In a move to encourage private sector investment, chancellor Jeremy Hunt said in the spring Budget that the UK green taxonomy will class nuclear power as ‘environmentally sustainable’, subject to consultation.
Although nuclear fuels are not renewable, the classification would enable nuclear power to have the same investment incentives as renewable energy. But despite being low-carbon, it is not uncommon to come across ESG funds and investment companies that exclude nuclear power generation. So will investment managers follow the UK government’s approach to nuclear power?
Richard Lum, co-chief investment officer at Victory Hill Capital Partners, argues that it is "imperative that the government should move away from [nuclear] technology if it is serious about decarbonising”, citing carbon emissions that occur during the extraction and disposal of the fuel source for nuclear energy and in the materials used in the construction of plants.
He adds that Victory Hill’s position on nuclear energy has not changed, and disagrees with it being ‘environmentally sustainable’. “Fundamentally, nuclear is not environmentally sustainable given, at the very least, the waste from nuclear power stations is highly toxic and needs a permanent form of containment, which prevents any potential forms of leakage into the biosphere,” he says.
“On this basis alone, it is difficult to characterise nuclear power as environmentally sustainable.”
Tuning out the anti-ESG rhetoric, institutional investors globally are charging ahead with opportunities to finance a sustainable future.
The number of sustainability-focused projects around the globe has grown rapidly in recent years, from hydropower plants in Brazil to electric bike infrastructure in India and power transmission lines in the American West, plus scores of other approaches.
The need for sustainable-minded investments is growing, notes the United Nations' 2023 Financing for Sustainable Development report.
This is especially true when it comes to addressing climate change. Meeting the Paris Agreement goal of limiting the global temperature increase to 1.5 degrees Celsius above pre-industrial levels will take an estimated $126 trillion investment in climate solutions, according to the Institutional Investors Group on Climate Change, a European membership body for investor collaboration with more than 400 pension funds, asset managers and other members representing 26 countries and a collective €60 trillion ($65 trillion) in AUM.
Richard Lum, managing partner and co-CIO of private equity and infrastructure manager Victory Hill Capital Partners LLP in London, whose £457.2 million VH Global Sustainable Energy Opportunities fund targets climate and energy-related infrastructure investments, thinks the rising price of carbon provides further incentive for renewable energy, but cautions that long-duration storage to address some of renewable energy sources' intermittency problems is still not economically attractive. So investors need to prepare for "a post-subsidy world" and consider other approaches, like smaller power generation closer to customer demand, he said.
VH Global Sustainable Energy Opportunities plc ("GSEO", the "Company") - the London-listed investment company advised by Victory Hill Capital Partners LLP ("Victory Hill") and focused on energy infrastructure that is essential for the global transition towards net zero - is pleased to announce that it has signed a 15-year CO2 Offtake Agreement for its first UK flexible power plant with carbon capture in Nottinghamshire, UK.
The contract is a 'take or pay' offtake arrangement with Buse Gases Ltd ("Buse") - one of the global leading suppliers in the industrial and specialty gas markets - and will involve at least 85 per cent of the food-grade CO2 that is captured on site. Food-grade CO2 has a 99.99% purity rating and can be used by the beverage industry to carbonate drinks amongst other applications. The price agreed by Buse is inflation-linked although the specific pricing terms remain confidential.
This 15-year term contract is believed to be one of the first of its kind and contrasts with the 1-3 year terms typically agreed. The ability to secure such a long-term contract reflects the ability of Victory Hill, working together with Landmark Power, GSEO's operating partner in this asset, to leverage their industry knowledge. The revenue stream derived from this agreement is in addition to the 15-year Power Purchase Agreement in the original investment case for the asset and enhances the expected annual total return for the project to 8%.
In Episode 16 of The Art of Investment, Richard Lum, Co-Chief Investment Officer of Victory Hill Capital Partners, talks about the current energy crisis in Europe, how the sustainability issue is bigger than just renewable energy, how the team aim to make high value impact with their investments, how they are able to protect against inflation, the dilemma investors face in owning shares in the energy majors, nuclear energy and much, much more.
A changing climate is not only resulting in extreme weather events, such as floods and droughts, but also in hard-to-predict weather patterns, making it more difficult for hydropower developers to access viability of projects. We explore the sector’s investment appeal under these new conditions.
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