Will the Maple 8 Finance Canada's Nuclear Ambitions?
When Tim Hodgson, Canada’s natural resources minister, announced the federal government’s plan to dramatically expand the nuclear energy industry, he cited a project in the U.K. as a model.
That plant, Sizewell C on the Suffolk coast of England, is set to cost 38.2 billion pounds ($72.3 billion Cdn). But a key detail is that private investors are taking a 55 per cent stake in the project by sharing the construction costs.
Hodgson wants to emulate that model to achieve his government's lofty target of building up to 10 new reactors in Canada.
The prospect isn't far-fetched: one of Sizewell C’s investors is La Caisse, the public pension fund of Quebec, which has taken a 20 per cent stake in the reactor through an investment of $3.2 billion Cdn.
But attracting this kind of investment isn't easy, especially for risk-averse pension funds.
Nuclear energy in Western countries has developed a reputation for going eye-wateringly over budget. Hinkley Point C, the newest nuclear plant in the U.K., began construction in 2017 with an initial budget of $34 billion. It is now estimated to cost more than $64 billion.
Another recent project, Olkiluoto 3 in Finland, began construction in 2005 and took until 2022 to complete. Its cost ballooned from $5.1 billion to $17.8 billion.
"There's a reason why the nuclear industry has had really very flat growth over the last couple of decades. It's not about governments deciding not to build nuclear; in fact, there's been a ton of government support for nuclear projects," said Adam Scott, executive director of Shift Action, a Canadian initiative to push financial institutions and pensions to align their investments with green energy and climate action.
"It's that the projects have gone over budget and been incredibly expensive at such a scale that it has limited the ability to keep building these types of projects."
Removing investment risk
"If you want to have private sector investors, they need some de-risking," said Yrjo Koskinen, professor of sustainable finance at the University of Calgary.
That means that convincing private investors — such as pension funds, investment firms, energy and infrastructure companies — to invest in nuclear plants, they need some protection from the risks of huge cost overruns or long construction delays.
Koskinen says someone has to pay for covering that risk, and it will likely be taxpayers or electricity consumers.
Pension funds in particular need a reduction in risk, because of their duty to protect their members’ retirements.
Sizewell C in the U.K relies on a new funding scheme called the regulated asset base (RAB) model. Under the RAB, private investors such as La Caisse start getting paid back during the construction phase of the project, and don’t have to wait until the plant is actually operational and selling electricity.
Investors are paid through a levy on every British ratepayer — a one-pound charge on their monthly electricity bill — meaning investors see returns even if there are construction delays.
The RAB model also limits the risk to private investors if the project's costs balloon.
It works like this: Sizewell C is currently estimated to cost 38.5 billion pounds ($78.9 billion). If costs rise to an upper limit of 47.7 billion pounds ($90.3 billion), all the investors — public and private — will share the cost overruns equally. If costs go over that limit, the private investors won’t be forced to fund the overruns and the government may have to cover them.
The prospect of taxpayers being on the hook has left some locals critical of the deal.
"I think the thing that really sticks in our throats is that the way it's set up, the investors cannot lose," said Alison Downes of Stop Sizewell C, a campaign group in Suffolk, England, that opposes the project due to financial and environmental concerns.
"It puts risk onto energy bill payers, who are the people least in the world able to influence the outcome of a big construction project like Sizewell C."
In addition to being protected from major cost overruns, investors get attractive returns. The U.K.’s National Audit Office estimates investors will see returns of 11 to 13 per cent after construction is completed.
The British government says the Sizewell C plant will lower electricity bills by producing cheap energy — possibly into the next century. But the auditor’s report also said that the cost to consumers will not be outweighed by the benefits until at least 2064.
Renewables, yes, but big push for nuclear
Critics of this technology point to the issue of nuclear waste. Like Canada, the U.K. does not yet have a facility for the long-term storage of nuclear waste. All the waste generated until now has been stored on site, at the nuclear plants themselves. (Both Canada and the U.K. are planning an underground storage site for permanent disposal of the waste.)
Critics also frequently point out that solar and wind energy, along with battery storage, are rapidly falling in cost and becoming more efficient. In recent public procurements conducted by Ontario’s energy system operator, renewables and battery storage won out with lower rates than previous procurements.
But Canada isn’t alone in also doubling down on nuclear. The new Hinkley and Sizewell plants combined will provide about 14 per cent of the U.K.’s electricity. The Trump administration is changing nuclear safety rules and providing loans to help build new plants in the U.S. France is undergoing a $110-billion Cdn nuclear expansion plan that could build six new reactors. Even Japan, still recovering from the memory of the 2011 Fukushima nuclear disaster, is planning to refurbish existing plants and build new ones.
It’s a global boom this country wants to join.
"Canada has a really strong track record of nuclear deployment, particularly in Ontario. There's a 50-year history of delivering and running these plants," said David Pickup, director of the electricity program at the Pembina Institute, an energy think-tank.
"We're encouraged by that sort of vision of a global nuclear industry that Canada would be a big part of, while cautioning that that shouldn't come on the backs of Canadians at home."
Ontario gets almost half of its electricity from nuclear, via massive plants like Darlington, Pickering and Bruce. All of the plants have CANDU reactors, a Canadian nuclear design developed in the 1950s that was exported around the world.
But experts are doubtful that nuclear plants can be built without cost overruns — at least for the first few reactors that Canada builds, before it regains the experience it used to have.
"Canada had a sort of a heyday from 1970 until about 1991-92, when there wasn't a year we weren't building a nuclear reactor somewhere. And what that meant is that we developed a workforce that was very skilled, very trained, very good at their jobs," said Warren Mabee, professor of energy and environmental policy at Queen’s University in Kingston, Ont.
"It's really hard to build nuclear when you haven't been doing it for a while."
Despite the financial and logistical challenges, experiences in other countries show that large energy projects are often seen positively, even after massive costs.
The reactor in Finland came online just as Russia invaded Ukraine in 2022 and started cutting off energy supplies to the rest of Europe.
Without the new reactor, the Finnish people may have faced the skyrocketing energy prices suffered by other countries in the region. Instead, Finland now has some of the cheapest electricity in Europe.
"So in that sense, thank goodness Finland has this new reactor," Koskinen said. "But of course, when it was commissioned, nobody knew about that."
Freschia Gonzales of Benefits and Pension Monitor also reports Canada's nuclear plan hinges on pension money the West keeps missing:
Canada's plan to build as many as 10 new nuclear reactors depends on a source of financing that Western nuclear projects have long struggled to lock in: private and pension capital.
The federal government's new Nuclear Energy Strategy sets out to draw in that money, but RBC clean tech lead Vivan Sorab wrote that such capital "has been hard to mobilize for Western nuclear projects."
According to RBC, federal financing terms that would spell out how Ottawa shares project risk are not due until April 2027.
One model Ottawa is watching sits on the Suffolk coast of England.
CBC News reported that when Tim Hodgson, Canada's natural resources minister, announced the expansion, he pointed to the Sizewell C plant as an example.
Private investors are taking a 55 percent stake there by sharing construction costs, and one of them is La Caisse, Quebec's public pension fund, which committed $3.2bn for a 20 percent stake.
Drawing pension money in is not simple, given how much these funds guard against risk.
"If you want to have private sector investors, they need some de-risking," Yrjo Koskinen, professor of sustainable finance at the University of Calgary, told CBC News.
Pension funds in particular need that risk reduced because of their duty to protect members' retirements, Koskinen said, and he added that someone still has to pay for covering it, likely taxpayers or electricity consumers.
Sizewell C addresses that through a regulated asset base model, under which investors such as La Caisse begin collecting returns during construction rather than waiting until the plant sells electricity.
British ratepayers fund those returns through a £1 charge on their monthly bills, so investors earn even if the build runs late.
The model also caps investor exposure to overruns: CBC reported the plant is estimated to cost $78.9bn, and if costs climb to an upper limit of $90.3bn, all investors share the overrun equally, with the government potentially covering anything above that ceiling.
The UK's National Audit Office estimates investors will earn 11 to 13 percent once construction wraps up.
The same report found the cost to consumers will not be outweighed by the benefits until at least 2064.
Those protections reflect the industry's record on budgets.
Hinkley Point C, the UK's newest plant, began construction in 2017 at a budget of $34bn and now carries an estimate above $64bn.
Finland's Olkiluoto 3 took from 2005 to 2022 to finish, and its cost climbed from $5.1bn to $17.8bn, CBC reported.
Adam Scott, executive director of Shift Action, said nuclear has grown at a "really very flat" rate for two decades despite strong government backing.
The stall is "not about governments deciding not to build nuclear," he said.
His group steers financial institutions and pensions toward climate-aligned investing.
The arrangement has drawn local opposition in England.
Alison Downes of Stop Sizewell C, a campaign group opposed to the project, objected that "the investors cannot lose" under the structure.
It loads the risk onto energy bill payers, she told CBC News, the people least able to shape how a project like Sizewell C ends up.
Canada's strategy leans on domestic capacity, targeting two reactors under construction by 2035, five more planned by 2040, a modernized CANDU design by 2030 and a doubling of the nuclear workforce.
Execution turns on rebuilt supply chains, since heavy-water production capacity closed in the 1990s, RBC noted, and provinces, not Ottawa, choose the technology.
Experience is a further constraint.
"It's really hard to build nuclear when you haven't been doing it for a while," Warren Mabee, professor of energy and environmental policy at Queen's University, told CBC News.
Canada built reactors nearly every year from 1970 to the early 1990s, he said, then largely stopped.
Ontario currently draws almost half its electricity from CANDU plants at Darlington, Pickering and Bruce, CBC reported.
Canada is joining a wider build-out.
If all planned projects proceed, China would lead global capacity at 185,812 MW, ahead of the US at 117,910 MW and France at 75,590 MW, EnergyNow reported, drawing on Global Energy Monitor data.
France already generates about 69 percent of its electricity from nuclear, as per the same source.
For pension investors weighing entry, Finland offers one precedent.
Olkiluoto 3 came online as Russia invaded Ukraine in 2022, and Finland now has some of Europe's cheapest electricity, CBC News reported.
"So in that sense, thank goodness Finland has this new reactor," Koskinen said. "But of course, when it was commissioned, nobody knew about that."
In short, I think Canada is finally on the right track when it comes to its energy policy, in both traditional and renewable energy.
Tim Hodgson, Canada’s natural resources minister, has made several key announcements recently that most Canadians aren't aware of, but they are critically important.
Whether it's building more pipelines or nuclear reactors, Canada is on the right path to prosperity and energy independence.
How will Canada finance the new nuclear reactors?
Should our pension funds be involved? Should the financing be based on what the UK is doing with Sizewell C on the Suffolk coast of England?
My answer is an emphatic yes and never mind the naysayers in the articles above.
Inayat Singh of CBC News did a good job covering the basics and he raises all the important points, but when I see articles quoting Adam Scott, executive director of Shift Action, I literally cringe.
If it's not solar, wind, or battery storage, the folks at Shift will find any excuse to criticize it.
Make no mistake, nuclear energy is far safer, cleaner and more reliable than any other form of renewable energy and by a mile.
Smart countries like France didn't listen to their environmental zealots like they did in Germany, which is why France is more energy independent.
Even Germany is now reviving nuclear energy in a serious about-face (they totally screwed up).
So, yes, Canada needs to build a lot more nuclear energy plants and since these are greenfield projects, they need to de-risk them to attract Canadian pension funds.
Tim Hodgson knows all this. Prior to becoming a minister, he sat on the board of OTPP and PSP Investments before that.
He personally knows all the key players and their board members.
Last year, I made it clear that Canada should take note of La Caisse's big nuclear investment in the UK.
These nuclear reactor plants are a godsend to pension funds if the terms of the deal are right.
They are super long-duration assets (100 year+) that provide attractive returns (The UK's National Audit Office estimates investors will earn 11 to 13 percent once construction wraps up.)
Even if it's 9%, not 11% or 13%, it has embedded inflation protection and goes out decades.
There is no real return bond that offers that attractive return.
The biggest impediment to Canada's nuclear ambitions?
Attracting the right people to work on these projects so they come in on time and on budget.
I have a few people in mind but most of Canada's top project managers now work in other countries.
That is the truth, and if you don't attract them, you're left with dealing with firms and people who might not deliver the goods on time and on budget.
Alright, let me wrap it up there.
Below, Monday, Canadian Minister of Energy and Natural Resources Tim Hodgson unveiled a new nuclear energy strategy that seeks to build at least 10 new large-scale reactors in Canada and expand global exports over the next 15 years.
“We are writing the next chapter in one of Canada's greatest industrial success stories, Hodgson said. “For Canada and for our allies, energy security is national security,” he added.
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