John Belgrove, February 2020
How is the UK going to decarbonise the National Grid by 2050 (or sooner), as it has pledged to do?
I’ve been thinking about this for some time now and this is my second (and slightly shorter) article on the subject. In considering the arguments, I’ve been wondering why so many people on the institutional investment side – recognised ESG specialists with a clear concern for the environment – seem to be so opposed to nuclear power.
I worry that the general narrative on nuclear power is greatly misunderstood, yet nuclear power is vitally important. No nuclear means no net-zero - not at a practical cost at least, or within a timeframe that will prevent the worst impacts of climate change.
At this point I’d like to make it clear that I am also hugely in favour of renewables. In fact, the UK is home to some of the world’s leading wind farms.
However, renewable energy is intermittent, and there is an emerging ‘energy gap’ between the power we will need by 2050 and the current low-carbon electricity supply we are building. This means we are heading towards a serious shortfall, that can only be filled by nuclear energy.
I also think that nuclear will become a more immediate opportunity for pension funds soon, and also that nuclear power will crucially accelerate the nation’s path to net-zero carbon in the energy sector.
Institutional investors have an opportunity to push for positive developments in the climate change challenge and to earn the healthy inflation-linked returns they seek. There is great financial power wielded by the combination of an aligned set of regulators, asset owners, fund managers, intermediaries and benchmark providers. At the moment, the alignment isn’t there.
This major challenge is starting to be addressed, as we have seen with Mark Carney being appointed United Nations Special Envoy for Climate Action and Finance.
The consequence of not taking these opportunities is that we prolong the need for carbon-heavy/fossil fuel energy production and therefore set ourselves up to miss the big net-zero target.
However, despite nuclear energy being proven technology that meets the primary goal of carbon-neutrality, it is still treated by many with suspicion, especially when discussions turn towards the difficult and disruptive task of decarbonising the Grid.
Below are the key arguments that I have found to be of interest during my conversations with others in favour of nuclear, which also happen to relate to the key concerns of those yet to be won over:
In this article, I look at each in turn to show the value, importance and practicality of nuclear power.
No one electricity source can do it alone. If we only invest in renewables without also investing in a firm baseload of zero-carbon generation, we will have to continue to use polluting fossil fuels to meet electricity demand.
No energy source is perfect. Solar and wind technology may be clean, but their side effects, such as the amount of space and development they require, can have negative consequences. Leading environmentalist Michael Shellenberger points out that solar farms require up to 450 times more land per unit of energy than nuclear plants because sunlight is energy-dilute and uranium is energy-dense. I am in favour of growing the portfolio of renewables in the UK but they cannot do the job required to get to net zero by themselves and other reliable nuclear sources are required in the mix in order to do so.
This general thrust was supported by two major scientific papers published by Harvard University. Professors found that “the transition to wind or solar power in the US would require 5 to 20 times more land than previously thought and, if such large-scale wind farms were built, would warm average surface temperatures over the continental U.S. by over 0.2 degrees Celsius.”
Additionally, the problem of intermittency raises its own challenges. Germany has relied solely on intermittent renewables, spending €500bn on them. However, the country’s emissions have hardly changed. Because the renewables are intermittent, they need to be complemented by storage or a reliable baseload. Having moved away from nuclear, Germany has relied on fossil fuels for this, thereby damaging the good work done on reducing emissions.
In California, the state’s Renewables Portfolio Standard (RPS) requires the purchase of renewables (including hydroelectricity, solar and wind) even when they cannot be relied on to power the grid. As a result, costs have risen five times faster than elsewhere in the USA.
For years, suggestions of the dangers that nuclear energy poses have been bandied about with little regard for the reality of the threats. The truth is that nuclear is safe and does not pose a substantial risk.
In fact, as Michael Shellenberger writes, study after study over the last 40 years finds that nuclear is the safest way to make reliable electricity. Climate scientists have also found that nuclear energy has saved 1.8 million lives by preventing premature deaths from air pollution caused by fossil fuel sources.
Additionally, of all the radiation sources in everyday life worldwide, approximately 86% is naturally occurring. And how much of the remaining 14% is from the nuclear industry? Just 1%. The other 13% is from medical sources.
In addition, the construction of modern nuclear power plants is constantly improving. Nuclear accidents are of course horrible and regrettable. However, the actual dose of radiation which has come from the small number of global incidents is much lower than people generally believe.
To use an example, in March 2011, the East Coast of Japan was hit by a massive earthquake and tsunami that impacted the Fukushima Daiichi nuclear power plant. There was no nuclear disaster at Fukushima but there was a natural disaster of biblical proportions.
Fear of radiation kills but radiation itself rarely does. Reliable sources estimate the terrible toll to be 18,000 from the Japanese earthquake and tsunami but as a result of a nuclear power “disaster” it was none - nobody was killed by a nuclear incident. There was an unnecessary and botched evacuation driven by fear of a nuclear problem that also cost many lives (including patients moved from hospitals).
Ironically the slow-motion disaster of replacing clean nuclear power with dirty fossil fuel has significantly added to the death toll since. Japan closed 54 reactors and carbon emissions rose to fill the energy gap, demonstrably polluting the air which in turn increased cancer cases within the population, resulting in an estimated 10,000 deaths or more over the span of six years.
As devastatingly tragic as the events of Fukushima were, it should have resulted in the worldwide recognition of the safety and security of modern nuclear power plants. But it did the opposite.
Behaviour is far more powerful than data. After Fukushima there were anti-nuclear protests in the streets of Germany and France. Responding to this public outcry Germany set the wheels in motion to shut down their nuclear power plants, and France later agreed to reduce its use of nuclear power.
The subject of waste (used fuel) from nuclear plants is an area in which people’s views seem to be both the most entrenched and the most diverged from reality.
The fact of the matter is that the quantities of waste generated by nuclear are so tiny that compared to the waste generated by other fuel sources, their toxicity can be managed with relative ease.
The environmental impacts of uranium mining are vastly smaller than those of coal mining because uranium is at least 2 million times more energy dense than coal. Waste from nuclear plants is also the only waste by-product from any electricity production source that is not externalized into the atmosphere. As such, nuclear waste is very unlikely to hurt anyone, while seven million people die prematurely each year as a result of air pollution.
Estimates show that for the electricity that a typical US citizen uses over their lifetime, if generated by coal, the solid waste would weigh 136,000 pounds per person. The equivalent weight in nuclear waste would be 2 pounds.
But what about toxicity?
In terms of nuclear waste toxicity, like all things nuclear, the problems are known and the solutions are well established.
That 2-pound weight would fit comfortably into a drinks can and half of it would decay over a period of 30 years, leaving only a trace of it as a long lived radioactive waste. Nevertheless, current storage solutions are safe, not at all expensive and practical for decades and much longer to come.
Simply, this means that securely and safely disposing of nuclear waste is not a problem lacking in dependable, sustainable solutions.
In the UK, a very simple principle can reduce risk in nuclear new builds and bring in cheaper finance. This is done by replicating, as faithfully as possible, a design that has already been approved and is already complete or under construction. By doing this, everyone involved has a far clearer idea of what needs to be done, how to do it, what problems to avoid and how much it will cost.
Restarting a major industry and building the first of a UK-adapted design is challenging, and Hinkley Point C (HPC) cost statistics have periodically provided fuel for the doubters, if not yet the nation. At HPC, the second of the two reactors under construction proves the point about the value of faithfully copying. Teams that worked on the first reactor find that their previous experience makes the second easier to build, and current progress looks to be impressive, on track and without unwanted surprises.
Replication is also a key strategy for Sizewell C (SZC) in Suffolk. Replication provides a much less risky prospect for potential investors. This reduced risk means that SZC could benefit from the Regulated Asset Base (RAB) funding model on which the Government has consulted. SZC’s construction costs could as a result be around 20% lower than that of HPC.
Last year I had the privilege of visiting Hinkley Point C. It’s hard not to be inspired by the scale of the engineering and impressed by the safety culture, but one of my most important take-aways was what the project was doing for the local community.
It’s an incredible boost to a workforce that is otherwise without employment opportunities. It is a project that is providing top notch training to local workers, who will carry the skills they learn with them for years to come, wherever they choose to work in the future. Also, I noted that the large workforce is fed by a co-operative of small local food growers and suppliers, further improving the local economics.
Bearing all of these four arguments in mind, I fail to see how there can be any serious objections to nuclear occupying a key role in helping the UK to meet its promise to decarbonise the National Grid by 2050.
The benefits are vast and many, and the risks are few and small – for all of us.
It is my sincere hope that, as we enter a new year and a new decade, more of us in the finance community get behind nuclear and swing the compass to take us in a positive direction.