Bruce Power bond success good news for nuclear

Bruce Power’s C$500-million ($392-million) green bond issuance in November saw strong demand, evidence there is appetite for nuclear power-backed debt despite uncertainties over its environmental status.

The successful issuance of a green bond by a nuclear power company – the first green bond backed by nuclear power generation – is a landmark move.

Nuclear power is often excluded from investors’ portfolios as its ESG (environmental, social, and governance) classification remains under debate due to concerns over waste, accident prevention, and proliferation risks.

That often leaves nuclear projects out in the cold when seeking investors at competitive rates and, for long-term nuclear projects, such exclusion makes work prohibitively expensive, with some plants reporting financing costs taking up as much as two thirds of the total expense of building and operating the plant.

Such a cost innevitably is passed onto the consumer. 

Effect of discount rate on median levelised cost of electricity (LCOE) for different technologies

(Source: OECD Nuclear Energy Agency) 

The bond by Canada's only private sector nuclear generator Bruce Power, however, saw demand outstrip supply by around six times, a solid sign that markets are ready to invest in nuclear power.

“Simmering uncertainty over whether nuclear power is appropriate for financing through green bonds has come to the boil with an oversubscribed deal in Canada,” said IFR, a Refinitiv news service that follows corporate and public debt.

“While the emissions-free energy source has been excluded from almost every green bond framework to date and may fall outside the EU's green taxonomy, proponents say the outlook for further issues is nonetheless strong – with the Canadian government’s forthcoming green framework a potential weighty sovereign endorsement.”

The seven-year bond, with BMO Capital Markets, HSBC, and TD Securities acting as lead agents and book runners, was snapped up by as many as 60 Canadian investors in multiple provinces, according to IFR.

Green Financing Framework

Bruce Power – a partnership made up of TC Energy, Ontario Municipal Employees Returement Systems (OMERS), the Power Worker's Union, and the Society of United Professionals – operates eight nuclear reactors north of Toronto, with a capacity of 6.4 GW and supplying nearly a third of electricity on the Ontario power grid making it the largest operating nuclear power plant in the world.

The cash will be allocated in accordance with Bruce Power’s Green Financing Framework to finance or re-finance eligible investments associated with life extension and increasing output of existing units, Bruce Power said.

Bruce Power’s life extension program, which began in 2016, aims to refurbish its nuclear fleet and secure operations through until 2064.

As part of the life-extension program, the company is carrying out a Major Component Replacement (MCR) project, which will replace key reactor components in units 3-8, including steam generators, pressure tubes, calandria tubes, and feeder tubes.

“After structuring our sustainability-linked loan earlier this year and committing to reach Net Zero emissions from site operations by 2027, creating our Green Financing Framework is a meaningful and concrete next step toward ensuring the highest Green standards are reflected in our financing initiatives,” said Kevin Kelly, Bruce Power’s Executive Vice President, Finance and Chief Financial Officer in a statement. 

Ratings boost

The debt issuance was boosted by a second party evaluation from the Norwegian green bond rating company Cicero Shades of Green, which ranked Bruce Power’s framework as “Medium Green”, the middle point in its three-point scale.

Wind and solar power projects are often, though not always, granted the coveted “Dark Green” allocation, for projects that correspond to the long-term vision of a low carbon and climate resilient future, the agency says.  

Demand for the debt call prompted an increase in interest from different banks and other stakeholders, says Co-Founder and Managing Partner of Cicero Shades of Green, Christa Clapp.

“The fact that it was six times subscribed tells you that there is money floating around capital markets that needs a direction, and a green label helps provide that direction,” Clapp says.

Cicero took some guidance from the European Commission’s science service Joint Research Centre (JRC) which, in its “Technical assessment of nuclear energy with respect to the ‘do no significant harm’ criteria of EU Taxonomy Regulation”, said nuclear supports zero-, or low-carbon emission strategies and questions on leaks, long-term storage of waste, mining, and proliferation could be managed.

In Europe, anti-nuclear countries such as Germany are attempting to keep nuclear power out of green taxonomy rules, leaving any nuclear project attempting to raise capital in an open market at a disadvantage to projects with the European green stamp, such as wind and solar power.

Meanwhile, green-bond investors are finding nuclear can still make it into portfolios regardless of the ongoing debates over classification.

“We are expecting there to be multiple things going on in the EU green bond market going forward. Some investors may be looking for a taxonomy alignment while others may be looking for other types of alignment, or a strong review from us or others … I think these elements can co-exist and that they will co-exist for a while with different kinds of labels,” says Clapp.

 By Paul Day