Nuclear poised to reverse negative perceptions

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Nuclear poised to reverse negative perceptions

Nuclear power offers a number of advantages over other clean energy technologies: it provides clean and reliable baseload power, which is the minimum level of demand on an electrical grid over a period of time, which less reliable renewable sources can struggle to offer; it is able to provide energy reliably no matter the time of day and regardless of weather; and it requires fewer materials compared with other transition technologies (Figure 1). Such qualities are key to being able to fully transform our energy systems to zero carbon power.

Figure 1: materials critical for transition to a low-carbon economy by technology type

Materials critical for transition to a low-carbon economy by technology type
Source: European Commission, Critical raw materials for strategic technologies and sectors in the EU, a foresight study, 9 March 2020; IEA, The role of critical minerals in clean energy transitions, May 2021; McKinsey analysis

However, nuclear is also controversial. Radioactive waste and incidents such as the 2011 Fukushima disaster have made the public wary of the technology. Enriched uranium also has applications in nuclear weapons, which is why nuclear programs led by countries such as North Korea, Iran and of course Russia are such a concern for western governments. On top of these substantial worries, the cost of nuclear is high and projects are often delivered late and over budget – although some Asian regions appear to have bucked this trend.

But the positives seemingly outweigh the negatives, with nuclear energy coming back into focus – particularly in the UK and Europe – as governments look for ways to improve energy security and achieve ambitious emissions reduction goals. Most nuclear power plants in existence today are third generation plants which mostly use pressurised water reactor technology. These are relatively inefficient at utilising the energy stored in raw materials, typically using only 5%-8% of available energy, which consequently generates a lot of waste. Fourth generation nuclear reactors, however, are made up of a group of different technologies such as advanced heavy water reactors and molten salt reactors and can utilise 95%-98% of energy available in the fuel – although they remain a long way off commercialisation. Small modular reactors (SMRs) which take up much less space than conventional plants and can be built much more quickly and in a standardised fashion, are a nearer-term prospect. In addition, nuclear fusion has also been in the headlines due to recent breakthroughs in the space.

How to bring costs down?

As Figure 2 shows, countries like South Korea and China have been successful at reducing the cost of nuclear. A lot of this is due to construction practices. Both countries replicate the same plant design repeatedly rather than approaching each project in a bespoke manner, as happens elsewhere. This significantly reduces costs and delays. Another difference is that due to the regularity of such projects occurring, the workforce has the necessary skills. In regions where plants are built infrequently, reskilling of the workforce is required which takes time.

Figure 2: nuclear levelised costs per unit of output ($/mwh)

Nuclear levelised costs per unit of output ($/mwh)
Source: Jan Emblemsvag, Safe, clean, proliferation resistant and cost-effective Thorium-based Molten Salt Reactors for sustainable development, February 2021
Looking at the costs of Hinkley Point C, a plant under construction in the UK which is scheduled to be finished later this year, the largest share is the financing (Figure 3). This is because European nuclear projects tend to be relatively risky for banks – political will tends to be divided and changeable, and projects are often much delayed and over budget. If countries like the UK could adopt South Korea’s approach to building more standardised plants, avoiding some of the delays and overruns, it could help bring financing costs down. However, if these standardisation benefits were to be achieved they would be set against the current background of low but increasing interest rates, which long lived infrastructure projects like nuclear are particularly sensitive to.

Figure 3: Hinkley Point C price breakdown

Figure 2: nuclear levelised costs per unit of output ($/mwh)
Source: Generation Atomic, The Hinkley Point C case: is nuclear energy expensive?, 23 December 2019.

What about safety?

Safety is a common concern with Nuclear technologies, due in large part to historical accidents like Fukushima and Chernobyl. However, both these examples are somewhat site specific and unlikely to reoccur at other nuclear facilities. Chernobyl, for example, had a RBMK reactor which was never used by any country outside the USSR due to concerns over a number of its characteristics. Fukushima, meanwhile, is on the fault line of two tectonic plates, which makes the site prone to earthquakes and their knock-on effects such as tsunamis. The Fukushima plant was not designed appropriately for its location, so when a major earthquake occurred disaster ensued. Despite the site-specific circumstances of these incidents, concerns around waste and potentially unforeseen future accidents will remain.

The Joint Research Centre (JRC), the European Commission’s science and knowledge service, recently fed into a review on the decision on whether nuclear should be included in the EU’s sustainable finance taxonomy. It concluded that there is not any “science-based evidence that nuclear energy does more harm to human health, or to the environment, than other electricity production technologies [ie wind and solar] already included in the taxonomy as activities supporting climate change mitigation”. Indeed, as Figure 4 shows, when factoring deaths from air pollution, nuclear appears in a very favourable light relative to fossil fuels and biomass, and is quite comparable to wind, hydropower and solar.

Figure 4: death rates from energy production per TWh

Deat rates from energy production per TWh
Source: Markandya & Wilkinson, 2007; Sovacool et al, 2016; Our World in Data.

What the future holds

In the short term we are likely to see more third-generation pressurised water reactors commissioned. Indeed, French president Emmanuel Macron recently announced at least six new reactors with the potential to increase this to 14.
Following this, next-generation SMRs should start to come online towards the end of the decade. China hopes to have its first SMR online by 2026 and the British government hopes to have SMRs (manufactured by Rolls Royce) supplying energy to the grid by the early 2030s.
In the longer term, fourth generation technologies could become a commercial reality. A lot of these technologies have been around for decades, and some have been tested, but no one has succeeded in bringing them to market. For example, a number of government-funded research initiatives and some start-ups have recently begun working in the molten salt reactor space.

Finally, nuclear fusion is also a consideration. All the above technologies are nuclear fission, which involves splitting large atoms (usually Uranium). Nuclear fusion, however, focuses instead on merging light elements (like hydrogen). There is a long-standing joke that nuclear fusion is always 40 years away, but recent breakthroughs combined with a significant increase in research funding – from the order of hundreds of millions of dollars
to billions of dollars – mean we are including it in our long-term prospects. Fusion companies estimate that it will still take five years to get more energy out of a fusion reaction than goes in, but they think we could see pilot plants in 10 years. By 2050 they think nuclear fusion could be providing a single-digit percentage of the global energy mix. Fusion has additional benefits in that it produces waste that is less radioactive than during fission and has limited military use, which would likely mean greater acceptance by the public.

Figure 5: Technology comparison table

Technology comparison table
Energy transition engagement nuclear
4 July 2022
Jess Williams
Jess Williams
Portfolio Analyst, Responsible Investment
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Nuclear poised to reverse negative perceptions

Important information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.
Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Risks are enhanced for emerging market issuers.
The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is an advertising document. This document and its contents have not been reviewed by any regulatory authority.
In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.
In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.
In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.
In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association.
In the USA: Investment products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC. Collectively, these entities are known as Columbia Management.
In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.
In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.
In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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Important information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.
Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Risks are enhanced for emerging market issuers.
The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is an advertising document. This document and its contents have not been reviewed by any regulatory authority.
In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.
In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.
In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.
In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association.
In the USA: Investment products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC. Collectively, these entities are known as Columbia Management.
In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.
In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.
In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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