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ESG Sector Review: Nuclear Power

ESG Sector Review: Nuclear Power

Nuclear power does not use fossil fuels and is hence considered a low carbon energy source. As the world transitions to a low carbon economy, nuclear may therefore have a key part to play in decarbonising the global energy mix. However, what are the ESG considerations that come at play with regards to the operations of nuclear power plants? Despite the pivotal role of nuclear power in a low carbon energy mix, what are the current regulations and green finance taxonomy developments around categorising nuclear power as ‘green’ investments?

Nuclear as a Low Carbon Energy Source

Nuclear is a ‘clean’ energy source as it is a carbon free source of power. It is also estimated to have low life-cycle emissions, similar to wind power at 12g/kWh.1 The International Energy Agency (IEA)’s net zero scenario assumes global nuclear output to rise steadily by 40% to 2030 and doubling by 2050, though its overall share of generation is below 10% globally in 2050. At its peak in the early 2030s, global nuclear capacity additions will reach 30GW per year, which is 5-times the rate of the past decade.2 The approval process for extending existing nuclear power plants or constructing new ones would need to be starting within the next few years to meet those growth rates.

Many countries have included nuclear power in their national net zero or clean energy strategies. For example, the Biden administration stated in its Long Term Climate Strategy that "existing nuclear generation remains in operation and could see growth in the 2030s and 2040s".3 The UK budget also budgeted up to £1.7 billion of direct government funding to enable a large-scale nuclear plant.4 As reported in the 14th Five Year Plan, China has nuclear capacity goals of 70 GW by 2025, and energy mix goals to achieve 20% non-fossil fuels by 2030 of which 8-10% will be from nuclear.5

Nuclear Power’s Operational Concerns

High Costs with Long Lead Times: Nuclear is well positioned as a baseload source of power due to its high relative capacity factor compared to other renewables. However, building nuclear power plant projects can take up to 15 years and is more expensive than solar and onshore wind in key economies. For new nuclear plants, the levelized cost of energy (LCOE) varies between $65/MWh (in China) to $150/MWh (in UK) depending on the location.6

Water Intensive: Nuclear energy is the most water intensive form of power generation, requiring close to 40 million cubic meters of water per Terawatt-hour (TWh) of energy.7 Water is drawn and heated to create steam to power turbines, and then to cool the steam back to water again.

Toxic Nuclear Waste: The waste created from nuclear power generation is highly toxic and can remain radioactive for thousands of years. There is currently no solution for permanent storage of nuclear waste. Currently, the most widely accepted temporary storage solution is to dispose of nuclear waste in deep underground repositories in stable geological formations.

Risk of Operational Accidents: Accidents in and around nuclear power plants can be particularly serious to any living organisms due to the long-term consequences of exposure to radioactivity. The 1986 Chernobyl disaster in Ukraine resulted in the death of two employees died during the explosion and further 28 deaths within a few weeks due to acute radiation syndrome. In 2011 Fukushima, a tsunami disabled the power supply and cooling of three nuclear reactors (one of its unit was at the age of 40; current operational nuclear fleet is aged between 31 and 40), resulting in high radioactive releases.8

Nuclear Power in ESG Investing

Green Finance Taxonomy: When it comes to green finance taxonomy, the China Green Bond Projects Catalogue includes nuclear power in its taxonomy of green activities.9 The EU Green Taxonomy is still finalising whether nuclear will be included; as of December 2021, the European Commission has proposed (in draft) to allow certain gas and nuclear projects10 to be included in the EU “sustainable finance taxonomy”.11 There has been a lot of debate within the EU, since the release of the said draft consultation, with divided views on labeling gas and nuclear as “green” fuels for sustainable investments to mitigate the high-cost burden of energy transition over the coming decade. For example, the German government expressed its position of “a clear no” to include nuclear power in the taxonomy.12

Exclusions: Exclusion policies (whereby investors exclude certain sectors from investments due to the controversial nature business activities) may sometimes include nuclear. Morgan Stanley’s recent survey of ~580 investors showed 19% of survey participants applied a nuclear exclusionary policy13; 29% of European investors, 12% in Asia Pacific and 8% in North America by region.14

AUTHORED BY
Holly So, CFA
ESG Specialist

Date
February 18, 2022

Category
Article

Tag
Clean Energy

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1. Morgan Stanley Research, November 2021 2. IEA, October 2021 3. The White House, October 2021 4. UK Government, October 2021 5. National Development and Reform Commission, March 2021 6. Morgan Stanley Research, November 2021 7. Morgan Stanley Research, November 2021 8. Morgan Stanley Research, November 2021 9. People’s Bank of China, September 2021 10. For nuclear projects to be deemed green, new nuclear plants must receive construction permits before 2045. 11. EU Commission, January 2022 12. Clean Energy Wire, January 2022 13. The survey did not specify whether ‘nuclear’ was defined as nuclear weapons or nuclear power. 14. Morgan Stanley Research, August 2021

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