A Nascent Renaissance – Part III: Nuclear Project Financing Options - Mining

In the first two bulletins of our spotlight on nuclear energy, we explored the revived interest in nuclear energy and the related challenges of nuclear fuel supply. In this third installment, we delve deeper into available financing options for nuclear projects in Canada including green bonds, certain recently established tax incentives and other select funding options that may be available through Canadian federal government institutions.

What Are Green Bonds?

Green financing involves financing projects that positively impact the environment. Green bonds are one category of financial instruments within the scope of green financing. Green bonds involve the issuer developing a voluntary framework that aligns with certain green principles that have been established, such as the Green Bond Principles developed by the International Capital Markets Association (ICMA). These principles define the use and management of proceeds, project selection and evaluation, as well as investor reporting. A 'Second Party Opinion' is often utilized to verify that the issuer's framework aligns with these principles, as well as evaluate the project's outcomes against such principles. As part of ESG commitments, investor interest in green bond issuances has been strong and growing for the past several years.

Nuclear Energy Is Green

Although once excluded from green frameworks, nuclear energy is gaining momentum in the green bond market, as many jurisdictions move to recognizing nuclear energy as clean and a part of the solution to climate change.

In 2022, the European Parliament voted to include nuclear energy as part of the EU's green taxonomy. In 2023, Canada became the first sovereign borrower to include nuclear energy in its green bond framework, while Japan did the same for its climate transition bond framework. More recently, the Province of Ontario updated its sustainable bond framework in February this year to add a provision for funding nuclear energy related infrastructure.

The momentum surrounding nuclear green bonds has also increased with Second Party Opinion providers such as ISS ESG and Sustainalytics now also agreeing that nuclear energy projects align with the ICMA Green Bond Principles.

Nuclear Green Bond Issuances

In 2021, Bruce Power became the first nuclear operator in the world to successfully enter the green bond world, by initially issuing $500 million in green bonds. This was followed by an additional $600 million issuance in March 2023 and a further $600 million in March this year, for a total of $1.7 billion in green bonds issued to date to support its net-zero-by-2027 goal.

Meanwhile in July 2022, Ontario Power Generation updated its Green Bond Framework to include eligible nuclear projects, following which it issued a $300 million nuclear green bond, the proceeds of which were designated for refurbishment of its Darlington nuclear station.

There are a number of recent examples outside Canada. In late 2023, EDF (Electricite de France) issued an equivalent to $1.4 billion in senior green bonds to finance its existing nuclear fleet. More recently, in February this year, Japan issued the first tranche of its Climate Transition Bond program, equivalent to $14.8 billion, which funding will be used for research and development, subsidy programs and other initiatives focused on greenhouse gas emission reduction, include funding research and development of next generation nuclear reactors.

The number of nuclear energy friendly green bond issuances is expected to increase in the coming years as the market continues to shift to include nuclear energy as part of the solution to climate change.

Nuclear Included in Clean Energy Investment Tax Credits

As part of its 2023 federal budget, the Canadian government announced new refundable investment tax credits (ITCs) designed to grow Canada's clean economy and allow Canada to remain competitive in attracting investment in clean energy projects. Nuclear projects may take advantage of the following:

the Clean Electricity ITC making available an investment tax credit of up to 15% on the construction of new projects that generate clean electricity (including nuclear) and also refurbishment of existing ones;
the Clean Technology ITC which provides an investment tax credit of up to 30% on the acquisition of certain "clean technology property" which includes small modular nuclear reactors (SMRs); and
the Clean Technology Manufacturing ITC a refundable tax credit of up to 30% for investments in eligible property to be used in clean technology manufacturing, including manufacturing of nuclear energy equipment; processing or recycling of nuclear fuels and heavy water and manufacturing of nuclear fuel rods.

These and other clean energy ITCs are discussed in more detail by our tax colleagues in these separate publications:

Additional Government Support for Nuclear Projects

Shifting towards direct public sector funding, in recent years the Government of Canada has established or extended several mechanisms to support or provide further incentives for investment in the nuclear energy sector. Examples include the following:

Additional funding for Canada Infrastructure Bank (CIB) in the form of $20 billion to support the building of major clean electricity and clean growth infrastructure projects, including nuclear. One example of CIB's commitment to nuclear projects prior to this additional funding announcement is the $970 million made available to Ontario Power Generation in 2022 in support of Canada's first SMR under development at Darlington, Ontario.
A further $500 million in the Strategic Innovation Fund (SIF) to attract and spur investment in clean technologies. To date, the SIF has made significant investments in support of a number of SMR developers including Westinghouse, Terrestrial Energy and Moltex Energy.
Establishment of the Canada Growth Fund (CGF), a new $15 billion investment vehicle managed by the Public Sector Pension Investment Board, a respected manager of infrastructure and other private capital investments. To date, the CGF has only announced two investments. The CGF is focused on making investments that can catalyze private sector investment in, among other things, technologies that reduce carbon emissions, including nuclear technologies.
An additional $1.3 billion to fast-track, and reduce the lengthy durations involved with, the assessment and review of mining, energy and other major projects by regulatory agencies including the Canadian Nuclear Safety Commission, the Impact Assessment Agency of Canada and others.
Up to $50 million in federal funding for Bruce Power's assessment of new generation opportunities.

In addition to federal support, there are many examples of provincial government cooperation and support of nuclear energy in Ontario, New Brunswick, Saskatchewan and Alberta.

These examples of direct and indirect public sector financial support for nuclear energy projects in Canada and beyond and the growing interest in nuclear energy green bonds, provide strong signals of support for further private sector financing of additional nuclear energy projects in Canada. Success of these programs and many others will be essential if Canada expects to achieve its net zero goals.

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On March 4, 2024 we hosted a seminar "A Challenge for the Nascent Nuclear Energy Renaissance: Harnessing the Dynamics at Play in the Uranium Mining and Fuel Supply and Enrichment Sector" with expert panelists from Bruce Power, OPG, Cameco, Canaccord Genuity, Cross River Infrastructure Partners and Trident Maor Advisors.

Click here to watch the recording.