The discount rate sets the price of low-carbon electricity
Victoria Shinder3 min readBuried in the economics note GEN energija published for Slovenia's proposed second reactor at Krško is the most important sentence anyone will write about new nuclear this month. At a real weighted average cost of capital of 2%, the company estimates the electricity needed to recover the investment at €65/MWh. At a real WACC of 4%, the same plant needs €103/MWh.
Same reactor. Same concrete, same steel, same fuel, same sixty-year operating life. The price of the output rises by 58% because the money costs two percentage points more.
That is not a quirk of one project. It is the defining property of every generating asset whose costs are almost entirely up front: nuclear, hydro, offshore wind, transmission itself. A gas plant spends its life buying fuel, so its price tracks a commodity. A capital-heavy plant has already spent nearly everything on the day it starts, and what it must charge is a repayment schedule. Repayment schedules are set by interest rates.
What follows, and it is uncomfortable for everybody
For opponents of a technology, the cost argument is partly an argument about finance. "Nuclear is expensive" and "nuclear is financed at merchant risk premiums" are close to the same sentence in a system where 2% and 4% produce €65 and €103. The same holds in reverse: a state that guarantees the debt is not subsidising the electricity, it is changing the discount rate — which is a subsidy, but a different one, sitting on a different balance sheet and visible to nobody's electricity bill.
For supporters, "the technology got cheaper" is often "the financing got cheaper". Offshore wind's celebrated cost decline in the 2010s ran alongside a decade of very low rates and contracts that removed price risk from the developer. Some of the learning was real engineering. Some of it was a discount rate, and the two were rarely separated in the press release.
And for regulators, the instrument that moves an energy price most is not an energy instrument at all. A contract for difference, a regulated asset base, a state loan guarantee — each works by lowering the perceived risk of the cash flow. That is worth more to the final price than a tariff or a technology mandate, and it is the reason the same turbine costs different electricity in two countries.
The honest caveat
The €65 and €103 are the project company's own numbers, from its own model, revision 1, on data collected to October 2024, and a proponent's model is a proponent's model. Worth saying plainly. But the sensitivity is the durable part, and it does not depend on trusting the level: any capital-heavy asset shows the same slope, because the arithmetic is the same arithmetic. Whether the true figure is €65 or €85, moving the cost of capital by two points moves it by roughly half again.
What to watch instead of the headline cost
When a new generating project is announced, three questions decide the price long before the engineering does. Who carries the construction risk — the developer, the ratepayer, or the state. What the debt costs, and who guarantees it. And whether the revenue is contracted or merchant, because a merchant revenue line is priced by lenders as risk and comes back as a higher discount rate.
The capital cost per kilowatt gets the headline. The discount rate sets the bill.
The economics note is at https://jek2.si/ekonomika/; the two figures above were quoted from it by World Nuclear News at https://www.world-nuclear-news.org/articles/natural-draft-cooling-tower-is-preferred-jek2-option.