Sustainable bond market slowly warming up to nuclear energy

Atomic power appearing in funding packages and rulebooks suggests green investors are increasingly open to the contentious low-carbon energy source, but views in Asia remain mixed, says Sustainable Fitch.

Westinghouse AP300 SMR
Concept art of the AP300 small modular nuclear reactor by US-based Westinghouse Electric Company. Image: Westinghouse Electric Company.

Financiers in the utilities and renewable energy space appear increasingly willing to fund nuclear power-related projects, data from analysts Sustainable Fitch and Environmental Finance shows.

The share of nuclear-related bonds remains low, at 3 per cent year-to-date in the utilities sector, but considerably higher than under 1 per cent in 2021 and 2022, and under 2 per cent last year.

While financing for nuclear energy has recently focused on refurbishing and extending the lifespan of existing reactors, some sustainability-themed bonds and rulebooks are now also allowing for new builds.

nuclear fitch investment graph

Graph: Sustainable Fitch. Data: Environmental Finance and Sustainable Fitch.

Global disruptions from Covid-19 and wars in Ukraine and the Middle East have heightened energy security concerns, contributing to warmer sentiments on nuclear energy, Sustainable Fitch noted in a brief published Thursday. Fissioning uranium also produces less of the carbon emissions that cause global warming.

Nuclear-focused bonds are likely to become more common in the coming years, given the industry’s large capital requirements and the global focus on low-carbon energy solutions, the analyst said.

Recent financing for nuclear energy includes two transition bonds in Japan this year by Kyushu Electric Power totalling US$192 million. Last year, French state-owned utility EDF raised over US$1 billion in a green bond.

A US$900 million issuance by Constellation Energy this year was noteworthy not just for being the first United States market green bond financing nuclear energy, but also because the sum will finance a broad range of activities including research, buying nuclear fuel, and developing new fuel-efficient reactors.

More investors could be interested to fund such activities and even waste management in the future, Sustainable Fitch said.

But the momentum will be complicated by both the huge capital outlay and geopolitics. Russia’s invasion of Ukraine, which damaged the latter’s Zaporizhzhia nuclear plant, has elevated safety concerns and worried investors, Sustainable Fitch said.

There is also the problem of nuclear waste, with a lack of long-term storage and decontamination facilities for the still-radioactive material. Nonetheless, Sustainable Fitch said it takes a “favourable” view of the environmental impact of nuclear energy given its potential to displace fossil fuels. 

But health, safety and security risks means the analyst has a “negative view” of the sector’s social impact in its ESG ratings.

As it stands, many sustainable debt financing frameworks and ESG funds maintain bans on nuclear energy. The United Nations Principles of Responsible Investment, to which financiers holding US$121 trillion in assets have signed on to, has said the green labelling of nuclear energy in the European Union financial taxonomy weakens its credibility.

Globally, the use of nuclear energy is growing slowly, with higher generation in Asia, especially China, offset by retirements in the west.

“Support is at best tepid, and acceptance by investors and policymakers varies considerably across jurisdictions and regions. This extends towards whether nuclear energy is considered “sustainable” or “green”, which we believe necessitates additional due diligence for ESG and impact-oriented investors,” the analyst added.

Mixed views in Asia

Support for nuclear power varies across Asia, Sustainable Fitch noted.

China, which already has 55 reactors – a third of Asia’s combined fleet – will drive 78 per cent of future development, it estimated.

Second-biggest user Japan has “oscillated” on its support for atomic energy, with strong aversion after the 2011 Fukushima nuclear disaster turning into more recent support on sustainability grounds. The country wants a fifth of its energy mix to be nuclear by 2030, but has faced delays in restarting reactors switched off after 2011.

Other Asian growth markets include South Korea and Bangladesh, Sustainable Fitch said.

Growth in India – home to over 20 nuclear plants – may be “modest” given its strict liability laws and project delays, the analyst said. It added that few investors in Australia are keen on nuclear despite the country’s large uranium reserves and reliance on coal power, citing a survey by Australia-based Investor Group on Climate Change.

Progress could be faster in the west. In the United States, investments receive tax credits similar to those supporting renewables. Canada has included nuclear-related spending in its sustainable debt framework.

In Europe, despite opposition from some countries such as Austria and Germany, the bloc recently agreed to term nuclear power a “strategic technology” for decarbonisation, which could allow developments to benefit from streamlined permitting and administration under the regional Net-Zero Industry Act, Sustainable Fitch said.

Small reactors promising

New small modular reactors could be an investment opportunity for impact-focused funders, Sustainable Fitch said.

Although these reactors produce around only a third of conventional large plants, their benefits include the possibility of off-site manufacturing and lower upfront costs. Small reactors also have lower safety and security risks, and appear to align better with do-no-significant-harm principles, the analyst said.

Such reactors have caught the attention of policymakers worldwide, including in nascent markets such as Southeast Asia. Development deals have been signed in the Philippines and Indonesia, while Singapore has said for years it has its eyes on the technology, though without committing to actual buildouts.

The viability of these plants has nonetheless been called into question, after the first of such projects in the United States was cancelled after prospective power offtakers reportedly baulked at high asking prices.

Only China, India and Russia are operating a small handful of small nuclear reactors today, according to the World Nuclear Association.


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