Comeback of nuclear energy

Comeback of nuclear energy

17 January 2022Reading time: 8 minutes

For some, the classification of nuclear energy as „green“ technology is an absolute no-go. Others see this as the only way to achieve the ambitious climate goals in Europe, especially when it comes to decarbonization. As a result, heated discussions arise between both sides. From a neutral point of view, the advantages of nuclear energy as a transitional or enabling technology becomes apparent, despite the known risks. Accordingly, the topic remains interesting from an investor’s perspective.

France relies on modern nuclear reactors

Chernobyl or Fukushima stand for some of the worst nuclear catastrophes. Additionally, people wonder what to do with the resulting nuclear waste. A conclusive solution to this problem has not been found since the day when the civilian use of nuclear power promised to provide safe and cheap electricity. The unresolved question of final storage and the nuclear disaster in Fukushima, Japan, in 2011 have even prompted the German government to declare a nuclear phase-out. Already this year, the last German nuclear reactors will be taken off the grid. Apart from the risks and the issue with nuclear waste, the environmental consequences of uranium mining often raise doubts about the sustainability of nuclear power.

In other parts of Europe, the attitude towards nuclear energy is remarkably different. First and foremost this can be observed in Germany's French neighbor. Currently, the country operates more than 50 reactors and more are to be added in the future. Approximately 70 percent of its electricity comes from nuclear power. In mid-October 2021, President Emmanuel Macron presented the "France 2030" investment plan to modernize French industry, which includes planned investments of 30 bn. Euros. By 2030, 1 bn. euros will also be invested in the nuclear power sector. The focus will lie on special small, innovative nuclear reactors with improved waste management.

These innovative reactors shall help France in the fight against climate change, support domestic industry, ensure low electricity prices and additionally make the country independent on the international political stage with regard to energy supplies. France is also a big supporter of nuclear power at the EU level. There is great interest in new nuclear reactors in other European countries. For example, there are plans to build new capacity in Bulgaria, Poland, Romania, Slovakia, Hungary and the Czech Republic. This also explains why many countries are in favour of an EU-wide classification of nuclear energy as a "green" technology.

When is aluminium production still sustainable?

The question of the EU-wide classification of nuclear energy as a "green" technology took on special significance during the adoption of the EU climate and sustainability taxonomy. The EU wants to realize the "Green Deal". By 2030, net greenhouse gas emissions shall be reduced by at least 55 percent compared to 1990 levels. This is an interim objective on Europe's path to becoming the world's first climate-neutral continent by 2050. To achieve this goal, as much investment as possible shall be channelled into the development of renewable energies. And this development is taking place at a time when investors' interest in sustainable investment opportunities is increasing. For example, the professional association for sustainable investments (Forum Nachhaltige Geldanlagen) in German-speaking countries, had noted a 25 percent increase in the total amount of money invested in Germany alone in 2020, considering strict environmental, social and corporate governance criteria. During this period, a record volume of 335.3 bn euros was reached.

However, it is not easy for investors to find out which investments actually meet sustainability criteria. The so-called greenwashing of investments disguised as "green" can become a problem. This is where the EU Commission steps in and provides a mechanism, the EU taxonomy, with the help of which investors are able to identify genuine eco-financial products in the future. The EU Taxonomy Regulation came into force on 1 January 2022. According to the EU Commission, it is the world's first "green list", i.e. a classification system for environmentally sustainable economic activities. Taking a closer look at an area such as the production of aluminium shows how specific the requirements can be for companies or economic activities to still be considered sustainable. For example, greenhouse gas emissions must not exceed 1.484 CO2 or equivalent gases per tonne of aluminium produced.

Such examples can be found in the Taxonomy Compass. Also, the electricity consumption during the production of one tonne of aluminium must not exceed the value of 15.5 megawatt hours. However, not everything which is part of the taxonomy and counts as "green" technology is entirely clear. Moreover, the taxonomy is subject to change in the future. As a permanent expert group of the European Commission, the "Platform on sustainable finance" established under the Taxonomy Regulation will support the Commission in the development of its sustainable finance policy, in particular the further development of the EU taxonomy. The platform will bring together the best sustainability expertise from business and the public sector, from industry as well as academia, civil society and the financial industry. However, this does not mean that consensus will always prevail. Nuclear energy is a particularly big topic of contention.

A particularly climate-friendly form of power generation

From a climate policy perspective, the arguments are currently clearly in favor of nuclear power. Looking at the carbon dioxide (CO2) balances of various energy sources, nuclear power fares particularly well. According to the Intergovernmental Panel on Climate Change, emissions in the case of nuclear power are 12 grams of CO2 equivalent per kWh of electricity. For wind power, they are 11 and 12 grams per kWh in the case of onshore and offshore wind turbines, respectively. Solar panels on roofs reach a value of 41 grams per kWh, while the value for solar parks 48 grams.

Furthermore, it must be considered that the wind does not blow all the time and the sun does not shine 24 hours a day. For this reason, backup energy sources are essential. These step in when needed to supply the required energy. In Germany, this so-called backup consists primarily of the hard coal and lignite power plants, which are particularly harmful to the environment. Those energy sources have emissions of 820 grams of CO2 equivalent per kWh of electricity. In contrast, France relies on nuclear power. This is one reason why the country has fared better than Germany in climate-damaging emissions from energy production in recent years, although Germany, more than almost any other country in Europe, has focused on renewable energy.

According to the Federal Environment Agency, the 27 EU states produced a total of around 3.610 million tonnes of greenhouse gases in CO₂ equivalents in 2019. The EU average per capita was 8.1 tonnes. France and Italy, with around 6.5 and 7.0 tonnes per capita respectively, tended to be at the lower end, while Poland had 10.3 and Germany 9.7 tonnes of CO₂ equivalents per capita were in the middle. In terms of emissions in relation to gross domestic product (GDP), France also recently performed better than Germany, thanks in part to its nuclear power plants.

Nuclear energy has potential

Despite the low CO2 emissions, the Forum for Sustainable Investments (FNG), for example, clearly opposes the classification of nuclear power as a sustainable economic activity under the EU taxonomy regulation. Since the nuclear disaster in Fukushima in 2011, but also due to the unsolved problem of storing nuclear waste, nuclear power would contradict sustainability. It is also stated that nuclear power is one of the most important exclusion criteria for sustainable Finance throughout Europe. According to the Forum, analyzing the established sustainability criteria in this area also shows that nuclear power and sustainable finance are not compatible:

The FNG seal, the Austrian eco-label, the Nordic Swan, and the French Greenfin label would clearly exclude nuclear power, according to the Forum. In France, the matter is seen quite differently. President Macron, among others, has explained why. France wants to reduce CO2 emissions in Europe in the future, precisely because its electricity generation is heavily based on nuclear power. The new, smaller nuclear reactors are supposed to address two problems. They should lower the costs of reactor construction and produce less radioactive waste. At the same time, the electricity thus generated is to be used to promote other "green" technologies such as hydrogen.

The electricity needed for electrolysis could increasingly be generated with the help of nuclear reactors, so that two particularly "green" technologies, in the eyes of the French government, would complement each other very well. This way, nuclear power would be even better for the climate in the eyes of the French government and would also provide cheap electricity and energy independence. Many parts of Europe and the world think along similar lines to France, which presents many opportunities for investors to consider nuclear energy for their investments.

Vontobel Nuclear Energy Index

The new Vontobel Nuclear Energy Index is one way to invest in companies related to nuclear energy. With the help of the Strategic Certificates on the Vontobel Nuclear Energy Index, private investors can easily invest in companies in the nuclear energy sector with a single transaction. Companies from both industrialized countries and emerging markets are eligible for the index. They must be involved in either the extraction of uranium or nuclear energy. The corresponding classification is made according to the FactSet Revere Business Industry Classification System (RBICS).

The index will be composed of 25 industry representatives with the highest market capitalization. If no 25 suitable companies can be found, the remaining index values are made up of companies that offer nuclear-related technologies or services, for example around the construction of nuclear reactors. These companies would include, for example, the French construction group Vinci. This company offers, among other things, engineering services related to the construction of nuclear power plants. The index values are equally weighted, while the index is adjusted twice a year. A fee of 1.25% p.a. is charged for managing the index. As the index is calculated in US dollars, there is a foreign currency risk for investors invested in a different product currency.

 

For more affordable energy

Among the best-known industry players in uranium production and distribution is Cameco Corp. The Canadian company says it has capacity to produce more than 53 million pounds of uranium concentrate annually. In addition, Cameco is also a leading provider of uranium refining, conversion and fabrication services. The largest producer of uranium in the U.S. is Energy Fuels. Based in the US state of Colorado, the company aims to capitalize on growth opportunities in the nuclear energy sector with its unique global uranium production portfolio. The company expects strong growth in nuclear energy in the coming years as countries seek to provide affordable energy in large quantities while combating global climate change and air pollution.

The focus lies on three plants producing uranium: White Mesa Mill in Utah, Nichols Ranch Plant in Wyoming and Alta Mesa Plant in Texas. Energy Fuels is also the largest conventional vanadium producer in the United States. Vanadium is used primarily in the steel, aerospace and chemical industries. In addition, companies looking at next-generation batteries to store energy from renewable sources are increasingly interested in vanadium, according to the group. Furthermore, Energy Fuels is active in the rare earths sector. For example, the White Mesa Mill will process monazite, recover the contained uranium and produce a marketable mixed rare earth element carbonate.

Conclusion

The topic of Nuclear energy will remain a contested topic. However, if mankind is serious about decarbonization, an unbiased view of the advantages and disadvantages of this enabling or transitional technology is necessary. As a result, nuclear energy should remain interesting from an investment point of view.

01/10/2022 11:06:22

 

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