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Nuclear Energy and the Sustainability Conversation

 

Sustainability Leaders host Jonathan Hackett, is joined by Alec Cheng, who serves as Vice President and Treasurer at Ontario Power Generation (OPG) and John Mauti, OPG's Chief Financial Officer in a conversation about sustainability and the role of nuclear energy as OPG, one of the largest, most diverse low-cost power generators in North America, strides toward a post-carbon economy.

In this episode:

  • On how OPG fits into Canada’s and Ontario's climate change strategy

  • On the evolution of the nuclear industry and the move to tailored, smaller reactors with smaller footprints to produce clean energy

  • On OPG’s green bond framework for renewables and how nuclear has become a part of the sustainability discussion

  • On the importance of nuclear in the global path to net zero

  • On the potential inclusion of nuclear in sustainable financing instruments in a not too distant future

  • On Canada’s Nuclear Waste Management Organization and sustainably managing the impact of used nuclear fuel

  • On nuclear, the grid and the fit with solar and wind power

  • Why clean energy sources are not one-size-fits all


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Alec Cheng:

2015 may sound not very far from today, but it's something that we need to act now. And when people are looking at this, they find different credible modeling to get to net zero. All of them includes nuclear to some degree. So this speaks to the importance of nuclear as a long-term sustainable resource to achieve the net zero goal that was established by different nations and accompanied by 2050.

Michael Torrance:

Welcome to sustainability leaders. I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On the show we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities, to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.

Speaker 3:

The views expressed here are those other participants and not those of Bank of Montreal, its affiliates or subsidiaries.

Jonathan Hackett:

Hi, I'm Jonathan Hackett, head of sustainable finance for BMO financial group and co-head of our energy transition group. Today, I'm joined by two guests from Ontario power generation, Alec Cheng, who serves as Vice President and Treasurer and John Mauti, OPG's Chief Financial Officer, to discuss sustainability, and in particular how nuclear power fits into that story. To start, John OPG released last year its climate Chenge strategy, can you walk us through how OPG fits into Canada and Ontario's climate Chenge strategy?

John Mauti:

Thanks Jonathan, a pleasure to be here as well. I just want to reiterate that Ontario has one of the cleanest electricity grids in all of north America. Part of that was the decision the company and the province made 10 years ago to move off of a coal burning plants for electricity. So with the closure of those plants well, we still considered to be one of the largest climate Chenge initiatives, in North America we became very clean, and Ontario and OPG itself all relies on two main sources of generation, nuclear and hydroelectric, both of which are GHG free from terms of emissions. We've set two ambitious goals for ourselves. First, by the year 2040 to be net zero in what we do as a company. And second, and more ambitious is that by 2050, we would support the communities in which we operate to help those communities become clean and free of GHG emissions. So again, it's a lofty ambition, but one that we feel we're well positioned given our clean electricity footprint.

Jonathan Hackett:

And often people talk about the difference between those ambitions and what initiatives organizations are actually undertaking. Can you highlight one or two of the key initiatives you're working on as part of that strategy?

John Mauti:

Sure. I think one of the more exciting ones we have are technologies that we call small modular reactors or SMRs for short. The nuclear industry as a whole started several decades ago, had smaller nuclear units, and the way that the industry progressed is that we tried to get more and more megawatts out of every unit that we put into service. So now they're up to the point of having single units that are 1500 megawatts in size, very large nuclear units. We feel that the future of the nuclear industry and the evolution going forward is to actually have smaller modular reactors as we call them. These are nuclear generation forums where the footprint and the size of those reactors are much smaller. Think of them almost as a variety of different cells, whether you have a single unit cell, small modular reactor, or multiple units that you can sort of join together and you can basically right-size the kind of generation you would need and put it into the electricity grid in areas where it'd be important.

John Mauti:

We're also working on smaller modular reactors, get to very small levels of output. Those are the kinds of reactors that we could actually put into more remote communities, communities where maybe there isn't transmission lines in the province of Ontario, we have, it's a large geographic footprint. There may be electricity demands in parts of the province where there is no transmission available, and having something like a very small modular reactor might be one way to actually satisfy the needs of that organization or that community. Another one of the areas that we're actively involved with this is in the area of electrification. So this is basically electrifying, think of it as the majority of the transportation options in the province. A lot of people are moving to, we're thinking about using electric vehicles that will increase the demand for electricity.

John Mauti:

And as long as we're producing that electricity in a clean way in fashion, we feel that's going to be imperative to help the province, the country, and the world achieve its a longer term GHG emission goals. So we're looking at both consumer applications of this in terms of fast charging stations across major transportation corridors, we're actively involved with various municipalities that have mass transit operations in terms of converting diesel buses and trains into electric fleets, as well as eventually all aspects of the transportation corridor, whether that's industrial or consumer base. So those are the areas that we're actively involved with trying to, through a variety of joint ventures and partnerships working on, and we feel that's important not only for our operation as OPG, but actually to help the province and the country reach those goals as well.

Jonathan Hackett:

Very interesting. And Alec if I can turn over to the financing side, sustainability has become part of nearly every discussion in the financial markets. Investors are actively building up ESG practices and screening criteria around their portfolio construction to support positive impact on decarbonization goals. And generally in advancing the UN SDG targets through their investments. Today, OPG has a green bond framework for the renewable side of your operations. How do you believe nuclear fits into those sustainability discussions?

Alec Cheng:

Yeah, very much so. There has been almost 180 degrees shift in sustainable finance discussion when it comes to the inclusion of nuclear energy. I think this is because many people are studying climate Chenge, and also it's more specifically the pathway in order to get to net zero, and more closely people look at the different pathways and ways to get to net zero. 2050 may sound very far from today, but is something that we need to act now. And when people are looking at this, they find different credible modeling to get to net zero, all of them includes nuclear to some degree. So this speaks to the importance of nuclear as a long-term sustainable resource to achieve the net zero goal that was established by different nations and company by 2050. So, and this is including the increase in demand that people are anticipating as a result of fuel switching, including electrification effort.

Alec Cheng:

So the goal overall is to reduce and replace the reliance to fossil fuel based generation. So yes, it means building more renewables, that's for sure as one of the solution, but it is not just about that, it is a combination of resources that give you electrical grid that is sustainable, electrical grid that is resilient enough to power the need of the society that are going to be off fossil fuel in the most part. So as a result of all these different needs, in terms of sustainable financing, we have seen some significant momentum in terms of including nuclear power, especially in the last, I would say three to four years. We have seen Chenges from the investor community expecting three, four years ago, some sort of exclusionary language in any sort of green framework to now different taxonomies are now including and endorsing nuclear as one of the clean and green technology.

Alec Cheng:

To give you some example, even back in three, four years ago, the exclusionary language for nuclear power was such a norm in green bond framework. Even in OPG's periods green bond framework that we first established back in 2017, 2018, we ourselves have the nuclear exclusion language, and because that's the only language that market would accept. We have since dropped that, not that we're using the green bond right now to fund nuclear, but we believe that the exclusionary language is no longer what's the market we'll be looking for.

Alec Cheng:

Another example would be the EU, the European Union. Initially I would say three, four years ago, they explicitly excluded nuclear. And now back in 2019, they neither included or excluded nuclear. And then in March this year, the joint research center, as part of the EU research arm completed their research on nuclear energy, and they have concluded that nuclear does not do more harm than any other technology currently included in the EU taxonomy, so that would include solar and wind. So the EU is right now studying the report and pending the concurrence of the finding. You might see nuclear included in the Eu taxonomy as one of the green technologies very soon. So with the growth of ESG financing in a post COVID world, we definitely see the inclusion of nuclear in a sustainable bond or sustainable format in financing in a not so distant future.

Jonathan Hackett:

And if I think about OPG sustainability practices generally, you invest a lot in disclosures in communicating your strategy. How do you look at nuclear fuel and in particular spent nuclear fuel from that perspective?

Alec Cheng:

Yeah, for sure. I'll address the nuclear fuel question. And John is a more of an expert when it comes to nuclear used fuel. So John we'll talk to the nuclear used fuel part of it. From a nuclear fuel perspective, one thing I guess people will have to consider is that is how power dense nuclear is. So we need very little uranium to power a reactor. So to be mindful of the environmental impact is very important in everything that we do, whether we're talking about mining uranium, mining coal, oil, gas, and even rare earth materials used to produce solar panels and lithium batteries. So because nuclear is so power dense, the mining impact in comparison to the electricity it generates is very negligible.

Alec Cheng:

So to put it in perspective, a one nuclear fuel bundle, one nuclear fuel pallet, which is about a size of your finger, a pinky fingertip is equivalent to one ton of coal, 150 gallons of oil and 17,000 metric feet of natural gas and contrasting with solar and battery, for example, there are a lot more precious and rare earth materials being used compared to nuclear in the case of uranium. This is actually confirmed by the European commission study by the JRC the Joint Resource Center. They provided a very detailed analysis of the mining practices for nuclear and concluded that there are no more significant harm caused by uranium mining, given the safeguard that is in place.

Jonathan Hackett:

And John, on the spent fuel.

John Mauti:

Yeah, so I'll thank Alec for suggesting I'm an expert on nuclear fuel, but as a CPA and the CFO, I don't have any technical background, but I have been involved for several years for how it is that we are sustainably managing the impact of the used nuclear fuel that we do generate. The one thing with the nuclear industry, they are very much, one of the most regulated industries on the planet, both of the regulators here in Canada, and globally we need to keep track of and manage of fuel both the uranium before it's put into our reactors, as well as the uranium coming out from used fuel bundles. So we manage them, we've been managing used fuel safely at each of our sites for the last 40 years. So we have a lot of experience and our safety record is excellent in the area, as well as we're not just worried about the temporary storage of the used fuel, we're looking for permanent solutions.

John Mauti:

And about 20 years ago now we developed through the federal government, a joint venture operation called the Nuclear Waste Management Organization. It includes all the producers of nuclear fuel in the country. So ourselves, Hydro-Quebec and new Brunswick power, as well as the federal government, that's been doing research and using nuclear fuel for research capabilities over several decades. So we're coming up with a Canadian solution that to house all nuclear fuel used bundles coming out of our reactors. And so that process has been ongoing for about 20 years now, a lot of scientific investigation in terms of how to manage that fuel for the long-term as well as from a societal point of view, making sure that as we're looking for host communities for some of these facilities that we will look to to manage nuclear waste permanently, that those communities are involved in a sighting process that there is a reach out communication, education, and transparency in the work that we're doing so that there's a full understanding of what this will be.

John Mauti:

The long and short of it is the world accepted practice to deal with used fuel byproducts from a nuclear process is to effectively bury them deep into stable rock formations. We sometimes use the term deep geologic repositories, and that's where we will store the fuel in sheltered containers with multiple layers of defense, into areas that geologically have been stable for hundreds of millions of years, and that don't have access and flow through to the water table. So taking this very seriously from a scientific point of view, and that's the way that globally scientists have determined this as the safest way to deal with used nuclear fuel. There are some applications in Europe and in Finland I believe that are actively constructing, such repositories are entering the process of moving forward in that area.

John Mauti:

So we think scientifically there's an answer for this. We think we want to do it in a way that respects all people that this will impact, host communities, first nations communities, and in Canada specifically, and in the end we've also put aside an excess of $20 billion that we have not only to deal with used nuclear fuel, but also to deal with the decommissioning of our facilities. We think it's important to make sure that we financially set aside the resources that we need to manage these items in today's dollars and into a sheltered segregated funds, rather than leave it to future generations to deal with. So we think we're doing it in a responsible way both scientifically. So from a societal point of view and financially, we think we're well positioned to be able to manage this going forward.

Jonathan Hackett:

So John, what about also the opportunity to use that spent fuel in next-generation reactors, do you see that as another avenue that could be taken?

John Mauti:

Excellent question and yes, this is something I think people and even myself supposed to realize that once fuel comes out of our reactors, it basically consumes, and I'll get the percentages wrong, then maybe 10, 15% of actual fissionable products within uranium at that point. So there's still a lot of potential value that's left in these field bundles. So one of the aspects of our disposal options is to ensure that in the future, should there be an evolution of nuclear technology that can reuse that fuel at some point in the future, even though it's gone through our current evolution of reactors that feel that while we're thinking of ways to safely ensure that it stays underground in the interim, if there's a development opportunity for future iterations of reactors to use some of that fuel, it can be potentially reuse.

John Mauti:

So that's the benefit of is that while we have it safely stored currently, and until we get to the future where we will be disposing of it, should there be technological advancements and innovations in nuclear technologies and reactors that can reuse that field, we have an abundant supply of that already safely controlled and available for those future iterations.

Jonathan Hackett:

If we take a step back to the broader climate strategy, how does nuclear fit into a grid with solar and wind power?

John Mauti:

Sometimes we think that we're suggesting that nuclear is the only option for the future. I think what we want to make sure that people understand is that, obviously with solar and wind, there's an absolute need for them going forward as renewable sources coming from harnessing the power of the solar rays and harnessing wind. So that will definitely be part of the clean energy future going forward. But we're almost viewing it as an all hands on deck strategy. We feel that helping supplement, wind, and solar, that that has its issues in terms of intermittent nature of how it is that that generation happens, solar doesn't work at night obviously, and if it's not blowing wind that doesn't generate electricity. So the fact that you have a backbone or a backstop of it, that's more, what I'll call there on a 24 seven basis such as a nuclear implementation, we'll work with a wind and solar, so that it becomes an amalgamation of all potential clean sources going forward to help deal with that eventual future.

John Mauti:

If we're thinking about Canada's goals for 2050 to be carbon neutral, it's not just electricity, there's a lot of Chenge, and there's a lot of demand for clean power for the future, whether that's heating our homes, whether that's driving vehicles, whatever the case may be. So I think that we can't turn our backs on all sources of potential generation that's free of carbon, so I think nuclear is part of that mix. Some would say that if you're anti nuclear you must somehow be pro carbon because I don't think there is an answer, especially in Canada, the size of the country of Canada, the specific weather patterns and whatnot, I think we cannot simply rely on wind and solar. I think the use of nuclear in that mix is going to be critical to ensure that we do things in a thoughtful way to make sure that our eventual long-term lofty goals we have as a country can be satisfied

Alec Cheng:

And just to add to John's point. I think there's a very good point about the geographical region that you're in. It's hardly a one size fits all type of deployment when it comes to the mix of generations. So in parts of Canada there may be a lot of hydroelectric power and parts of Canada there may be a lot of wind, but if you're looking at the Canadian climate and just envisioning ourselves in the middle of summer, but in the winter time when we get home and we started cooked dinner where the peak usage of electricity generally lies, you look out the window, generally there's no sun at that time. So how do we manage to peak level of usage at that time. I think solar and wind may be a solution, but it has to be combined with battery to meet that peak demand.

Alec Cheng:

Nuclear what it does is actually provide the base load power so that it reduces the amount of solar, the amount of wind and battery that we will be relying on in the winter where the sun may not be shining by the time when we get home. So those are factors that we need to consider in the context of the geographical region, in the case of sunlight, as well as what it does any offshore or onshore when that may be blowing during the peak times.

Jonathan Hackett:

That makes a lot of sense. And let me go back to something you covered earlier. So you're already a green bond this year. We talked about removing the restrictions around nuclear that had been there, and the investor feedback that you've gotten that led to that Chenge. Do you think we'll see a nuclear green bond somewhere in the world in the near future?

John Mauti:

I think we will get there. Again, we're seeing a lot of interest, organizations and individuals that have historically been fully on the anti nuclear side when they're looking at the carbon debate and the clean energy future that deals with climate Chenge and global warming. I think a lot of those have started to realize there's a need and an importance to include nuclear into that mix. As we've said, we've talked to a lot of our investors that we currently have, and I think there's a lot of optimism and a lot of interest to include nuclear in that kind of a framework is a little bit of a wait and see mentality because nobody necessarily wants to be the first, to go down that path but I think we've gotten those positive signals from the European community they were the first to move forward on a lot of the ESG and green bond practices, they were the ones that were originally very, so much a negative language related to nuclear being considered.

John Mauti:

We started to see that Chenge through that some of the work that Alec had mentioned in terms of [inaudible 00:21:46] research center and some of their conclusions, and I think we're on a path to getting there in Europe, and I think a lot of north American investors are in part seeing what's happening or waiting for to see what happens with the European commission and the EU side of things. And I think we will get there. I think collectively the world is starting to realize that if you want a clean future from the electricity or the power side of the industry, you need to be relying on all technologies.

John Mauti:

As I mentioned, that are GHG free and it's not just the renewables of solar wind and hydroelectric that they're well managed and a properly constructed nuclear industry and a nuclear industry that has those sustainable features in them, and that deal with the issues and financial commitments on a long-term basis. I think those will all be seen as positive aspects, and I think we will be getting there soon. We'd like to get there sooner rather than later, but we understand it's an iterative process. And as more and more information becomes clear and we position things that way collectively as an industry, I think we will get there.

Alec Cheng:

Yeah, and also just more adding to John's point. And I think he's quite right that Europe has been leading the charge when it comes to green and sustainable financing, and definitely great to see some Chenges there, and looking at the scientific evidence to support nuclear energy as a necessary solution. So that is a lot of investors are looking at that and being the denominator that people are referring to, looking at the green legislation and regulation in the EU. Locally, in Canada in one of the conferences that are be more held in the infrastructure conference, and we actually did a poll of the investor to gauging where they are in terms of looking at nuclear being green and sustainable. When we did that poll over 80% of the respondent at that time stated that yes, they believe nuclear to be green and sustainable. I will say for sure, in a north American setting, the investors are there already and is a matter of finding the right time and the right balance to have that included in the sustainable funds. And so on that the investors are responsible to invest in

Jonathan Hackett:

John, Alec, thank you for joining me today for this discussion it's been very illuminating.

John Mauti:

It's our pleasure, Jonathan. Thank you.

Alec Cheng:

Thank you.

Michael Torrance:

Thanks for listening to sustainability leaders. This podcast is presented by BMO financial group. To access all the resources we discussed in today's episode, and to see our other podcasts, visit us at bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on apple podcasts, where your favorite podcast provider, and we'll greatly appreciate a rating and review, and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and puddle creative. Until next time I'm Michael Torrance, have a great week.

Speaker 3:

The views expressed here are those of the participants and not those of Bank Montreal it's affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy, or security. This presentation may contain forward looking statements. Investors are cautioned not to place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only, and does not constitute investment, legal, or tax advice, and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment, tax, and or legal professional about their personal situation. Past performance is not indicative of future results.

 

Jonathan Hackett Co-Head, BMO Energy Transition Group and Head, Sustainable Finance

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