Nuclear power plant operator Sizewell C is preparing to raise ESG-labelled debt to fund part of the £15bn cost of the UK’s new generation nuclear reactor as fears about energy security following Russia’s invasion of Ukraine make the sector a more palatable source of clean energy.
While the inclusion of gas and nuclear in the EU Taxonomy guidance earlier this year remains controversial, the deepening crisis in Ukraine is increasing the focus on nuclear energy as a way to reduce energy imports and accelerate the roll-out of zero-carbon energy.
“The energy security crisis has caused people to suddenly increase the focus I think they already had on nuclear,” said Julia Pyke, director of finance and economic regulation at Sizewell C. “We don’t find many people we talk to who now say that they wouldn’t consider investing in nuclear.”
Sizewell C is seeking to issue an ESG-labelled bond early next year and could follow the example of Canadian utility Bruce Power, which in November issued the first-ever green bond to fund nuclear power.
"We are going to want to raise this money in the first months of 2023. We've been looking at use-of-proceeds bonds and we will look to follow successful examples elsewhere,” Pyke said.
Sizewell C has not yet made a decision on the instrument but other ESG bond formats including a social bond, or a sustainable bond are also possible.
As well as providing around 7% of the UK’s clean energy, Sizewell C says that the plant will provide 70,000 jobs and create 1,500 apprenticeships that back the UK government’s "Levelling Up" agenda, something that could support either social or sustainable issuance.
Talks start
Talks with investors and debt providers are starting on funding the construction of Sizewell C, a 3.2GW electric nuclear power station in Suffolk. EDF Energy owns 80% of the project and China General Nuclear Power Group has 20%.
It is expected to be funded using a "regulated asset base" model, which will split any cost overruns between developers and UK electricity consumers.
The financing is expected to involve equity, debt, the UK Investment Bank, export credit agencies and institutional and bond investors. Rothschild is the financial adviser and BNP Paribas and Lloyds are advising on the debt, alongside law firms Allen & Overy and Clifford Chance.
The UK government is expected to follow the EU’s lead and include nuclear in its own taxonomy, due to be published in December, which is hoped will boost the deal’s appeal with ESG investors.
“We are confident that nuclear will be within green investments in the UK Taxonomy. Of course, the EU Taxonomy doesn't apply to the UK, but it’s still directionally very helpful,” Pyke said.
Sizewell C believes its debt could be a good fit for transition funds, but is focusing on persuading green funds to include nuclear alongside renewable energy investments. It is targeting a wide range of international and domestic institutional investors, including pension and insurance funds and sovereign wealth funds.
“Lighter green investors who have been historically neutral to nuclear are becoming favourable and doors are opening to enable us to make the case to darker green investors," Pyke said. "The ESG case is really strong and persuasive when institutions look at the facts.”
Building programme
The surge in gas prices was already making investors look more closely at nuclear power, but growing energy security fears are expected to accelerate the move to clean power globally and encourage the UK government to build more nuclear power stations.
Sizewell C is the only new nuclear project that can begin construction in this parliamentary session, which is due to end in 2024 at the latest. The UK government is considering using the RAB financing model to build up to 16 small modular reactors that are included in its November 2020 10-point plan for a green industrial revolution.
However, nuclear energy remains controversial and 92 pressure groups last week called on financial institutions to exclude nuclear energy and gas from all products and bonds marketed as sustainable, green or responsible to prevent "massive greenwashing", and to exclude both sectors from Article 9 funds, which are defined in the EU's Sustainable Finance Disclosure Regulation as funds that have sustainable investment or a reduction in carbon emissions as their objective.