Nuclear Power’s Role in Reaching Net Zero and the Investment Opportunities it Brings

Nuclear power has been a somewhat neglected energy source for some years now. It provides only around 10% of the world’s electricity (and around 15% of Canada’s), and currently comes far behind oil and natural gas in terms of overall global energy supply. 

However, there are big changes coming in how the world will consume energy. To mitigate the impacts of global warming, most countries have made significant commitments to move away from fossil-fuel use and replace it with net-zero energy. To achieve this within the fairly short timeframes required (2050 for many countries), nuclear power is likely to become a much bigger player in the electricity-generating field.

Let’s take a look at the scope of change as the world moves from fossil fuels to net-zero energy sources; nuclear power’s probable role; and the investment opportunities that it brings.

Net-zero targets and the move away from fossil fuels

Extreme weather, exacerbated by global warming, has had devastating impacts on the planet, causing billions of dollars’ worth of damage along the way. In a bid to minimize these impacts, most of the world’s countries have agreed to cut human-made greenhouse gas emissions to restrict global warming to no more than 1.5 degrees Celsius above pre-industrial levels. The world is currently around 1.1 degrees Celsius warmer than it was in the late 1800s.

According to the Paris Agreement (a legally binding international treaty on climate change), greenhouse gas emissions need to be reduced by 45% by 2030 and reach net zero by 2050. To achieve this, we’ll need to make a huge shift regarding the type of energy we use in every aspect of our lives: for light, heat, cooling, transportation and industry. The world will gradually have less dependency on fossil fuel energy — such as coal, gas and oil — and replace it with renewable energy sources.

This will be a mammoth task, and while it won’t happen overnight, it does need to happen in just a few decades, which will bring with it considerable challenges.

Nuclear power’s role in reaching net-zero targets

Currently, with almost 85% of global energy consumption coming from fossil fuels, we clearly have a long way to go to greatly reduce that consumption and diversify the energy grid.

The good news is that the journey has already begun, and renewable energy sources, such as hydro-electric, solar and wind power are not only growing at a fast pace, they’re also less expensive to set up when compared to new gas or coal generating plants.  

Much of current fossil fuel energy will have to be replaced by electricity in one form or another (either directly from the power grid or in batteries). One of the key issues of renewable energy is storage. The technology to store excess energy from wind and solar farms when the sun is shining and the wind is blowing, is currently insufficient. When it’s dark and still outside, we’ll need an energy source that can continue to feed our power needs. While hydroelectric power (using the power of moving water to generate electricity) is highly efficient at providing energy at the push of a button, wind and solar are not.

This is where nuclear power comes in. While it’s not renewable energy as such (uranium, the source of nuclear power, is a finite resource), it does create energy with zero greenhouse gas emissions. And it can deliver energy around the clock, regardless of the weather or time of day.

There is substantial potential for increased growth of nuclear energy over the short term, to help replace the huge amounts of fossil fuel energy we currently consume. It can be a quick and fairly cost-efficient option to extend the life of nuclear reactors so they can continue to generate power. Also, the development of small modular reactors (SMRs) could provide a more affordable option that is much faster to build than large reactors.

In recent years, there seems to have been concerted political will for nuclear power to play a key role in the transition to net-zero emissions. In 2020, then Minister of Natural Resources, Seamus O’Regan said, “We have not seen a model where we can get to net-zero emissions by 2050 without nuclear.” Nuclear currently accounts for 15% of Canada’s electrical production capacity.

The challenges facing nuclear power

Nuclear power has some hurdles to overcome when it comes to being a key player in the move away from fossil fuels. Some of these issues are contentious, but they’re all worth mentioning, and include:

• New nuclear power plants are expensive to build and take years to complete.
• It’s perceived to be dangerous: disasters like those that happened in Fukushima in 2011 and Chernobyl in 1986 have given nuclear power a reputation for being unstable.
• Uranium mining can have negative environmental impacts.
• Nuclear power generation uses large amounts of water.
• Radioactive waste from nuclear power stations can remain dangerous for thousands of years, and storing it safely can be a challenge.

The nuclear power industry has been working to overcome these challenges. For example, small modular reactors have the potential to produce energy quicker and cheaper than large power plants. And when compared to other means of power generation, nuclear is fairly safe, especially when you consider there have been two major disasters in 37 years among the world’s 440 nuclear power stations.

And, given nuclear power’s ability to produce large amounts of electricity efficiently and continuously, without being beholden to the weather or sunlight, along with political will, it looks set to play a key role in the transition away from fossil fuels.

Investment opportunities in nuclear power

Nuclear power’s main attraction for investors is that it’s a zero-emission energy source that can easily adjust its output to match demand, unlike the current challenges facing renewable energy sources such as wind and solar. As the world moves away from oil, gas and coal, huge amounts of carbon-free energy will be needed. Nuclear power is well positioned to help the world reach net-zero energy consumption.

Governments are committed to transitioning to zero-emission energy by the end of the century, and many are providing tax incentives for nuclear power generation. For example, Canada has a tax credit of up to 30% for clean energy technologies, which include small modular reactors, and the US introduced a tax credit in 2022 for the production of new nuclear power.

Here are some of the key ways that nuclear power can offer investment opportunities:   

• The development of small modular reactors could be extremely attractive. They can be built in a factory and then shipped to the site, meaning that they could be used to provide power to many remote or small communities.
• Traditional nuclear power will only grow in importance as more countries upgrade existing (or build new) nuclear reactors to meet aggressive net-zero targets.
• Many businesses are built around the maintenance and upgrading of traditional nuclear reactors, a sector that is likely to grow enormously over the next few decades.

To find out more about the role that nuclear power will play in the move away from fossil fuels, and the investment opportunities it will bring, read the Mackenzie Betterworld Team’s Pathway to net zero.

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Author

Andrew Simpson

Senior Vice President, Portfolio Manager, Head of Team

Mackenzie Investments