Home Commodities The clock is ticking on the nuclear renaissance

The clock is ticking on the nuclear renaissance

by SuperiorInvest

This article is a local version of our Energy Source newsletter. Sign up here to receive the newsletter directly to your inbox every Tuesday and Thursday.

Good morning and welcome back to Energy Source, coming to you this week from New York.

Earnings season is in full swing, and this morning BP surprised the market with better-than-expected fourth-quarter earnings and a boost to planned share buybacks, which had helped the stock rise 6 percent by press time. lunch in London.

This follows strong results from US majors ExxonMobil and Chevron, which reported combined profits worth $57 billion on Friday. Big Oil also received a boost from the withdrawal of a shareholder resolution by two environmental activist groups (read more below).

But our first point will focus on the role that nuclear energy will or will not play in the energy transition following the news of a new delay in the completion of the Vogtle Plant, the largest nuclear power plant in the United States.

Nuclear renaissance faces new delays

A plan by the United States and its allies to achieve a nuclear renaissance that can provide enough emissions-free energy to help the world meet the climate goals of the Paris Agreement faces a tough test in the coming months.

Two massive projects at the forefront of US and UK plans to revive their domestic industries face new delays and cost overruns, highlighting the complexity and risks involved in building large-scale nuclear projects.

Last week, Georgia Power revealed the latest delay in the expansion of the Vogtle plant, a nuclear power plant near Augusta that contains the first new reactors built entirely from scratch in the United States in more than three decades.

The company said the plant’s Unit 4 would not begin generating power before the end of March due to the discovery of vibrations in a reactor cooling system. A similar problem plagued the launch of Unit 3 before it finally began operating last July, after seven years of delays.

Georgia Power said the issue with Vogtle Unit 4 had been resolved and should begin operating in the second quarter. But the disclosure marks the latest in a series of delays and cost overruns for the flagship U.S. project, which is expected to cost more than double the original $14 billion price tag.

Across the Atlantic, the United Kingdom’s plan to restart its nuclear sector has also run into problems. Last month, French utility EDF announced that Britain’s flagship Hinkley Point C power station had been delayed until 2029 at the earliest, with the cost set to soar to £46bn at current prices. . The initial budget was £18bn, with a target completion date of 2025, but the project has faced repeated setbacks.

EDF cited the complexity of installing electromechanical systems and intricate piping at the Somerset site as the cause of the latest delay. The French government is pressuring London to plug a multibillion-pound hole in the budget for nuclear power projects EDF is building in Britain, according to a report by my colleagues at the Financial Times.

Both projects are showcases for new, advanced pressurized water reactors (EDF’s EPR2 in the UK and Westinghouse’s AP1000 in the US), underscoring the critical importance of bringing them online as soon as possible to encourage other customers to engage with the technologies.

U.S. officials warn that time is running out for the nuclear industry to prove it can contribute to the country’s 2050 climate goals because of the long timelines needed to build reactors. According to Kathryn Huff, between five and ten contracts will need to be signed to build new units in the next two to three years to allow the sector to achieve the commercial take-off necessary to provide sufficient clean energy by mid-century. US Undersecretary of Nuclear Energy.

This explanation published by the Financial Times last week details some of the challenges facing the industry and governments, including: technical complexity, shortages of skilled personnel, supply chain disruptions, strict regulation and voter rejection of the nuclear energy.

Patrick Fragman, chief executive of Westinghouse Electric Company, said the timelines proposed by some industry players were “a little aggressive, if not unrealistic” due to the complexity of the sector and strict regulation. But he said the world needed nuclear power to meet its decarbonisation goals and highlighted the crucial role the AP1000 can play.

The AP1000 should be cheaper to build than previous generations of reactors, according to Westinghouse, because it is smaller and many parts can be made in factories rather than custom-made on job sites. It uses passive safety systems that do not require human intervention, further reducing costs, the company said.

“It’s a reactor that has learned all the lessons learned over the last 70 years of commercial reactor operation, including the Fukushima incident,” Fragman said, referring to the 2011 Japanese earthquake and tsunami that caused a leak of radioactive materials. .

“From a security point of view, it is absolutely revolutionary. From an economic point of view, it is new for the United States, but not new for the world, because four of those reactors are already operating in China.”

Fragman said China was building six more units with the AP1000 and had praised the Westinghouse reactors as the “best performing” units within its nuclear fleet.

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But building nuclear reactors in the United States and other Western nations takes longer than in China, according to the International Energy Agency. Experts say differences in regulation, market structure and legal processes in Western nations often cause delays and cost increases. Unless these challenges are addressed, a nuclear renaissance may never occur and the sector may not play a central role in the energy transition.

Shareholder activists dealt chilling blow in Exxon challenge

Exxon and Chevron executives could be forgiven for popping a few bottles of champagne on Friday after America’s oil majors posted their second-highest annual profits in a decade and the former company scored a victory over climate activists.

An increase in U.S. oil production helped offset the drop in prices last year, netting the two largest Western producers a combined net income of $57 billion in 2023. Unlike last year, When the Biden administration condemned Exxon and Chevron for making “outrageous” profits in the aftermath of Russia’s full-scale invasion of Ukraine, there was little political opposition to its results.

A moderation in oil prices had lowered the political temperature around Big Oil profits, even in an election year, said Bob McNally of Rapidan Energy Group, a Washington-based consulting firm.

The same day, two groups of environmental activist shareholders withdrew a climate resolution at Exxon after the oil giant sued them in a Texas court. Follow This, an Amsterdam-based investment activist group, and Arjuna Capital, a U.S.-registered investment advisor, wanted shareholders to vote to require Exxon to set more ambitious climate goals at its annual meeting.

Follow This and Arjuna withdrew the resolution before the court could issue a ruling, a withdrawal that experts say could have a chilling effect on similar shareholder activism. They accuse Exxon of using “bullying and intimidation” tactics to circumvent a critical accountability mechanism.

Exxon is seeking to continue litigation and says the court still has “important issues” to resolve. He maintains that the Securities and Exchange Commission has been too willing to allow resolutions to proceed to a vote, even when similar motions have received little support.

“The case raises the question of whether companies will make greater use of the courts rather than the SEC process to fight shareholder proposals that they don’t want to see on their proxy card,” said Lindsey Stewart, director of research. Morningstar Investment Management. .

Exxon’s action follows a large increase in shareholder resolutions in recent years, reflecting an increased focus by activist investors and shareholders on environmental, social and governance issues. The peak of this trend came in 2021, when Exxon was defeated in a shareholder rebellion by activist hedge fund Engine No. 1, which won three board seats with demands that the company prepare for the transition. energy.

But the mood in America has changed radically since then. Exxon’s legal action against Follow This/Arjuna comes amid a political backlash against ESG that has led many large asset managers to moderate their support for climate-related resolutions.

A report by ShareAction, a charity that works on investor issues, found that only 3 percent of the 257 environmental and social shareholder resolutions voted on in 2023 received majority support, the threshold needed for a resolution to be passed. This was a large decrease from the previous two years, with 14 percent of resolutions passed in 2022 and 21 percent in 2021.

American oil companies already face less pressure from investors than they did just a few years ago, and Exxon’s lawsuit against Follow This/Arjuna could deal a new blow to shareholder activism.

Power suppliers

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Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the Financial Times’ global team of reporters. Contact us at energy.source@ft.com and follow us on @FTEnergy. Catch up on previous editions of the newsletter here.

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