30 Jul 2024
.jpg)
Article written by PSK Investment & Research team
As the world continues the path to net zero emissions, the environmental benefits remain clear. However, that path remains difficult and fraught with hurdles. One of the largest contributors to emissions is electricity production, and this is therefore a key area of focus for organisations globally as we shift production from fossil fuel energy sources to renewable sources that are less harmful to the environment.
Solar and Wind Renewable Technologies
To date, most new renewable energy projects have used solar and wind turbine technology. While these sources are better for the environment than fossil fuels, they are unfortunately not perfect solutions. To be effective, electricity supply needs to be both reliable and affordable. Both solar and wind are reliant on weather conditions to generate power, which can lead to intermittent power production that is not always matched to electricity demand levels. External weather events can also impact solar and wind. For example, in June 2023, smoke from Canadian wildfires travelled south through the Northeast US, which resulted in a 56% drop in New England solar production for a week.
Energy production needs to be curtailed during the day to protect the grid from overload, but then must be ramped up quickly to meet a sharp rise in demand in the afternoon. This is an increasingly difficult challenge for grid operators as solar and wind power grow in popularity. There have been attempts at solving this intermittency using very large-scale batteries and energy storage technologies like Australia’s Snowy Hydro 2.0, however, these technologies have so far not proven to be viable solutions, partially due to the very large costs involved in their production and use.
Figure 1 - Chart from the California Independent System Operator (CAISO) shows a deepening gap between supply and demand of solar power throughout the day
Intermittency can also drive-up wholesale electricity pricing if periods of low electricity generation line up with periods of high demand, forcing energy market regulators to intervene. This mismatch between supply and demand then reduces the cost-effectiveness of solar and wind.
At the same time that the world is transitioning its electricity generation methods to less reliable sources, energy needs are increasing at a rapid pace in both developing and developed economies. Data centres for example, now essential technology infrastructure, require high levels of very reliable power – power outages at data centres can have wide-ranging impacts on our economy and computing systems. This intensifies the search for technology that can replace existing fossil fuel supply to meet the power needs of the future – not just our needs today.
Enter Nuclear Power
As a result of all these concerns, another solution has recently re-emerged in discussion: nuclear energy. Nuclear energy itself is of course not new technology and has been used around the world since the 1950s. The US has 93 nuclear reactors, the UK has 9 and 65% of France’s electricity already comes from nuclear power.
Nuclear power presents many benefits relative to other power sources:
- Reliability and consistency – Nuclear plants can generate power 24/7, over 95% of a plant’s total life with no intermittency.
- Less materials used in building and running a nuclear plant – Nuclear plants need considerably lower volumes of materials to build and run relative to solar and wind, which require a lot of materials that are often imported to Western countries from non-allied nations.
- Low greenhouse gas emissions – Most nuclear energy emissions come from uranium mining and plant construction, with negligible emissions from plant operation.
- High energy density – Only small volumes of uranium are needed for high energy output, plus plant footprints are very small relative to the energy they can generate.
- Long operational lifespan – 40 – 60 years
- Low ongoing cost – Low cost even relative to coal and gas solutions.
- Upfront cost is falling – The upfront cost of nuclear has historically been a significant barrier for many governments and investors, however, new technology such as Small Modular Reactors (SMRs) are reducing this cost. In addition, nuclear does not currently benefit from the significant subsidies granted to solar and wind, making any upfront cost comparison difficult.
Figure 2 - Nuclear power land usage relative to solar and wind
Public sentiment is shifting globally
Nuclear energy has a reputation for being unsafe, driven by accidents like Fukushima Daiichi in 2011 and Chernobyl in 1986, which has slowed growth in nuclear power generation over the past 15 years. Although both these accidents were tragic, their causes were not necessarily nuclear power itself, but instead natural disasters and/or human error.
Hundreds of nuclear power plants have operated safely throughout the world without incident, and incidents are exceptionally rare. Counter to common belief, nuclear energy is significantly safer than existing fossil fuel energy sources and is on par with solar and wind. Nuclear energy results in 99.8% fewer deaths than coal, 99.7% less oil and 97.6% less than gas. Many of the deaths from fossil fuels are less obvious and concentrated, with accidents generally smaller scale (such as fires) and distant (in other countries).
As more people have realised that nuclear energy is safe and offers significant benefits, sentiment has started to shift around the globe and nuclear energy has become a popular form of energy production again. At last year’s COP28 conference, a commitment was made to triple nuclear energy production globally to meet emissions reduction targets. Many countries are now committing to building or funding new nuclear power plants.
Figure 3 - US citizens in support of nuclear power have now surpassed those opposed to nuclear power
Nuclear Energy and Australia
Nuclear energy has become highly politicised in Australia, with the two major parties in opposition to each other over the future. Many forget that Australia has an active nuclear reactor in South Sydney, which has been operational since 1958. This is used for research, medicine and industrial production. While Australia is the world’s third largest uranium miner, nuclear development for power generation is currently banned.
At this stage, authorities have deemed nuclear power too expensive, too risky and too slow to build for Australia. This puts Australia at odds with global peers on this issue, including key allies. Nuclear is not a silver bullet solution that can provide 100% of a country’s energy requirements, but instead is increasingly playing a significant part for many countries as part of a broader and diversified mix of energy solutions, particularly in the shift from coal as being the primary source of base-load power.
For more information, click here to check out the ‘Energy Transition’ monthly spotlight article written by our research team a few months ago.
The Investment & Research team at PSK are always monitoring market conditions and data points to ensure portfolios align with our overall long-term objectives. If you’d like to discuss any of the points raised, please contact your Adviser or call us on (02) 8365 8300.
General Advice Warning - Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.
