The nuclear renaissance has come to the World Bank, but obstacles still remain with regard to funding and liabilities.
The World Bank recently announced that it is lifting its decades-long ban on funding nuclear power projects.
This move is in line with rising pro-nuclear energy sentiments, in both national and international contexts, which are driven in part by emerging safety narratives for advanced reactors as well as a need to address both the energy shortage and climate risk. While the World Bank has yet to finance a nuclear power plant (with one exception), it has had in place a formal ban on financing such projects since 2013. That was also in line with informal worldwide sentiments against nuclear energy heightened by the Fukushima disaster in 2011 and Chernobyl in 1986.
While a transition from theory to practice may take some time, this announcement certainly implies the opportunity for some developing nations to fast-track their nuclear energy ambitions. According to its most recent annual report, the World Bank has directed almost one-fifth of its $38.5 billion commitment to the energy sector. In the last few years, the Bank’s top themes for energy financing have been environmental protection, renewable energy generation and natural resources management. With increased digitization and the worldwide national theme of onshoring, energy security and a stable source of clean electricity generation are most likely to dominate the financing focus of the world’s largest cooperative development bank.
The World Bank, a cooperative owned by its 189 member countries, provides development loans through one of its two agencies, the International Bank for Reconstruction and Development (or IBRD). The Bank funds its commitment in part through its own equity, but mainly through funds raised by issuing bonds underwritten by the IBRD. Investors consider these bonds as high-quality securities, allowing the Bank to raise funds on favorable terms and provide low-cost capital for projects in developing nations.
As a result, World Bank loans focus on projects and geographies that are not only aligned with the Bank’s focus but also present a strong likelihood of repayment. So far, the World Bank has made significant commitments to financing mature energy projects, mainly solar and wind in the last few years. The bank’s top borrowers, typically middle-income or credit-worthy low-income countries including India, Turkey, Indonesia, Brazil, and Ukraine, among others, many of which have set aggressive goals for nuclear energy generation.
Nuclear power generation is experiencing a renaissance, which is being driven in part by the promises of safety and efficiency regarding a new generation of reactors as well as a surge in electricity demand due to the worldwide increase of digitalization. The United States, a major shareholder in the World Bank, owns the largest number of nuclear reactors and is leading efforts to commercialize advanced reactors through a few programs funded by the Department of Energy.
The United States has shown it has substantial bipartisan legislative support for the nuclear energy industry, which has experienced a seismic impulse with the Trump administration’s recent Executive Orders. It is China, however, which, by virtue of its state-owned mechanism, has been able to lay out an aggressive trajectory for the commercial deployment of new reactors. Russia, using its dominance in the field of uranium enrichment, has positioned itself as a one-stop shop for nuclear fuel and the recycling of spent fuel.
For many nations, local enrichment and reprocessing will not make economic sense without subsidized financing. The worldwide momentum for nuclear energy is coming at the heels of an energy crisis, volatile and rising gas prices and nations competing to industrialize and digitize, all of which require stable, base-load energy systems and not intermittent energy ones such as solar and wind.
Nuclear energy generation, which is typically associated with large reactors and billions of dollars in upfront investments, is itself going through re-branding. In theory, advanced or small modular reactors, once commercially available, will cost much less and can power up remote areas without requiring extensive power transmission lines. While low-cost financing can benefit any infrastructure project, it benefits nuclear energy projects to a greater extent. The construction of nuclear power plants includes high upfront costs, albeit with low maintenance and fuel costs, and the facility is utilized for a long period, typically twenty-five to sixty years. As a result, low-cost financing impacts the viability of nuclear power plants more than any other energy system.
Advanced reactors may be smaller, but the cost to build the first of its kind is not. The elemental science behind nuclear energy is decades old, even though the new design and components are not. This makes regulatory costs an implicit burden in proving the viability of these reactors. The United States, whose nuclear regulatory agency’s standards are considered the “gold standard” worldwide, is struggling to establish an understanding of the safety of the new reactors with limited operating data (on which regulators have historically relied). Once established, the new reactors theoretically could be commercially deployed for energy generation in developing nations with IBRD financing.
While private funding is not sparse for new nuclear power plants in the United States, similar analogies cannot be drawn elsewhere in the world. In theory, SMRs and advanced reactors can help developing nations transition away from coal power plants, power remote locations and facilitate desalination. India, the top receiver of World Bank loans, has ambitious plans to harness nuclear energy for its own industrialization plans. To attract investment, India has even agreed to amend its Civil Liability for Nuclear Damage Act, which puts an onerous burden on reactor operators. Yet, financing nuclear projects is likely to impose liabilities on project developers, which may extend to the project’s financiers.
The World Bank has lifted its ban on nuclear financing, which is a good start. To secure financing, however, nuclear projects must demonstrate a history of returning capital to their investors and lenders.
About the Author: Rashmi Singh
Rashmi Singh has been Chief Lending Officer of a San Francisco-based commercial bank, with a certificate in Clean Energy Systems from MIT and a Master’s in Energy Law from Texas A&M University.
Image: Shutterstock/Poetra.RH
