SMRs Pave Nuclear Pathway for Investors

Recent technological innovations and heightened government backing have allayed some, but not all, concerns. 

Small modular reactors (SMRs) have the potential to escalate the growth of nuclear and open the industry up to increased private capital, investors say, overcoming long-standing obstacles. 

SMRs are smaller than traditional plants, with a power capacity of just 300 megawatts per unit. They are less resource-intensive and more cost-effective than traditional plants, as well as more easily integrated with low-carbon energy infrastructure.   

“They may open up [investment opportunities in] industrial parks, unlocking hydrogen, distributed energy, off grid solutions,” said Jason Cheng, CEO and Co-founder of Kerogen Capital, an independent private equity fund manager focused on the energy sector.  

“While it’s counterintuitive that smaller SMRs could be more profitable than larger scale projects, the answer lies in the difference between building a bespoke project every time, versus the potential for modularity and repeatability to reduce costs while bringing scale.” 

The nuclear power industry’s long history of risks and costs has limited its appeal to investors despite its minimal greenhouse gas emissions. But innovations such as SMRs and the increasing willingness of governments to invest in nuclear – due to energy security concerns and net zero commitments – is changing the calculus.  

Capital commitment 

At COP28, more than 20 countries pledged to triple nuclear energy capacity from 2020 levels by 2050, citing the need for nuclear in the net zero energy mix. Since then, new policies and capital commitments have been announced by governments, providing investors with increased certainty of the investment opportunities.  

Earlier this month, France unveiled a draft energy sovereignty bill which outlined the country’s 2030 energy priorities. It included a big push for nuclear power as a way of transitioning from fossil fuels. The UK government also recently published a roadmap detailing how it plans to increase domestic nuclear generation by up to four times to reach 24 gigawatts by 2050. It will also introduce a high-tech nuclear fuel programme which will invest up to £300 million into UK production.   

China has built 36 nuclear reactors between 2010-20, unveiling plans for the construction of six more in August last year.  

“Nuclear has become a growth industry due to both energy security and decarbonisation trends,” said Cheng. “It is a proven and scalable technology, which meets the energy trilemma of affordability, reliability, and decarbonisation, which is especially important to governments.”  

A new report published by the International Energy Agency (IEA) noted that nuclear power generation is likely to break records in 2025, with countries such as India and Korea expected to have new reactors come online next year.

Learning curve 

To feel confident in investing in SMRs, investors now need to see cost reductions based on a learning curve, such as has been the case with the likes of wind and solar. This would be achieved through more frequent SMR projects, according to Danielle Welsh-Rose, Head of Sustainability Investment Specialists, APAC Sustainability Institute, at asset manager abrdn.  

“For that to occur, regulators and planning/approval processes would need to be faster and more streamlined,” she said.  

Earlier this month, Estonia announced plans to transition away from oil shale to SMRs to meet its target of producing 100% decarbonised electricity by 2030, with a Parliamentary vote expected H1 2024.  

“A secure and decarbonised energy system will require continued investment in renewables, such as wind and solar, as well as a significant ramp-up in investment directed towards sources of green baseload power, like nuclear and geothermal,” said Cheng.  

Staying cautious 

Historical concerns with nuclear energy still have the potential to deter investors.  

“Nuclear energy has traditionally been very high cost with longer project development timelines compared to renewables, and it’s difficult to see it as an investable opportunity without significant financial backing from government,” said Welsh-Rose.  

The UK government recently proposed a further £1.3 billion to support the construction of two nuclear power plants at Sizewell C in southeast England, bringing its total investment in the project to £2.5 billion. It is hoped this will incentivise private investors to also back the project. 

The previous completion date for Sizewell C was 2027, but it is now expected to be finished as late as 2031.   

The potential social and environmental ramifications of an event such as Chernobyl or Fukushima is also front of mind for investors. There are more recent concerns for Zaporizhzhia – Europe’s largest nuclear power plant – which is situated in Ukraine. 

Welsh-Rose also pointed to safety concerns for power plants dependent on water cooling, as worsening heatwaves dry up crucial water sources. France previously temporarily closed nuclear power plants for this very reason.  

“Water scarcity is a concern,” she said. “But there are nascent efforts to design nuclear reactors that don’t require water for cooling.”  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap