Canada and France fire up nuclear green bonds

5 min read
Americas, EMEA
Julian Lewis

The controversial idea of using green bonds to finance nuclear power has finally ignited with Canada becoming the first sovereign borrower to add the emissions-free energy source to its framework and French state-owned utility EdF launching the inaugural nuclear green offering it first teed up nearly 18 months ago.

Credit Agricole also recently added nuclear power as a use of proceeds in its green bond framework.

The moves flow from the European Union’s hard-won agreement in July 2022 to include nuclear power in its taxonomy of sustainable activities. Canada explicitly cited taxonomy inclusion in the update to its framework, which it launched originally in March 2022 as the fifth G7 sovereign to enter the market.

“Since the introduction of Canada's framework, the [EU]'s taxonomy expressly included some nuclear activities as "green" until 2040–2045,” the department of finance noted in the debt management strategy annex to its Fall Economic Statement.

Some sources had previously hoped that Canada, which has a significant nuclear industry, would take the lead and endorse nuclear green by including the energy source in its original framework.

Domestic utilities Bruce Power and Ontario Power Generation have been issuing nuclear green bonds for two years. In September 2022 the country’s Sustainable Finance Action Council published a “Taxonomy Roadmap” that treated some nuclear expenditures as green.

The sovereign can finance several types of nuclear expenditure through green bonds under its framework that include investments in new reactors; refurbishment of existing facilities; research and development; and “some” investments in its nuclear supply chain.

In its latest second-party opinion, Sustainalytics affirmed the updated framework as “credible and impactful and align[ed] with the Green Bond Principles”.

Canada has committed to use no proceeds from its oversubscribed C$5bn (US$3.68bn) debut green bond for nuclear expenditure but plans to issue a second bond under the updated framework “before the end of this fiscal year [in March]”.

Growing momentum

Momentum towards nuclear green has been growing. Finnish pure-play nuclear company Teollisuuden Voima established a green bond framework in June while power utility Fortum, which has some nuclear capacity, also expects to launch ESG bonds.

Bankers have also reported a better reception to the idea from some previously sceptical European investors.

But the shift has been inconsistent. TVO’s regional peer Vattenfall has insisted that it would continue to exclude nuclear expenditures from its framework despite the Swedish government switching its energy target to “100% fossil-free” from “100% renewable”, while Korea Hydro & Nuclear Power and Hungary’s MVM have kept the energy source out of their new frameworks even though each is a significant nuclear power generator.

Moreover, the influential Bloomberg MSCI green bond index excludes nuclear green notes.

Credit Agricole’s updated framework allows loans from three areas of the nuclear industry that meet the EU Taxonomy’s substantial contribution criteria. They comprise pre-commercial stages of advanced technologies to produce nuclear energy; construction and operation of nuclear power plants; and electricity generation from existing installations.

EdF, whose framework references the same areas, launched its first nuclear-labelled green bond on Tuesday. Credit Agricole, ING, Mizuho, Santander and UniCredit are bookrunners for the June 2027 euro benchmark deal, which the it said will finance “EU Taxonomy-aligned nuclear energy capital expenditures in existing French nuclear reactors via look-back”.

Guidance for the expected €750m trade is mid-swaps plus 75bp area, inside initial price thoughts of 105bp–110bp over. Books were more than €3.5bn around 12pm in London.

Although the renationalised company added nuclear to its framework within days of EU Taxonomy inclusion, none of its US$1.75bn-equivalent green bonds issued in the subsequent 17 months has been in nuclear green format, LSEG data show.

However, EdF launched the first green loan for nuclear expenditures a year ago. Credit Agricole was the bilateral loan’s lender.

EdF’s annual nuclear capex and operating expenditure is nearly €8bn, according to last year's investor presentation for its green bond framework update, which has a second-party opinion from Cicero Shades of Green. Its vast nuclear fleet is undergoing a “Grand Carenage” renovation programme to extend the plants’ lives beyond 40 years and improve safety. It is also developing facilities in France and abroad, and investing in next-generation small modular reactor technology.

As much as 78% of EdF’s power comes from nuclear plants, the investor presentation shows.