Bank backing to give US nuclear new momentum
U.S. nuclear industry ambitions received a major boost in September when 14 global banks and financial institutions announced they would back work to increase capacity.
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Twenty-two countries and 120 companies signed a joint statement in November 2023 at the COP28 conference in Dubai to triple global nuclear capacity by 2050 as part of the drive to cut greenhouse gas emissions.
Until recently, nuclear power has mostly not been recognized as a ‘green’ technology.
Nuclear power has enjoyed limited social acceptance, lukewarm government commitment, and taking cues from half-hearted public support, the financial industry has offered only expensive backing for what was viewed as a high-risk investment.
In some cases, the cost of financing was one of the largest outlays for new nuclear, an untenable position for an industry that was striving to breathe new life in to aging plants, find support for new, gigawatt plants, and lay the foundation for advanced and small modular reactors (SMRs).
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The financiers’ pledge is a key piece of the puzzle for the industry to return to growth and may have wider economic ramifications.
“If we get this right … this will be the technology suite that pulls us out of the deficit rut that we're in. This is the technology that is not only critical to saving the planet but is also critical for high paying jobs and for energy security,” says Jim Schaefer, Senior Managing Director in Energy Investment Banking at Guggenheim Securities.
“The faster people wake up to that, the faster we get to clean and the faster we deal with things like balance and trade.”
Guggenheim Securities is just one of the signatures to the declaration, which also includes Abu Dhabi Commercial Bank, Ares Management, Bank of America, Barclays, BNP Paribas, Brookfield, Citi, Credit Agricole CIB, Goldman Sachs, Morgan Stanley, Rothschild & Co., Segra Capital Management, and Societe Generale.
A long, winding road
Even with the fire power of the U.S government and global financial institutions, the road ahead for nuclear power – from life extensions for Generation III plants, new Generation III+ workhorses, or state-of-the-art Generation IV advanced reactors – will be a long one.
U.S. nuclear capacity currently stands at just over 95 GWe generated by 94 reactors, the largest of any country in the world.
Tripling that to nearly 300 GW will involve the construction of hundreds of new reactors of all shapes and sizes, or the equivalent of one-and-a-half four-reactor Vogtle Power Plants every year from now until the middle of the century.
While the 2050 goal may seem more aspirational than realistic, a major ramp up of new technology on an industrial scale is not unheard of.
Proponents have pointed to the birth of the commercial aviation industry as an example of how advanced technology can move from a luxury proposition for the select few to readily available to the masses in just a few decades.
“You’ve got to play the long game here and sometimes Wall Street isn't good at that. But, if you just look around the playing field right now, there's been a lot of changes. We're on the verge of seeing some major steps,” says Schaefer.
Growing demand
Reaching net zero will require mass electrification, though greenhouse gas emissions can’t be cut when that electricity is generated using coal or natural gas.
Clean hydrogen production, e-fuel manufacturing, district heating projects, decarbonization of heavy industry, and clean fertilizers on a global scale will need hundreds of gigawatts of clean power.
Meanwhile, it has been the steady move toward digitalization, including cloud computing and artificial intelligence, that has added to the urgency.
These data centers need always-on, constant baseload power, something renewable sources struggle with.
“We expect to see a net demand increase of about 15% on the grid over the next few years, thanks in part to AI and data centers, but also to the manufacturing renaissance that we're seeing all across the United States,” Deputy Secretary at the Department of Energy (DOE) Dave Turk said during a press call on the Palisades Nuclear Plant restart.
“The DOE has every confidence that we can meet that demand and meet that with clean power. It's been incredible to see nuclear power become part of that conversation in a way that just wasn't happening before.”
Deep-pocketed, power-hungry tech companies like Microsoft and Google have pledged to become net zero businesses in the coming decades and rapid data center expansion has led these companies to speak directly to nuclear power plant operators in a drive for off-grid clean power.
Direct power purchase agreements between companies and generators will help new nuclear as the industry rebuilds and could avoid cost and schedule overruns that have come to haunt the industry in recent years.
“These much smaller projects have investment grade offtakers for a long period of time. It's scalable and I think there's an opportunity to develop these projects on a piecemeal basis that you're learning as you're developing, and you have a much greater chance of getting it right,” says Managing Director at KPMG Infrastructure and Capital Projects, Frederick Morris.
Large reactors are cheaper per kw, while SMRs offer lower project costs
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Source: Department of Energy's 'Pathways to Commercial Liftoff: Advanced Nuclear'
Investment opportunities
The investment opportunities available in the nuclear space vary in size and readiness.
There are large projects, such as major component replacements and long-term operation extensions for older plants, and new mega plants, such as those being commissioned in Poland, or the CANDU MONARK reactors under consideration in Canada.
These projects will attract banks seeking to benefit from financial vehicles such as Contract for Differences (CfD) and the nuclear regulated asset base (RAB) model in Britain, as well as the state support need to get these projects off the ground.
There is also new technology, including advanced and SMRs and microreactors. Companies on these projects are working toward first-of-a-kind technologies that are expected to be commercially available by the beginning of the next decade.
These companies will attract venture capitalists aiming to pour money into the business at the early stages and sell out once the technology becomes more mainstream.
The financial community’s view of the nuclear industry will become more nuanced as it develops and as nuclear engineers, used to solving complex engineering problems, are forced to turn their hands to the complexities of project development and raising financing, says Fiona Reilly, CEO of energy consultancy FiRe Energy.
“I think we need to define the nuclear market better. Rather than reactors being everything to everybody, we should consider each reactor’s best application,” says Reilly.
“It's in the application and the confirmed offtake where you start to derisk projects and begin to get the finance industry comfortable.”
By Paul Day