Fossil fuel alternatives have come into sharper focus since the latest COP26 announcements by 40 countries on their commitment to eliminating coal-fired power by 2040 – but nuclear power is still a big question mark for many investors.
Currently, hydrogen is widely seen as the next big renewable source, despite the high cost involved in its production and the burning of fossil fuels in the process.
Meanwhile, opinions are softening about the risks of nuclear power – particularly for the safer small nuclear reactors now being developed.
A NEW FRONTIER
Any spike in adoption would require a reversal of the current trend, however, since nuclear has been steadily declining as a contributor to global energy supply. Global electricity generation from nuclear power has fallen from 20% in the 1990s to around 10% today, due largely to declining government support and investment.
There are no international treaties banning nuclear power and as such, asset owners like the climate-aware NZ Super Fund have exposure to it through the utility sector in their equity portfolio.
“However, our active focus is on renewable energy as the primary driver of the net zero transition,” NZ Super’s head of responsible investment Anne-Maree O’Connor told AsianInvestor. “It has better environmental and cost efficiency performance than fossil fuels or nuclear.”
“Renewables are distributable and flexible in scale. We are also looking at the investment opportunities in energy storage options such as batteries and green hydrogen, and energy efficiency, to reduce emissions,” she added.
It’s doubtful whether nuclear power can shake off the memory many people have of nuclear accidents such as Chernobyl and Fukushima – unless new technologies can demonstrate much greater safety.
According to one of the few fund managers offering investors direct access to nuclear opportunities, there is potential for investors to support a greater adoption of new, safer production facilities.
"Along with the deployment of renewables, we believe that safer, smarter, and far more cost-effective advanced reactors will be critical components of the carbon-free electric grids of the future," Valerie Gardner, managing partner of US-based Nucleation Capital, a venture fund launched in mid-2021, told AsianInvestor.
“These advanced reactors, designed by a new generation of nuclear engineers, will solve the problems facing conventional designs while increasing grid reliability, resiliency, and our capacity to power carbon removal.”
Asian institutions showed a marked reluctance to discuss the issue directly when contacted by AsianInvestor. Gardner's experience with institutional investors confirms this reticence to engage in the nuclear debate.
"I cannot yet point to any clear signals that show institutional investors are open to shifting their energy allocations away from fossil fuels into nuclear investments.
"During a period of focused outreach to institutions, we raised eyebrows, not capital. We were not sure whether this was because the concept of nuclear innovation was difficult to grapple with, or whether there was a bit of fossil fuel gate-keeping going on at the investment committee level."
Nucleation found a lot more success pivoting to raising capital at lower minimums from high net worth individuals, angel investors, and climate-focused family offices and foundations.
While this is working for them, one of the problems for the greater adoption of nuclear is a lack of other dedicated investment vehicles from established players. Since nuclear power is perceived to be more risky than other forms of energy, most ESG funds screen out nuclear energy stocks.
Robeco, for example, excludes electricity utilities that generate more than 30% of their power from nuclear sources, and does not invest in nuclear power at all in its RobecoSAM Smart Energy Equities strategy.
The biggest challenge remains funding at an institutional scale, because it is clear that nuclear power plants have high initial capital costs and long construction periods, much the same as a typical infrastructure project.
Abrdn’s recent paper on nuclear investment stated: “High capital costs and low carbon and fuel prices make it difficult for nuclear power to compete.”
Ultimately, Abrdn’s view is that “Ideally, nuclear energy would gradually be replaced with other low-carbon sources, such as renewables, but this would require technology advances that enable reliable and affordable energy supply with a large proportion of renewables in the mix.”
Those technology advances are nowhere on the horizon. Abrdn qualifies its stance by saying that new investment in nuclear plants may be justified if energy demand is growing, and cost-competitive energy alternatives are very carbon-intensive.
Gardner sees investment opportunities opening up for advanced fission developers powering data centres, bitcoin miners, and even designing reactors that can be swapped into existing coal plants. “We imagine, as word gets out, more institutional investors will opt for increased diversification and move to hedge their fossil fuel and renewable bets with allocations to advanced nuclear.”