In this episode, Maurice Choy (Canadian Energy Infrastructure Analyst), Andrew Wong (Uranium & Fertilizers Analyst), Sara Mahaffy (ESG Strategist) and Robert Kwan (Head of Global Power, Utilities & Infrastructure Research) at RBC Capital Markets discuss our outlook for long-term growth in the nuclear energy industry, the path forward to address previous challenges, the political and regulatory landscape, ESG perspectives, and the outlook and exposure to nuclear energy across regions and sectors.

We have taken a global and cross-sector approach in reviewing the nuclear energy value chain in collaboration with our global team of Energy Infrastructure, Industrials, Mining & Materials and ESG analysts and strategists. We believe that nuclear energy generation capacity is well-positioned to grow in North America and Europe over the long term, supporting countries' energy transition objectives by being a source of reliable and non-emitting baseload power for decades as well as being an industry that countries can develop to deliver stronger economic growth. The vast challenge to deliver net zero by 2050 suggests to us that an “all of the above” approach must be taken, and that will not only benefit renewables (e.g., wind, solar, hydro) and carbon abatement technologies (e.g., CCUS, hydrogen), but also nuclear energy. We sense that certain countries are progressively valuing the benefits of nuclear energy and are justifiably giving support to the technology, ultimately leading to this industry becoming increasingly ESG-friendly and investable over the long run.

Robert Kwan:

Welcome to the Industries In Motion Podcast from RBC Capital Markets, where we'll be exploring what's new and what's next in today's fast-moving markets and industries. My name is Robert Kwan, and I'm the Global Head of Power, Utilities, and Infrastructure Research at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers. I'm pleased to be joined by Maurice Choy, Canadian Energy Infrastructure Analyst; Andrew Wong, Uranium and Fertilizers analyst; and Sara Mahaffy, ESG strategist. Today, we will discuss the outlook for nuclear energy, taking a global and cross-sector approach in reviewing the nuclear energy value chain, including insights developed in collaboration with our global team of energy infrastructure, industrials, and mining & materials analysts, as well as our energy and ESG strategists.

We believe that nuclear energy generation capacity is well positioned to grow in North America and Europe over the long term, supporting energy transition objectives, and we see the industry becoming increasingly ESG-friendly and investible over the long run. Now, Andrew, let's kick it off with you to explain the long-term growth outlook for the nuclear industry. Why do you see it being positioned for a rebirth over the coming years?

Andrew Wong:

It's great to be talking about the nuclear sector, which I've been covering for over a decade now as part of our uranium coverage, and it does really feel like we've seen a turning point in terms of sentiment and interest, and it's now being backed by real investment dollars, which we think it recognizes nuclear’s critical role in our global energy transition. And we're also seeing material shifts in the energy landscapes and national priorities that give credence to this rebirth. And there's a lot of effort being put toward addressing issues that, maybe in the past, have led to nuclear underinvestment. So some of these issues could have included high capital costs and potential for delays, which have been a challenge. While this isn't solved completely, it's an area of focus as we move to newer generation reactors, and we're seeing efforts from governance to address some of these regulatory issues.

Public and investor perception on safety have also been a hurdle in the past, but we're seeing that turn now with increased acceptance of nuclear as part of our future energy mix. And we've seen challenges from other energy industries like fossil fuels with cheap nat gas and a big focus on renewables, but there's an increasing recognition that nuclear plays a role in the future energy transition. Fossil fuels now have to deal with carbon, and renewables are great, but nuclear provides about 20% of our zero-carbon energy today and will be needed in the future. So as we look forward, we see nuclear energy experiencing a rebirth as the world looks for pragmatic solutions in the clean energy transition. And as this transition drives renewed growth in the nuclear sector, we see opportunities across different industries, a need for more uranium conversion and enrichment to fuel reactors, reinvestment in the current reactor fleet to extend operating lives, and a real push to build new reactors.

Robert Kwan:

Thanks, Andrew. So, Maurice, can you elaborate on the path forward for this rebirth in nuclear energy?

Maurice Choy:

Second, there needs to be a better allocation of risks to help reduce the cost of capital, and these risks relate to construction, and power price and policy changes. Third, we believe globally, public and investor acceptance can improve. The industry needs to build its record on safety, reliability, and environmental sustainability, and engage the stakeholders with information that's open, honest, and balanced. Beyond these three items, nuclear capacity can also expand and extend through life extensions and capacity upgrades, which are considerably cheaper than new builds and can be cost-competitive versus other generation technologies. Also, we hear a lot about SMRs, or small modular reactors, which address some of the risks relating to large-scale nuclear builds, and it is important that we see continued political and institutional support to maintain the technologies' momentum.

Robert Kwan:

Great. Thanks, Maurice. Sara, we're seeing real evidence of changes in investor and public perspectives on nuclear energy. What are you seeing in your analysis on the ESG front?

Sara Mahaffy:

Additionally, when we look at explicit exclusion policies related to nuclear power involvement, we've seen evidence of US sustainable funds removing exclusions in recent years. While we have not yet seen exclusions coming off among European or Canadian funds, we point out that in Europe, the use of exclusion policies has broadly ramped up across categories in recent years due to the introduction of SFDR regulation, their sustainable investing regulatory regime, and in Canada, the sample size of sustainable funds is still fairly small to analyze. One final point that has jumped out in our work is that nuclear power stands out as one area in the energy complex where we are seeing rising public support among both Republicans and Democrats based on recent surveys of Americans conducted by the Pew Research Center. Partisan differences remain wide over support for traditional renewable energy sources and fossil fuels, but nuclear power stands out as one key area where we're seeing rising bipartisan support in the US.

Robert Kwan:

Thanks, Sara, for that. So, Maurice, the political and regulatory landscape is hugely important for the future of nuclear energy. What are the key factors to consider?

Maurice Choy:

With any capital-intensive infrastructure project with a long construction period, the cost of capital is important to the overall costs, so anything that the government can do to reduce the cost of capital will be helpful. Number one, have supportive and durable energy policies that solidifies nuclear energy's role and energy mix. Number two, have the government be involved financially, and this can be in a form of being invested in a project, providing investment tax credits, or ITCs, or even supporting revenues of the projects through PPAs, contracts for difference, or a regulatory asset base model. Number three, the government can ensure regulatory clarity and predictability throughout the construction period, which allows developers to preserve engineering stability throughout the construction.

Robert Kwan:

That's really interesting, Maurice. So turning to Andrew now, what are some of the key differences across regions in terms of the outlook for nuclear energy support and development?

Andrew Wong:

In Canada, new nuclear builds are being considered, such as a major expansion to the Bruce Generating Station in Ontario. And turning to Europe, we see France recommitting to a nuclear fleet that currently provides 70% of domestic electricity needs, the UK recently signaling a major investment in new reactors for the coming decades, and even a country like Belgium extending the lives of reactors when previously they were considering a full phase-out. And in Australia, we see less opportunities where nuclear energy is currently banned, but the country should benefit from increased uranium demand, and there continues to be a debate on their nuclear energy policy. And there's obviously a lot of nuclear investment in other regions, including China, India, and the Middle East, but these are often more state-driven and outside of our coverage for now.

Robert Kwan:

Now let's examine the outlook and exposure to the nuclear energy value chain across sectors. Maurice, what's the outlook for the energy infrastructure sector?

Maurice Choy:

Infrastructure investors generally are risk averse and they like the sector not only for the long-term role infrastructure assets play in everyday lives, but also for the low-risk, stable, and predictable cash flows the assets generate. To this end, we believe infrastructure investors will be supportive of nuclear energy projects so long as the risk are substantially mitigated. This means structuring the cash flows that are either regulated or, at the very least, long-term contracted with costs that are passed through to customers. Pre-operational assets may also be possible, although investors will likely want a very limited amount of construction risk.

Robert Kwan:

Great. Thanks, Maurice. So turning to Andrew, take us through the implications our global team sees across the industrials and mining & material sectors.

Andrew Wong:

So industrials, our North American industrials analyst, Sabahat Khan, believes that the engineering and construction sector is ready and able to provide expertise and services across the value chain to support nuclear energy's growth plans. He sees opportunities for the E&C companies across new builds, refurbishment, and decommissioning, providing engineering and technology services as well as construction work. And as growth continues in the nuclear space, a key focus for the industry will be ensuring a strong pipeline of talent to support increasing demand. In mining and materials, we believe uranium will be critically important in the future growth of the nuclear industry as well as the processing required to turn uranium into nuclear fuel.

Robert Kwan:

Speaker 5:

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