Actively Speaking Podcast
Steve Bleiberg, portfolio manager and thought leader at Epoch Investment Partners, Inc. (TD Epoch) takes on current topics and issues facing today's investor.
Actively Speaking Podcast
The Resurgence of Nuclear Power Generation
The impact of the Russian war in Ukraine has made many countries, especially Europe, reconsider their stance on nuclear power. Senior Research Analyst Michael Jin joins the podcast to discuss the history of nuclear power, the ESG implications, whether the need for nuclear power will be enough to overcome people's perhaps irrational fear of nuclear, and how the technology has changed since the first wave of plants were built decades ago. (September 14, 2022)
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For institutional investors only. TD Global Investment Solutions represents TD Asset Management Inc. ("TDAM") and Epoch Investment Partners, Inc. ("TD Epoch"). TDAM and TD Epoch are affiliates and wholly owned subsidiaries of The Toronto-Dominion Bank. ®The TD logo and other TD trademarks are the property of The Toronto-Dominion Bank or its subsidiaries. The information contained herein is distributed for informational purposes only and should not be considered investment advice or a recommendation of any particular security, strategy or investment product. The information is distributed with the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein as well as any risks associated with such proposal or services. Nothing in this presentation constitutes legal, tax, or accounting advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Certain information provided herein is based on third-party sources, and although believed to be accurate, has not been independently verified. Except as otherwise specified herein, TD Epoch is the source of all information contained in this document. TD Epoch assumes no liability for errors and omissions in the information contained herein. TD Epoch believes the information contained herein is accurate as of the date produce...
Hello, and welcome to Actively Speaking. I'm your host, Steve Bleiberg. Join us each episode as we discuss current issues concerning capital markets and portfolio management from the perspective of an active manager.
Speaker 2:I
Speaker 1:Welcome back everybody to , uh, another episode of Actively Speaking. Uh, we've, we took a little break over the summer, but we're back now, and actually we're back in person , uh, recording for the first time in a , in two and a half years. Uh, uh, in the same place with me and my , uh, my guest. And I'm, we're gonna go nuclear today and, and , uh, my , we're gonna talking about nuclear power and to , uh, do that with me. I'm joined by Michael Jin , who is a analyst on Epic shareholder Yield Team. Michael, thanks for joining me.
Speaker 3:Glad to be here.
Speaker 1:So , um, you know , nuclear is a very timely topic for various reasons. Um , you know , I would say one is it's been kind of building over the last few years the realization that if we want to reduce , uh, carbon emissions, that nuclear power perhaps should be a bigger part of our energy mix. And then another impetus was the war in Ukraine that started earlier this year that has put the supply of , uh, oil and natural gas to , particularly the Europe under stress. It's got people thinking more about alternative , uh, sources of power. So why don't we start by set the historical context for us on kind of what the, how big a, a , um, contributor has, has nuclear been historically to the energy mix? And how has that changed over time? And does , has it varied, you know, by region around the world? So,
Speaker 3:So , uh, globally the world has about 440 nuclear reactors, and that in combination, they provide about 10% of total electricity consumed by the, by , by the consumers In our industries. The nuclear power plants were built in a wave in the span of , uh, 20 years , uh, mostly in the seventies and eighties. In the span of 20 years , uh, more than 300 nuclear reactors were built. And by 1987, it passed the mark of 400 nuclear reactors. And since then , uh, I say in the last 25 years, the number has been relatively stable. As of now, the number is 440. There are five major, say, nuclear power countries in terms of nuclear , uh, power generation. They are United States, France, China, Russia, and Japan. And , uh, maybe I'll spend a couple minutes on each of those countries. Sure. So first and most is , uh, United States. The US has the most number of , uh, nuclear reactors in the world. Currently, it's operating 92 reactors in 28 states. The average age of those nuclear reactors of 40, with the oldest one that was built in 1969 or 53 years old, and the youngest was built in 2016. Uh , the , but it's important to notice that the second youngest was built in 1996, which was 26 years , uh, old. Uh , the , the gap of that 20 years is really very unique for that one particular plan . So it , you know, it was delayed by various kind of a policy and the safety reasons. Mm-hmm. <affirmative> , uh, uh, but in end it was building in 2016, but that reactor was actually a twin reactor to the one that was built in 1996. The US a nuclear industry peaked in 2012 when there were 104 reactors. And then in the last 10 years , uh, we shut down 12 nuclear reactors.
Speaker 1:So basically oth other than, you know, as you pointed out, the one that opened in 2016 was really a twin of the one that opened 20 years earlier. I was just telling you . So basically for 25 years in the US we haven't, we haven't really created new nuclear reactors.
Speaker 3:That's correct, of course. Uh , as you might be aware, that US is currently building two new nuclear reactors now in, in a , in a , with a new technology. And I'm happy to get into details , uh, later you want to talk about those. But , uh, just moving on to the next country. The , uh, the second largest nuclear power generation country is France. Currently, it has 56 nuclear reactors providing 70% of the total electricity , uh, used in the consuming in France. The country is also building , uh, another nuclear reactor with the third generation technology. That plant has been in the construction phase for quite a while, and it still hasn't been startup yet. The third country is Russia. We , we is moving towards east from here. Uh , Russia has only 37 nuclear reactors , uh, providing 20% of total electricity for the country. However, they are a leader in a generation four technology called the fast nron reactors. The currently the country has three nuclear power plants on the construction, but has 27 plant , uh, for the future. And another 21 proposed, which is further out in the construction phase. Uh , moving further east is Japan. Before the March, 2011, Fukushima a nuclear accident. Japan had 54 reactors in operation providing almost 30% of the total electricity in the country. But after the incident, they shut down a lot of those and they finally bring back some of those. And , uh, they brought back total of 10. And with the current situation in Ukraine, the country is in the process of spinning up the approval for another 16 mm-Hmm . <affirmative> , uh, to come back online. So then, then last on the top five is China. Uh, the country currently has 54 operable nuclear power plants, but those were pretty much building in the last 20 years because the year 2001, the country had only two gigawatts of , uh, nuclear power, which is equivalent to about two nuclear reactors. So those 54 were built , most of the, were built , you know, between Tucson and one. And , and today it's a very young fleet. Uh, not only that, the country also has 22 new nuclear reactors under construction , uh, and 39 plant , which means they will be built. And then 82 firmly proposed, and another 78 , uh, less than definitively proposed . That's a lot of reactors. So a lot of nuclear reactors to be built in China. Now, even though we touch upon those top five, I think it's also worth mentioning, I think India is worth mentioning. That's because you're also building a lot of new ones in the future. Uh , Indian currently has 23 nuclear reactors in operation. However, it has been growing very fast in the last two decades. Uh , they currently have eight nuclear plans on the construction, 12 planned , and also another 28 proposed. So imagine when those all built. Uh , they definitely will be in the top five
Speaker 1:Now. Um, o over the years as , as we were just saying, like , so basically the US went through about a 25 year period where nothing new was being built. And during those years, I would sometimes read about, you know, people who were in favor of going back to building more nuclear plants would say, well, you know, the technology has changed. It's different from that first wave that you referred to of reactors built in the seventies and eighties. The technology is better, it's safer. Tell us a little bit about, you know, what has changed.
Speaker 3:Certainly , uh, in terms of technology , uh, the focus is mostly the reactor type. You know, the core of that nuclear power plant unit. And there are generally four generations of , uh, those nuclear reactors. The generation one is very old, and a vast majority of them are not in service anymore. In the United States, there is none of those. The last one in operation was in 2015. Most of the reactors that's running today globally are generation two reactors. The most common type of reactor is called pressurized water reactor , uh, or shortening PPWR . And then the second most common reactor is a boiling water reactor. There are a few other variations of reactors in different parts of the world. Uh , one is called advanced gas cool reactor. That's mostly of a UK version. And then there's a Canadian , uh, version called can do , or sometimes they are called Ontario reactors because most of the reactors were built in the province of Ontario. And then of course there's the Russian version, and they're called RBMK Generation Two Reactors. Most of the differences are in the cooling mechanism. The nuclear reaction is, you know, pretty much the same, it's the same physics , um, but the cooling mechanism varies a little bit here and there. So in the United States, all the 92 reactors are generation two reactors. And out of those 92 , uh, 61 are , uh, pressurized water reactors. And then so one are boiling water , uh, reactors. And all these , uh, reactors are designed and licensed for 40 years of operation, but most of them have already been , uh, extended for 40 years because they're very well , uh, designer built . Some of them may be able to apply for , uh, operating life extension to 80 years. So that's a generation two, generation three reactors are the ones that's being built today around the world. And I would say most of the design changes are evolutionary versus revolutionary. So therefore they are hiring efficiency , but they didn't really change the core technology. They also improve the safety system, where basically by installing the passive nuclear safety system, for example, the generation three plus has a core catcher. When there is a core melt done, it can just naturally drop it into a vessel below that can cool it and capture and then prevent the leak. So that's the generation three. Uh, there are quite a few well-known models in Generation three. One is called EPR, which stands for European Pressurized Reactor. And that's , uh, mostly designed by , uh, engineering company called Arva . Now is owned by , uh, French utility company. EDF. The company did have a little bit of troubled history, but uh , that's a separate topic. Uh , another well known model is called AP 1000, and that's designed by Westinghouse, which also some bankrupt , uh, several years ago. Troubled history for all the nuclear engineering firms. Uh, regardless the AP 1000 , uh, reactors has already been built with four in China operating already generating electricity. And China is planning to build at least four more using AP one Southern Design in the United States, as I mentioned earlier, we're building two new nuclear power plants, and they are using the Westinghouse AP one Son technology, and that's a generation three nuclear reactor. Certainly , uh, Russian has, its their own. So-called , uh, third generation Reactors and they're called a V vs , which stands for water, water energetic reactors. There are different submodels of that VVR, but they are in , uh, uh, but there are many of them that are being built in , in Russia and, and , and a few other countries in the world. And then there is a , uh, lastly there was a newcomer, and that's a Chinese design. It's called hu uh , or alternative is called HPC 1000. Uh , currently there are , uh, four reactors has been already built and running , uh, with two in China and then and two in Pakistan. And then China is planning to build 10 more. Uh , and then Pakistan will build one more , uh, data kind reactors. And then quickly on generation four, there are still in design , and that could be more revolutionary under six different reactor designs at this point in two major categories. One category is called thermal reactors , such as Moten Salt Reactor. Just by the name of it, you can tell it's a little bit more revolutionary than , uh, the generation three. And also the other type is called fast neutron reactor , uh, such as sodium. Cool . Russian is a leader in that technology with two pilot plants being built. And , and with the generation four, you might have heard of the small modular reactor. Uh , that's , uh, that seems to be very important for the future of the energy transition. So the , the SMRs are really part of the generation for technology. They're using GEM four Tech , but they're smaller in design. The main change is that those reactors smaller, the components are modular, so that can be produced in a mass , in a larger quantity to reduce cost . However, they're unproven today. There is only some floating pilot plants in Russia. And then also China is building a pilot plant , uh, with a 2026 start date. So we are kind of early on that. Mm-Hmm, <affirmative>.
Speaker 1:Um, okay. So that's , uh, that's, you've done a great job of, of giving us sort of the background, the history, and then how it's developed and where we are today. Let's talk a little bit now more about sort of policy issues and, and you know, how that has shifted over time. You know, it seems to me just, you know, in the course of my lifetime as a child, you nuclear power was this, you know, gee whiz Jetsons technology. It was the , we were all gonna use this in the future. Then we had some safety incidents, you know, well known in the seventies and eighties, and suddenly people were dead set against nuclear energy. And , uh, now it seems like the pendulum is shifting back again for other reasons, again, having to do with whether it's , uh, environmental concerns about emissions or , uh, the security of, of supply of, of fossil fuels, for example. So , uh, uh, you know, where , where do, where do you see it standing right now in terms of our, our policy towards nuclear power around the world?
Speaker 3:So , uh, what you said is , uh, correct. So we , uh, the policy has been shifting, and each time when we shift , uh, there seems to be different focused . So just use the last 10 years as an example. It started with , uh, 2011 Fukushima nuclear incident. At that time, the , the , the focus was on safety, which ended up leading to nuclear power plane shutdowns in Japan, in Germany, and the United States before the, the shutdown, they actually had , uh, before the incident in Fukushima, they had 17 nuclear reactors, and now they're only running three . And then in the last, I would say three to five years, people start to recognize the benefit of a nuclear power. And that's because it has a very little carbon footprint. The nuclear reactor itself does not generate the carbon emission. There is maybe a little bit of carbon emission coming from the, really, the auxiliary devices such as the water pumps and, and others, but they don't generate that much with carbon. So, so those are, you know, nuclear power plant is considered zero emission , uh, energy source. However, that recognition alone was not enough to reverse the chant until this year, as a result of the war in Ukraine, led to a very high cost of natural gas, particularly in Europe and also in Asia , uh, Pacific , uh, regions, and also very high price of electricity as a result of that. So that became a issue of that kind of shifted focus to the, to the really the security of supply and also the economics of electricity. And the views are changing to be even more favorable to the nuclears and , uh, and therefore leading to delaying nuclear power plant shutdowns because German , uh, Germany was planning to , uh, shut down the last three nuclear power reactors, but now they're delaying that Japan is gonna accelerate approval of those 16 reactors and bring them online, and the other countries are now more open to building new nuclears. So, so what does that mean for the today and the future? Yeah, and certainly, I, my my view is that the nuclear should play an important role , uh, in the energy , energy mix and also in the energy transition. And that's because nuclear is needed for three major reasons , um, which you kind of mentioned earlier. One is security supply, and secondly, you know , uh, economic reasons because few diversity is a great way to hedge against a very high natural gas cost , which is the environment we're in today. And lastly is the environmental benefit , uh, with zero carbon emission. And also technology, as I mentioned earlier, with the GM four, nuclear nuclear reactor, and possibly the SMRs, which stands for small modular reactors. Uh , they could also , uh, make the new nuclear more relevant in the mix of energy in the future. Uh , of course, along the way we need to be very conscious of the challenges and also , uh, um, we're still gonna need a political and ly support of the nuclear industry and also be conscious of that. Public views may change from time to time.
Speaker 1:Yeah. Um, so it seems to me there , the , the objections historically have kind of focused on two things. One was always about safety, but then the other was about what do you do with the waste? What do you do with the spent fuel, you know ? So what's your view on that? Like, is is that a challenge we can overcome?
Speaker 3:I would say it's a challenge in terms of safety. I say in the industry had , we did have histories of nuclear , uh, incidents with the most recently , uh, at the Fukushima, but also the safety standard has been erased . And then technology design has becoming better. As I said, the gen three has the core catcher, so therefore , uh, it is getting better. Oftentimes it's really of the, you know, the public acceptance of , of willingness to recognize that safety benefit , uh, in the engineering. So hopefully , uh, the view will change as, as we build up a longer safety record , uh, operating safety record, and then public , uh, can become more open to that. Uh , nuclear waste has always been a challenge because regardless, no matter how you change the reactor design, you're gonna generate nuclear waste. And the storage of nuclear waste has always been generally challenging. Every country has a different way of storing them. And, and the United States is still in the process of trying to get fully resolved , uh, by storing them on the ground in one particular , uh, site in Nevada. Uh, and , and before that's resolved, there's some of the ways are actually stored on the site , which is somewhat not as comforting as, as, as you know, miles under the ground . Right,
Speaker 1:Right . And that , I mean, and if we go to a world with all these small modular reactors Yeah . Each one storing waste on, on site , um, you know, and the need for security around that, that's, that's a challenge. Yes.
Speaker 3:That is one of the challenge for challenges for the SMRs. So I would to say, just quickly touch upon the general overall challenge we're facing in, in the new nuclear going forward, and I'll just quickly highlight that . One is , uh, we need to recognize it's still a very capital intensive project. And , uh, the projects that's been built, pretty much every single one of them, single one of them, have experienced schedule delays and the cost overruns by doubling or ling the cost of original estimate and , and , and years of delays in schedule. So therefore , uh,
Speaker 1:Can I , can I just ask like , what drives those delays? Is it, has it been like environmental challenges? What, you know, why, why are they so unable to plan accurately about how long these things are gonna take or what they're gonna cost? Um,
Speaker 3:I guess, as you mentioned earlier, at first, we haven't been building nuclears for decades, and , uh, the people who used to build them in the 70 , the eighties are no longer are the ones that are available to the kind of guide through the , the build construction. And that's first. And secondly, it's newer technology. And also keep in mind that nuclear plants are built with probably the highest safety standard in the whole world. Mm-Hmm . <affirmative> of , with everything that's been built, because we want it to be incident free and in the span of its operating life and minimum for 40 years. Right. And the gen trees are kind of designed for 60 years and hopefully 80 years, and some people even speculating for a hundred years, but let's just, even for 40 years, that's a pretty high safety standard. And , and , and secondly , uh, because of that, during the construction process, if there's any discovery or concern on the safety of the power plant , you will have to make a stop and then make corrections on that. Mm-Hmm . <affirmative> . So ,
Speaker 1:So I guess it's worth it.
Speaker 3:It's well worth it in the end. Uh , but that doesn't make it quite a headache because the project cost goes up and , and then, and then makes the next person or next country or next company want to build a nuclear plan . You know, they have to take a positive think , do I want to take that , this kind of undertaking that will cost billions and then, and , and then could be experiencing cost overruns and right time delays, you know, is that something I want to take? Uh, so, so I think, you know , uh, it's experience factor. I mean, in the seventies , the eighties, the whole world were able to build more than 350 reactors in the span of 20 years. And it was at that kind of a computing power. And the technology, I would think that, you know, with today's computing capability and engineering capabil, comput , if we really wanna do it, we probably can't. It's just matter of lining up the learning curve first and then, and then replicate that , uh, again and again. Mm-Hmm, <affirmative>, and of course we need to deal with the economics and , and , and that's because renewable power would such as wind and solar is a competing power source, and , uh, wind and solar also has zero emission, same as nuclear, and they're becoming cheaper and currently is cheaper than nuclear, and also wind and solar are not considered as dangerous as nuclear. So therefore, so people sometimes question, you know, when they're trying to make a decision, you know, do I build a new nuclear or a new wind and solar? There is, you know, the only argument to, to build a new nuclear could be really the, the field diversity argument that
Speaker 1:Well, and also presumably reliability too. You know, the , you know, wind and , and solar are not always on, and that's correct. Nuclear can be always on. But of course, if you could get better battery storage for, for the wind and solar, that, that would also tip the balance. So that's
Speaker 3:Correct. That's the next piece of the puzzle, which is once you know whether the battery cost and the hydrogen cost will come down to solve the short term storage, which is battery, and the long term storage, which is , uh, quantum energy storage, which is hydrogen. If we get those costs coming done meaningfully enough to be comparable, then with the renewables, then that combination could be quite competitive against the nuclear.
Speaker 1:So I mean, as , as we're sitting here today, are, are these discussions taking place at , uh, you know, I guess it's not just electric companies. I mean, this is sort of a government policy issue too, but like, are, are there discussions taking place today about should we move ahead with this new nuclear power plant? And, you know, how are those decisions falling out? Are they, are they moving ahead or not?
Speaker 3:I would say it d it differs by country. Uh , I would to say, as I mentioned earlier, there are some countries are , uh, pretty, yes .
Speaker 1:Yeah ,
Speaker 3:You mentioned committed to China , China , China, Indian , and , uh, uh, maybe a few other countries. And , and then, and I think in , uh, in the United States and Europe, there's a little bit more hesitant, but there are signs that's kinda , you know , helping us in that direction , uh, in including the inflation reduction act that was passed recently. Uh, within the act there , uh, there are nuclear , uh, tax credit provided for existing nuclear power plants and also tax credit , uh, for new builds as well. So those tax credit, you know, if it is , you know, applied or used the properly , it could help , uh, not only the existing plan to run for longer, you know, beyond this 40 year to 60 years or or beyond. And also could , uh, encourage another new build. And as I said earlier, the southern companies building two nuclear pipelines , even though the experienced challenging in , uh, in the past, but they are near the end. Those could be finished and commissioned sometime next year. So when that happens, when we see a headline that in the new , uh, United States , uh, uh, first nuclear power plan , uh, after decades is up and running, I think that could psychologically at least , uh, to provide a , a boost in confidence and , and , and then also helping companies to make decision or policy , uh, makers to, to provide additional support.
Speaker 1:So if, if , if you, you know , had to make a , a bet one or the other 20 years from now, if , if , uh, are we gonna have more nuclear power plants up and running than we do today in the United States or, or fewer ,
Speaker 3:Uh , my view is more, I , I still think that this is important , uh, in the whole energy transition. Uh , and as you , uh, recognize, they , they provide stability, they provide zero emission, and they provide field diversity and , and therefore, you know, security of supply to a certain degree. Uh , so I'm kind of , uh, cautious of optimistic about the future of the nuclear industry.
Speaker 1:Okay. Well , uh, this has been a great , uh, discussion. Michael, thanks very much for joining me, and we'll be back with another episode , uh, in the near future. If , uh, if you enjoy this podcast, please uh, take a moment to give us a good rating on whatever pod , uh, platform you get this podcast from and , uh, and possibly even leave us a , a review. So thanks very much. Remember to subscribe to actively speaking on Apple Podcasts, Spotify, or Google Play. You can find all of our previous episodes and additional content on our website, www.eipny.com.
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