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Qatar invests in Rolls-Royce nuclear consortium

Sovereign wealth fund the Qatar Investment Authority has bought a 10 per cent stake for £85m
Qatar invests in Rolls-Royce nuclear consortium

Rolls-Royce (RR.) confirmed that the consortium it is leading to build a series of small nuclear reactors around the UK has secured investment from Qatar’s sovereign wealth fund.

The Qatar Investment Authority is putting in £85m for a 10 per cent stake in Rolls-Royce SMR, a consortium that also includes BNF Resources and Exelon Generation. Nuclear power has strong momentum at the moment, given concerns about both the age of the global reactor fleet and growing interest in it as a consistent low-carbon power source, both of which are driving new investment. 

The Rolls-Royce consortium has now secured £495m in equity and grants, including a £210m injection of government funding last month.

It is developing plans to build small modular reactors that are about one-tenth the size of a conventional nuclear plant, which will each generate about 470 megawatts. This equates to about 150 onshore turbines and is enough to power 1m homes.

Business and energy secretary, Kwasi Kwarteng, said the consortium would help the UK’s plans to strengthen its energy independence.

S&P Global said last week that Europe urgently needs to find ways of replacing its ageing fleet of nuclear reactors. Nuclear power generation in western Europe is forecast to decline 11 per cent by 2030 and 27 per cent by 2040. Small modular reactors offer a role for nuclear in Europe’s energy transaction “if they prove technically viable, economic and acceptable from the regulatory standpoint”, the ratings agency’s report said.

Despite the announcement, Rolls-Royce’s shares fell by 4 per cent on Monday as market fears grew over the potential disruption to the global economy from the Omicron coronavirus variant. Rolls-Royce earns part of its revenues from the amount of hours the jet engines supplied to airline customers fly. 

After a strong rally in September on the back of asset disposals, a contract win for the US military and the progress of its nuclear programme, Rolls-Royce shares now trade at 20.6-times next year's consensus forecast earnings. That consensus may be lowered if a recovery in the aviation sector is pushed back, but the company's long-term prospects remain much brighter than they were a year ago. We maintain our buy recommendation.