Nuclear energy is having a renaissance. Following a prolonged period of weaning themselves off the power source, many former nuclear hubs are now backtracking. Europe’s first nuclear reactor in 16 years, Olkiluoto 3, in Finland began commercial operation in April of this year. While the UK, France, China and the US have all begun ramping up their efforts. Across the ‘developing’ world, plans for new or expanded nuclear energy programmes are being drawn up in their droves and established nuclear energy markets like India are considering opening up to foreign capital as it looks to more than triple its nuclear capacity by 2031.
The climate crisis is, of course, a huge factor. But the urgency behind the shift is being powered by global concerns around energy security, brought about by the pandemic and cemented following Russia’s invasion of Ukraine. Many European countries were caught out by their own reliance on Russian gas and oil, while the disruption the war caused to energy supply lines has impacted the developing world immensely.
Nuclear energy’s place in this conflict is twofold. It serves as an alternative to foreign gas and oil, which is why so many established nuclear nations are looking to make their nuclear programmes as self-sufficient as possible. While they’re less concerned about overseas involvement, domestically produced energy is the driver for emerging nations too, says Lincoln Hill, Director of Policy and External Affairs at the Nuclear Industry Association. “People want sovereign power. If you have pretty limited shipments of uranium fuel, that will get you sovereign power generation for quite some years, and quite reliably and predictably. I think a lot of emerging nations have concluded that we have to have that for energy security and a successful decarbonisation.”
But there’s a problem. Only a handful of countries have licensed reactor designs and building a plant requires a huge expenditure of time and capital up front, more than most can afford. For countries looking to go nuclear, therefore, a technology and financing provider is required. The top two providers? Russia and China, both of which are using the partnerships to great effect to build geopolitical alignments in the developing world.
The three new ‘emerging market’ reactors under construction, as defined by the World Nuclear Association, are in Bangladesh, Egypt and Turkey, with all three being built in partnership with Russia, as well as proposed reactors in Jordan, Kazakhstan, and Uzbekistan. On top of that, there are 25 Russian-backed provisional plans across Africa and Asia as well as five China-back proposals. In fact, of the 31 reactors that began construction since the beginning of 2017, all but 4 are of Russian or Chinese design.
While alignment is important, it’s a “little bit more nuanced,” Hill points out. Yes, EU and G7 aligned countries tend to partner with the UK, US, France or Korea (although not a member of the G7, Korean delegates are regular attendees of summits), and those closer to the BRICS nations (Brazil, Russia, India, China and South Africa) predominantly turn to Russia or China. But it’s the financing options available that are also a key factor and Russia and China see more value in forging partnerships. So although countries like the US, UK, France and Korea could afford to, explains Hill, they “have almost never made financing offers that are as good as what the Russians and Chinese offer.”
To get an idea of the sums involved, Russia is financing 90% of the planned reactor in Bangladesh at the cost of around US$12 billion with an interest rate of Libor plus 1.75%, capped at 4%, repayable in 28 years with a 10 years' grace period.
There are exceptions in all this, however. “Saudi Arabia is a unique case”, he says, “they're entertaining offers from Russia, China, and the US, essentially leveraging one against the other to get the best deal. [...] Their preference is probably the Americans, but they don't want to be constrained on uranium enrichment. So they're trying to do things like entertaining the Chinese offer, to get the Americans to give them a sweeter deal.” This is boosted by the Kingdom’s vast wealth meaning “they don't need the Chinese in the way that other nations do.”
In the West, with Russian and Chinese ties under particularly close scrutiny, geopolitical alignment is equally, if not more, of a factor. “What the Czech Republic, Slovakia, the Netherlands and Poland have done is they asked EDF (France), Westinghouse (US) and KEPCO (Korea), ‘give us your tenders’. So they basically run competitions, but within the Western sphere,” explains Hill.
The alignment extends beyond plant building. One of the biggest costs involved in nuclear energy is not the uranium itself (most major countries have large stockpiles), but how you turn it into usable fuel, known as conversion and enrichment. Again, Russia is the biggest provider here. In April of this year, the nuclear nations of the G7 reached an agreement to collaborate to cut out that dependency.
Considering the up front costs involved in emerging market projects, there’s little private sector investment. “There are really very few private sector companies who, on their own, would be willing to finance the scale of nuclear development that these countries have rightly decided is required," says Hill. In developed nuclear markets, however, existing projects see far more private investment, often in the form of life extensions to existing fleets or refurbishments. The Korea Electric Power Corporation (KEPCO) is 51% state owned, 49% private. Bruce Power in Canada has raised money to refurbish reactors from the private markets. In the UK, Centrica, the owner of British gas, owns a 20% share in the country’s nuclear fleet, with plans announced to attract more private domestic investment via its Regulated Asset Base funding model, which allows investors to see returns earlier in the process as consumers contribute to new plant costs through energy bills during construction.
The US is somewhat of an outlier in all this in that its nuclear fleet has always had a large private sector involvement, with utilities companies taking risks on big capital programs for nuclear energy. While this led to some failures and bankruptcies, says Hill, it has its perks: “the American fleet is very cheap to this day. It's one of the cheapest in the world, and most reliable as well." The recent acquisition of US nuclear power company, Westinghouse Electric, manufacturer of the technology used in about half the world’s nuclear reactors, by clean energy investors Brookfield Renewable Partners and Cameco, a supplier of uranium fuel, shows that private investors are beginning to believe again in nuclear energy with renewed vigour.
But for new nuclear markets, a state-backed partner remains the only route with cost, especially in developing markets, the main factor. For Russia and China, locking in strategic partners in growing economies, receiving decades of interest payments and securing future deals for parts and fuel, clearly makes the investment worth it. “You're probably signing up for a 40 year relationship, at the very least,” says Hill. With nuclear energy superpowers in the West focussed on narrowing their networks, the world could look very, very different come 2063.