untenable.

This does not mean PPPs are inappropriate. It means they must be designed around a basic truth: in nuclear energy, the state is the risk bearer of last resort, whether explicitly or implicitly.

LESSONS FROM ABROAD
International experience reinforces this point.

The United Arab Emirates (UAE) delivered its Barakah nuclear plant through a sovereign-anchored model, combining public finance with an experienced foreign vendor. Financing costs were kept low, and execution was relatively disciplined. The lesson is not to copy the UAE, but to recognize that first nuclear projects succeed when the state anchors risk and imports capability.

The United Kingdom illustrates the opposite hazard. Its private-led nuclear project, supported by long-term price guarantees, reached financial close but at high cost to consumers. Delays and overruns reinforced a basic lesson: shifting risk to private capital does not eliminate risk; it prices it into electricity bills.

France shows the advantages and limits of a state-led approach. Financing costs were low and standardization delivered efficiencies, but contingent liabilities ultimately rested with the state and consumers. China’s rapid nuclear expansion further underscores the same point: relatively low costs were achieved through state-owned enterprises, state banks, and serial construction — a model not transferable to the Philippine political economy.

The United States shows both sides of the ledger. Federal loan guarantees and regulated utility models enabled projects to proceed, yet major overruns demonstrate that finance cannot compensate for weak execution and governance.

Across these cases, one pattern stands out. Countries that treated early nuclear projects as publicly anchored learning investments managed risk better than those that tried to offload uncertainty onto private balance sheets from the start.

WHAT THIS MEANS FOR THE PHILIPPINES
For an initial SMR deployment, the government will inevitably bear a large share of risk — explicitly or implicitly. The honest approach is to recognize this upfront.

PPP structures where private partners are paid for delivering and operating a licensed, available plant — rather than betting on volatile power prices — are more realistic for a first project. They lower financing costs, protect consumers from excessive risk premiums, and give government tighter control over siting, safety, and emergency preparedness.

This does not exclude the private sector. Private firms still design, build, finance, and operate the plant. They are paid for performance. What changes is that non-diversifiable risks — first-of-a-kind uncertainty, regulatory tail risk, catastrophic risk — are not quietly pushed into tariffs or hidden guarantees.

As experience accumulates, uncertainty falls. Regulators gain hands-on capability. Construction benchmarks become clearer. Supply chains stabilize. At that point, more risk can be shifted to private investors through long-term contracts or hybrid arrangements without pushing prices to unsustainable levels.

Only after domestic capability is proven should more private, industrial, or merchant-style models even be considered. Industrial SMRs require creditworthy anchor customers willing to commit for decades. They do not eliminate first-of-a-kind risk; they merely repackage it.

In short, nuclear SMRs in the Philippines should be treated as strategic infrastructure, not merchant power.

Dianne Araral is a green finance and energy policy researcher based in Singapore.