Recent legislative changes make nuclear energy an increasingly realistic solution to the problems of climate change and energy scarcity. Bimal Patel and Mike Willans look at what this means for development of the energy source, and the key areas for investment.
When the European Parliament recently voted to classify nuclear energy as a ‘green’ technology, it signalled an important moment for the global energy mix. In our view, this provides validation that the move to carbon-free energy cannot happen without substantially increasing the usage of nuclear power.
At the same time, the energy crisis driven by Russia’s invasion of Ukraine has forced policymakers to focus on energy security, particularly those with a heavy reliance on imported energy. One key advantage of nuclear power is the fact that nuclear energy comes from a domestic site.
A number of individual countries have also recently shown a similar reversal of long-held negative sentiment about nuclear power, which had been influenced by incidents such as the 2011 Fukushima disaster in Japan.
For example, in France, the government has moved to fully nationalise power supplier EDF, currently Europe’s biggest nuclear power operator, in an apparent attempt to tackle issues with its reactors. Meanwhile, the UK government has announced its intention to invest in nuclear power, potentially also extending the life of existing nuclear reactors. The question has even been raised in Germany ̶ which is in the process of shutting its nuclear reactors ̶ owing to the pressure on energy caused by the country’s reliance on Russian gas. Moving beyond Europe, Japan has also announced moves to restart a number of its nuclear reactors.
Appeal to investors
Nuclear energy offers the advantages of predictability and capacity over harnessing the power of the sun or the wind. Despite the long-term nature of power plant planning, we believe that its appeal to investors is strong, particularly when energy prices are high, and while storage of renewable energy is still at an early stage of development.
Nuclear companies are now also starting to invest in innovation, investigating new technologies, such as the potential reduction of the impact of radioactive spent fuel, which is currently disposed of via a costly and highly specialised process known as vitrification.
As well as the challenges around waste disposal, nuclear plants have a number of other important safety requirements. However, we believe that with the changes on the horizon from the EU and governments, it is likely that clearing the necessary regulatory hurdles will become more straightforward.
All of these factors are starting to influence the investment direction; where previously nuclear wasn’t an option for fund managers, this is starting to change. Within the global equities team at Canada Life Asset Management, we believe that nuclear power is a prime transition fuel, allowing countries to meet their energy requirements whilst complying with environmental targets.
Over the past year we have been developing our nuclear energy investment theme, via investments in Cameco, BWX Technologies and, most recently, NuScale.
- Cameco, a Canadian company, is one of the largest global miners of uranium, a critical input for operating a nuclear power plant. The growth of nuclear energy is fuelling long-term demand for the mineral, which is primarily mined in Canada and Kazakhstan. As part of the Western uranium supply chain, a secure source of uranium is crucial, particularly in light of current energy supply chain issues.
- US-owned BWX Technologies powers US Navy submarines and aircraft carriers using nuclear reactor propulsion, which gives both the strategic and environmental benefits of less frequent refuelling. It holds a strong commercial position as the only company in North America to have a commercial license to deal with highly enriched uranium, as well as holding long-term contracts with the US Navy as it upgrades its fleet, a strategic priority. The company also works within medical isotopes helping to better produce Molybdenum-99 for use in diagnostic imaging.
- NuScale, another US company, is pioneering the use of small modular reactors (SMRs), whose smaller scale compared with existing nuclear plants allows for faster construction (around three years rather than seven) and smaller sites. They also have safety systems that allow them to operate off-grid which allows them to better withstand shutdowns.
We believe that for countries to have any hope of meeting their environmental targets and achieve energy security, nuclear energy must form a much greater part of the global energy mix ̶ and that this is now clearly the direction of travel. It seems surprising that the sustainable finance community often uses negative screens to prevent investments in nuclear power when it seems to us to be the only zero-carbon fuel that can reliably provide baseload capacity. The moves by the European Parliament should help asset managers invest in this once contentious industry.
The value of investments may fall as well as rise and investors may not get back the amount invested.
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