COP28: a turn up for nuclear?

February 2024 | SPOTLIGHT | SECTOR ANALYSIS

Financier Worldwide Magazine

February 2024 Issue

While COP28 in Dubai may be remembered for the beginning of the end for oil and gas (the agreement to transition away from fossil fuels in energy systems “in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net-zero by 2050”) it also marked a shift in the world’s attitude to nuclear as part of the solution.

Historically, nuclear was excluded from COP communiques. At Kyoto, it was excluded as an acceptable option under the Protocol’s clean development mechanism. For this and other reasons, institutions such as the World Bank have shied away from funding nuclear developments.

Now, in Dubai, for the first time, nuclear has been recognised at COP as a low carbon technology with an agreement calling on parties to accelerate zero and low-carbon technologies, “including, inter alia, renewables, nuclear, abatement and removal technologies such as carbon capture and utilisation and storage, particularly in hard-to-abate sectors, and low-carbon hydrogen production”.

That shift reflects a growing realisation that renewables development alone cannot limit global warming to 1.5 degrees Celsius, which will require “deep, rapid and sustained reductions” in global greenhouse gas emissions of 43 percent by 2030 and 60 percent by 2035 according to the Intergovernmental Panel on Climate Change.

So, just as nuclear as a low carbon generation option made it to the European Union’s (EU’s) taxonomy in 2023, so it has finally been recognised as mainstream at COP28. And in the fringes of COP28, nuclear made even more progress. Getting consensus on any declaration at COP is a fraught process, and in Dubai certain oil and coal producing states forced a watering down of the text on ending fossil fuel production and use. However, the conference is also an opportunity for like-minded groups to commit to targets beyond the COP consensus, and Dubai saw two such declarations.

The first was a Ministerial Declaration by 22 countries for a tripling of nuclear capacity by 2050. The group of countries involved ranged from countries with operating fleets of nuclear reactors, such as the US, France, Canada, the United Arab Emirates (UAE) and the UK, to nations like Poland which are progressing new nuclear projects and others like Ghana and Morocco which are nuclear entrants. And while 24 countries signed up to the declaration by the end of COP28, that list omits some of the most prolific nuclear developers on the planet, such as China and Russia.

The Ministerial Declaration committed signatories to advance a global aspirational goal of tripling nuclear energy capacity by 2050 while reinforcing the need to maintain the highest standards of safety, sustainability, security and non-proliferation and responsible management of nuclear waste. A commitment was given to support responsible nations looking to explore new civil nuclear.

It also undertook to mobilise investment in nuclear power, including through innovative financing mechanisms, and to invite the World Bank and other international financial institutions’ shareholders to encourage the inclusion of nuclear energy in their organisations’ lending policies.

The reticence of certain international institutions to provide finance to nuclear projects has proved a real barrier to widening the adoption of nuclear generation. As a result, vendor country finance has often been a deciding factor. Moreover, the application of the Organisation for Economic Co-operation and Development (OECD) consensus has undermined the competitiveness of some developed world vendors of nuclear technology compared to countries unconstrained by OECD limits on financing.

This has seen Russia and China predominate in international nuclear power plant exports. For many prospective nuclear entrants, the challenges of financing have proved as formidable as creating the infrastructure and cultures necessary to safely manage the technology and the Ministerial Declaration sought to address this barrier.

In parallel, the Net Zero Nuclear Industry Pledge was unveiled in Dubai and signed by 120 companies. In the end, industry will have to deliver the projects enabled by policymakers. Here, companies and industry associations undertook to work with governments and regulators to maximise the contribution from existing operating nuclear power plants and accelerate the pace of new nuclear deployment with a view to at least tripling nuclear energy capacity by 2050.

This builds on the commitments made in September after the OECD’s Roadmaps to New Nuclear conference to work with governments to: (i) extend the operating lives of existing nuclear; (ii) reduce construction costs and timelines; (iii) accelerate small modular reactor (SMR) and advanced reactor deployment to unlock large-scale deployment; (iv) deepen cooperation in developing the nuclear supply chain and workforce; (v) develop the nuclear fuel supply chain and reduce reliance on nuclear fuel and goods from nations that present ongoing threats to energy security; and (vi) advance sustainability, inclusion and diversity in the industry.

The industry also called on policymakers to “foster a financial environment that promotes investment in nuclear energy” and “develop technology-neutral climate policies in which nuclear energy is fairly compensated for its low-carbon, resilience and reliability value”.

So is there a sea change in the tide of nuclear energy? To quote Bill Gates, who has backed Terrestial Energy’s advanced nuclear offering: “Over the last year, I have noticed a major shift toward overall acceptance of nuclear. I think one reason for this shift is practical. Nuclear is the only carbon-free energy source that can reliably deliver power day and night, through every season, almost anywhere on earth, that has been proven to work on a large scale. I also attribute some of the shift to the progress being made on next-generation nuclear technology.”

In the Climate Change Commission’s ‘2023 Progress Report’ to UK parliament, the first key message was that a greater pace in delivering emission reductions was required, along with resolve to stay firm on existing commitments. While that encompasses many policy areas beyond generation, the scale of the challenge to move to net-zero emissions in the energy sector remains immense, and the retiral of the UK’s existing advanced gas-cooled reactor nuclear power stations by 2028 only adds to the mountain of clean energy investment required.

Worldwide, the challenge is steeper still. The Energy Institute predicts a 2.1 degree Celsius rise in global temperatures by 2100 given current national-emission reduction commitments. It also notes that despite China’s impressive nuclear generation expansion, currently close to 70 percent of the world’s coal-fired generation operates in China. The 4.5 million tonnes of coal mined for power stations annually at Ensham coal mine in Queensland will ultimately add 100 million tonnes of CO2 to the atmosphere if burnt as unabated coal.

Organization of the Petroleum Exporting Countries (OPEC) members have a vested interest to maintain demand for oil for years to come. Vested interests inevitably get in the way of global consensus on the urgency for action. The scale of the financial challenge is also an impediment. The International Renewable Energy Agency estimates $5 trillion investment per annum is required worldwide in energy transition to realise the 1.5 degree Celsius target by 2050, including redirecting the $1 trillion per annum annually invested in fossil fuels.

With high upfront capital costs and lengthy timescales from project conception to operation, the cost challenge for nuclear is acute. While the appetite for green bonds to fund refurbishment projects in Canada for Bruce Power and Ontario Power Generation have enjoyed high uptake, this serves to highlight that investors can get comfortable with the predictable long-term returns from operating plants. New nuclear build remains a different story where the regulatory, technology and construction overrun risks have deterred many private investors from investing.

To date, successful projects have required state backing or the pass through of risks to the consumer. The regulated asset base model proposed for the Sizewell C project utilises both routes as it seeks to attract equity and debt from private institutions. The World Nuclear Association reminds us that realising the ambitious targets for new nuclear will require pragmatic policies, affordable financing and on-time and on-budget delivery of new nuclear energy projects.

There are signs that can be delivered. The prospect of savings from modular construction offsite, the economies of scale from building multiple units worldwide, as well as design innovation suggest some of the SMR designs on offer will deliver a lower levelised cost of electricity without undermining safety. The lessons from Barakah, Vogtle and particularly China demonstrate there are savings and productivity gains on later units where it is possible to replicate units and maintain a pipeline of projects to support an experienced workforce. Regulatory cooperation on licensing and standards is opening the prospect of international deployment of designs with very limited adjustment.

Credit here is due to the International Atomic Energy Agency, to the collaboration seen between the US, Canadian and UK nuclear regulators and more recently the plans to expand the joint regulatory review of Nuward to involve six European regulators. This points the way forward.

The Ministerial Declaration evidences the improved policy environment facing nuclear and the growing recognition of its energy security attributes as well as environmental contribution. Ambitious targets announced for China and India, France and Poland, Canada and Saudi Arabia have coincided with increased new entrant interest.

There is a growing consensus that delivering net zero is impractical without nuclear but a reluctance to face up to the fact that the costs of transition only get steeper as the date comes closer. And resolve is always a risk for high cost, long life investments. Translating words into delivery remains key.

Mark Feldman’s ‘Field Guide to Accelerating the Transition’ posed the frog riddle in 2011. Five frogs are sitting on a log. Four decide to jump off. How many are left? The answer? Five. Why? Because there is a difference between deciding and doing. That remains a real concern for many aspects of COP28 from honouring contributions to the Loss and Damage Fund, to the orderly transition away from fossil fuels or the tripling of renewable and nuclear generation. But, given the burning platform, the technology advances and the enablers in place, nuclear power generation may yet have a central role to play in our net-zero future.

Robert Armour is a senior counsel and Andrew Newbery and Marie-Aude Ziadé are partners at Gowling WLG. Mr Armour can be contacted on +44 (0)7768 111 004 or by email: robert.armour@gowlingwlg.com. Mr Newbery can be contacted on +44 (0)20 7759 6412 or by email: andrew.newbery@gowlingwlg.com. Ms Ziadé can be contacted on +33 (0)1 42 99 36 15 or by email: marie-aude.ziade@gowlingwlg.com.

Robert Armour, Andrew Newbery and Marie-Aude Ziadé

Gowling WLG