Nuclear power: a viable option in an energy transition?

Government announcements of support for nuclear power investment raise the prospect that an industry that has trodden water for the last few decades could see a re-emergence.

With proposals from a China development for at least 150 new nuclear reactors in the next 15 years to a new UK government commitment to explore small modular reactors (SMRs), the outlook for nuclear power – and the industries and companies tied to it – may be brightening.

Here we tackle the key questions investors are asking about nuclear – why governments globally are now targeting nuclear growth and what role nuclear can play in decarbonisation plans - as interest in the theme develops.

How much support is there for new nuclear power – and how many new nuclear reactors are already being built or planned?

We are seeing growing support for nuclear, with political commitments over the coming decade including plans for hundreds of new reactors around the world. Five of the world’s largest economies – the US, India, the UK, Japan and China – have announced targets to substantially increase nuclear capacity. In Germany, the exception, opposition to nuclear has been softening.

The pipeline for new reactors includes 58 under construction, 103 planned and 325 proposed, according to the World Nuclear Association reactor database figures. This equates to 65,899MWe of nuclear power that is currently under construction (as of July 2023), the highest the industry has seen since 2015.

What is the role of nuclear in strategies to reach net zero?

There are currently 439 nuclear reactors in operation globally, with an estimated 413GW of operating capacity in 2022, accounting for around 10% of global power production. Under the International Energy Agency’s (IEA) Net Zero Scenario, the nuclear industry would need to nearly double its capacity by 2050. With governments under pressure to articulate how they intend to meet the decarbonisation commitments they have made, it’s unsurprising that nuclear plans have returned to the energy agendas of many countries. Of course, more recent concerns over energy security are another factor driving a re-emerging interest in nuclear power.

Specifically, to reach its net zero emissions scenario, the IEA forecasts that nuclear capacity needs to reach 812GW by 2050. Under this scenario, average annual additions need to reach c25GW per year over the next three decades. To put this into perspective, net average annual capacity brought online over the past decade was just 6GW.

How much investment would be needed to reach net zero targets?

Investment in nuclear needs to triple under the IEA’s Net Zero Scenario. Between 2016 and 2020, average annual global investment in nuclear power was $35 billion. To reach net zero, investment needs to scale up to more than $100 billion per year by the late 2020s and remain above $80 billion through to 2025.

How environmentally-friendly is nuclear power?

From a review of previous literature on the topic – life-cycle emissions analysis from the IPCC, UNECE, IEA and IAEA – it is clear that nuclear is one of the lowest emitting sources of power. Nuclear power emits just 10-15g/CO2 equivalent per kWh, which is competitive with both wind and solar and substantially better than coal and natural gas. Nuclear power is also the second largest source of low carbon energy after hydro power, more than wind and solar combined.

Over the past five decades it is estimated that nuclear power has cumulatively avoided 70Gt of CO2. To put that into perspective, total annual CO2 emissions in China reached 12.1Gt CO2 in 2022.

How economical is nuclear power?

When delivered successfully, nuclear energy can be cost competitive compared to other power sources. The levelized cost of electricity (LCOE), i.e. the average net present cost of electricity generation for a generator over its lifetime, for nuclear power is around $60 per MWh, which is lower than fossil fuel generation and competitive against other low-carbon technologies, according to analysis from the IEA.

However, it is important to caveat the IEA’s analysis with the fact that LCOEs for different power generation sources are influenced by a huge range of factors and will thus vary project to project. For nuclear in particular, recent LCOEs have been coming in higher than the IEA’s average. A good example of this is in the UK where the Hinkley Point C project has a Contract for Difference price of £92.50/MWh, clearly higher than the IEA’s average.

On reliability, nuclear has an average capacity factor – or the ratio of the actual energy generated over time compared to energy that could have been produced at continuous full power operation during the same period – of 90-95%, the highest of all energy sources.

Lastly, nuclear lifetime extensions are also a cost effective means of power generation. The International Atomic Energy Agency estimates that lifetime extensions generate one of the highest kWh returns per dollar of investment of all power generation sources.

How significant is the ability to mobilise finance as a barrier?

Safety and waste concerns aside, one of the largest barriers to new large-scale nuclear construction is the ability to mobilise investment.

While governments clearly believe nuclear has a role to play in the future energy mix and decarbonisation strategies, there remains a large funding gap between nuclear targets and the capital needed to achieve them.

New financing mechanisms will need to be explored that try to better balance the risk allocation between government and private capital. One such option is the regulated asset base (RAB) financing mechanism. Sizewell C (if it proceeds) would be the first nuclear power plant in the UK to be funded using a RAB model.

How safe is nuclear power?

Perhaps surprisingly, nuclear energy is one of the safest forms of energy generation. When analysing the death rates per unit of electricity produced, nuclear power is the second safest source of power generation. There have been an average of 0.03 deaths per terawatt-hour of electricity produced, which is substantially lower than for coal, oil & gas and wind generation.

Then on waste, due to the power density of nuclear fuel, very little material is required to produce large amounts of electricity. Consequently, the volume of nuclear waste produced is low and it is important to remember that nuclear regulators mandate operators to make provisions for the cost of managing nuclear waste, so these costs are internalised as operating costs for the plants as well.

What are the other key risks to nuclear power growth?

There are a number of hurdles that may prevent nuclear from reaching its potential such as the upfront capital costs and perceived safety concerns. Similarly, a prerequisite for any nuclear power re-emergence will be a backdrop of constructive and stable government policy and support, which itself relies on favourable public perception.