Nuclear could account for more than 10 percent of green energy bonds, says ICMA

Second Canadian issuer enters market as EDF looks to fund nuclear projects with green bonds.

Green bonds with nuclear power listed in their financing frameworks could make up more than 10 percent of issuance from the energy sector, according to the International Capital Markets Association.

Nick Pfaff, deputy CEO and head of sustainable finance at ICMA, says: “It could be that over time [nuclear green bonds] could represent a single-digit, maybe lower double-digit of the energy side of the market.”

While this would be unlikely to have a major impact on the overall sustainable debt market, it would mean that “for those investors who are ready to invest in nuclear within narrow parameters, they have that option”, he adds.

The debate around nuclear green bonds has been reignited after members of the European Parliament voted on 6 July to include nuclear power in the EU green taxonomy.

At the same time, market participants say the move is unlikely to spark a major shift in attitudes towards the sector and engagement with it.

“Many investors to our knowledge are saying this isn’t going to change much because they have their own in-house views; they have their own exclusions list,” says Pfaff. “So what’s happening with the EU taxonomy debate will not change their house view. The other view in the market is that some investors think that on a conditional basis they could invest in nuclear and will also consider the specifics of certain jurisdictions where nuclear is important, such as Canada and France.”

Few nuclear bonds so far

The market had previously only seen one nuclear green bond – a C$500 million ($386 million; 377 million) deal from Canadian utility Bruce Power – but last week brought two new developments. France’s EDF, which has raised around €8.75 billion from green bonds since 2013, updated its green financing framework to align with the EU taxonomy and extend the scope of eligible investments to include nuclear power generation, while Canada saw its second nuclear green bond with a 10-year C$300 million from Ontario Power Generation to finance the refurbishment of the Darlington Power Station.

All three nuclear frameworks so far carry a second party opinion from Cicero, which nonetheless warned in its signoff of the EDF framework that there was currently no final storage site for high-level radioactive waste in line with taxonomy requirements and that it was difficult to rule out negative social and environmental effects in the uranium supply chain.

S&P Global and VE did not respond when asked their stance on nuclear. Kevin Ranney, Sustainalytics’ senior vice-president of corporate solutions, says that the SPO provider viewed the maintenance and refurbishment of existing nuclear power plants as eligible for transition finance in jurisdictions with good safety records and strong regulation, but the construction of new plants was not eligible because of the intensive capital and time requirements. He points to the “opportunity cost” associated with new development.

The ICMA itself does not have a house view on the eligibility of nuclear as the green bond principles cover project categories without going into deep detail on eligibility. Bruce Power includes nuclear energy under the clean energy category in its green financing framework, while Ontario and EDF split it into a separate category.

Pfaff cautions that the inclusion of nuclear in green bonds did not mean that all checks and balances were being removed. “If you look at what the EU taxonomy says, it is framing nuclear with strict parameters, so this view that what is happening is that suddenly nuclear is okay is factually incorrect”.

Under taxonomy criteria, nuclear power stations must already have operational facilities for low level waste and plan on putting facilities for high level waste in place by 2050. At present, within the EU, only Finland, Sweden and France are eligible.

Isobel Edwards, green bond analyst at NN Investment Partners, warns that issuers could be limiting their investor base if they issue a nuclear green bond, given many investors exclude nuclear on a fund level.

In its updated framework, EDF said it would look to operate a two-tier system of green bond issuance, and would still issue green bonds with nuclear expenditures ruled out.

“Regardless of the EU Taxonomy’s inclusion of nuclear or not as a sustainable investment, there are many green investors who cannot change their policies and which will continue to have restrictions on nuclear power investment,” Edwards says.

NN IP is among these firms, with a restriction in its green bond funds on investing in any company that began construction of a nuclear power plant after 2019.

“Taxonomy alignment doesn’t change that, since it is part of our fund’s policy and therefore expectations of our clients”, says Edwards.