22 Countries Pledge at COP28 to Triple Nuclear Power

The 28th annual United Nations Climate Change Conference (COP28) discussed nuclear energy as a potential solution for clean energy. On December 1, 22 countries including the US, Canada, the UK, and France pledged to triple nuclear power capacity by 2050 (from 2020 levels). However, COP28 hasn't made any final decisions regarding the pledge but did offer a new specific target to triple renewables and double energy efficiency by 2030.

Why has nuclear energy drawn such focus among some countries? 

Historically, coal has been a major source for meeting global energy demands. In 2022, it accounted for roughly 26% of global energy consumption (Chart 1). And notably, around 60% of coal consumption is allocated to the electricity and heating sector, according to a International Energy Agency report.

Reducing coal power is generally considered to be viable in achieving net-zero greenhouse gas emissions. In 2022, coal consumption rose by 3.3% to a new high. Meanwhile, coal accounted for 44% of CO2 emissions, according to the US Energy Information Administration. (Chart 2)

Chart 1: Coal ranks No. 2 in global energy consumption

Source: U.S. Energy Information Administration (EIA), International Energy Outlook 2023, Table A02. https://www.eia.gov/outlooks/ieo/data.php

Chart 2: Coal contributes 44% of global CO2 emissions

Source: U.S. Energy Information Administration (EIA), International Energy Outlook 2023, Table A10, A11, A12, A13. https://www.eia.gov/outlooks/ieo/data.php

Hence, net-zero emissions—at a basic level, not adding greenhouse gases to the atmosphere from human activities—aims at a 90% global reduction in the use of coal by 2050 and full decarbonization of the global power sector in advanced economies by 2035, extended globally by 2040.

Although achieving net zero doesn't mean shutting down all coal-fired power plants, constructing decarbonized coal power may be an option—though challenges exist. However, making efforts to phase down coal power remains the optimal choice.

That said, achieving net-zero emissions by phasing down coal power, as mentioned earlier, proves to be quite complex. As chart 3 highlights, this is primarily due to the reliance on coal power, accounting for 27% of the global electricity capacity.

Chart 3: Coal power is still the primary energy source for global electricity generation

Source: U.S. Energy Information Administration (EIA), International Energy Outlook 2023, Table E01.cap. https://www.eia.gov/outlooks/ieo/data.php

First, decarbonizing the power sector presents cost challenges in construction and carbon capture. Moreover, it doesn't eliminate all CO2 emissions. The emissions from decarbonized coal power still surpass those of nuclear, solar, and wind power by a significant margin based on the research of Intergovernmental Panel on Climate Change (IPCC).

Second, technological bottlenecks limit solar and wind energy as large-scale substitutes for fossil fuel energy. In other words, based on current technology, the electricity-generating ability of solar and wind energy cannot satisfy global electricity demand.

They are intermittent due to weather conditions. The storage capacity for renewable energy, like batteries, isn't sufficient to store surplus energy generated during peak times. While renewable energy is cleaner, the manufacturing, installation, and disposal of renewable infrastructure components (like solar panels and wind turbines) also pose environmental challenges and resource constraints.

Therefore, this pivots attention to natural gas and nuclear power. While natural gas seems favorable, Russia has the world’s largest natural gas reserves, and the Russia-Ukraine conflict has created instability in its supplies. As such, it is perceived as a potential long-term risk among many countries.

In addition, natural gas is still a fossil fuel. According to data of the UN Intergovernmental Panel on Climate Change (IPCC), natural gas power emits 490g CO2 equivalent/kWh of electricity produced on average. In contrast, nuclear power emits approximately 12g CO2 equivalent/kWh. Altogether, this leads to a second question:

Is developing nuclear power a feasible choice?

Nuclear power does have drawbacks such as safety concerns (amplified from the Fukushima disaster in 2011), waste disposal challenges, high construction costs, and extended project timelines. But there have been improvements in recent years from new technology.

These include small modular reactors (SMRs) and Generation IV reactors with passive safety systems for automatic shutdown during emergencies. Three SMRs were operational in 2022, and three more are under construction. More than 80 SMR designs are being developed around the world.

The construction time of an SMR is estimated to be around three to five years, a material reduction from the previous average of seven to 10 years. For instance, the construction time for GE-Hitachi's BWRX-300 SMR is estimated to be between two to three years. Additionally, advancements in technology suggest a decrease in the estimated overnight capital costs of new nuclear plants by 2050, as projected by the EIA (Chart 4).

Chart 4: Investment costs of nuclear power are expected to decrease

Source: U.S. Energy Information Administration (EIA), Annual Energy Outlook 2023, Table 55. https://www.eia.gov/outlooks/aeo/data/browser/

Even the operational and maintenance expenses of traditional fission reactors have seen a dramatic decline. (Charts 5-6).

Chart 5: US average power plant operating expenses (2012 vs 2022)

Sources: Federal Energy Regulatory Commission, FERC Form 1, "Annual Report of Major Electric Utilities, Licensees and Others via Ventyx Global Energy Velocity Suite. https://www.eia.gov/electricity/annual/html/epa_08_04.html

Chart 6: US average power plant maintenance expenses (2012 vs 2022)

Sources: Federal Energy Regulatory Commission, FERC Form 1, "Annual Report of Major Electric Utilities, Licensees and Others via Ventyx Global Energy Velocity Suite. https://www.eia.gov/electricity/annual/html/epa_08_04.html

The world’s newest and largest fusion reactor, Japan’s JT-60SA, fired up in October 2023. Although it is for experimental and research purposes, it is considered a milestone development.

Unlike the traditional fission reactor, fusion reactors offer a potential solution to meet global energy demands without C02 emissions during the fusion process. Fusion reactors are assumed safer than fission because they lack the potential for runaway chain reactions and catastrophic meltdowns. They also generate less radioactive waste with a shorter lifespan, reducing long-term environmental impact. It can be asserted that fusion reactors have the potential to advance the nuclear power industry while they remain fairly far from large-scale commercial implementation.

What are implications for investment?

As highlighted in charts 7 and 8 below, the US stock market is factoring in nuclear energy. Over the past year, stocks related to nuclear energy have shown strong performance compared to other global clean energy sectors. Simultaneously, uranium spot prices have been rising, up 110% since the beginning of 2021.

Chart 7 Nuclear-related assets have been rallying.

Source: FactSet

Chart 8: Nuclear has outperformed clean energy over the past 12 months

Source: FactSet, 12/15/2022=100

According to EIA data, global nuclear energy's capacity was at 400 gigawatts in 2022. In the last 20 years, nuclear power's progress has been notably limited for multiple reasons. In contrast, from 2011 to 2022, solar and wind power capacities surged by 2,560% and 384%, respectively, while nuclear power saw a 6.45% increase. This signifies the potential for nuclear energy to undergo a catching-up phase, as shown in chart 9.

Chart 9: Nuclear has room to catch up to solar and wind

Source: U.S. Energy Information Administration (EIA), International Energy Outlook 2023, Table E01.cap. and International Electricity dataset

Conclusion

Nuclear energy, once seen as a less promising clean energy source, had been fairly stagnant for 10 years. However, over the past year it has shown remarkable performance, outpacing other clean energy sources.

The declaration of 22 COP28 countries to triple the current capacity implies that nuclear energy could reach 1200 gigawatts by 2050. It also suggests the upward trend for nuclear energy is likely to continue in the short and medium term.

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