All things uranium: Exelon splits into two - what does it mean for the industry and future ESG?

Matthew Gordon talks to Brandon Munro, Uranium Expert and CEO of Bannerman Resources.  

They discuss how Exelon, the largest nuclear utility in the US, has announced it is splitting off its clean energy business.

Matthew Gordon: I want to talk about Exelon. We've mentioned, over the past few months, what they've been up to. They've been talking about how they extend lives and if they perhaps get Federal funding, etc. It's a very interesting and important energy provider in the US, but they have now decided to spin out their clean energy division. What does that mean?  

Brandon Munro: It's a clever move. Exelon are the largest nuclear utility in the US. It has other energy generation assets as well as being an electricity distributor in Illinois. They've announced that they're going to spin off the clean energy, which interestingly includes gas. It is about 31 gigawatts worth of clean energy production, which is inclusive of 21 nuclear power reactors. They will spin it off into a separate vehicle, and my take is that they've identified that this is a golden opportunity to reduce their cost of capital by separating the part of the business that is heavily ESG-leaning with the part of the business that isn't. They're now opening their arms up for all of this green money because this ESG phenomenon is absolutely huge. I don't see any signs of it dissipating. I think it's here for a prolonged period of time, and to a degree, it's recession-proof because it's an easy political go-to as countries find that they need to open up the stimulus gates.

There is a broader implication for the market as well because two-thirds of their generation is nuclear. So finally, we've got one of the big gorillas in this sector with a strong and direct incentive to push forward the nuclear ESG agenda. They also have an incentive to do this at a reactor-by-reactor level, in particular to support the at-risk reactors in Illinois: the Dresden plant and the Byron plant. They've got a strong ESG push to attract State funding, zero emission credits for example, and perhaps even the potential for federal funding. At a global level, it's going to make a difference.

Bear in mind that nuclear power generators do have big capital costs. Even though it's an existing fleet, every so often there are substantial capital costs associated with modernizing or modifying reactors for lifetime extensions, and we need to remember that the biggest single cost factor in the production of electricity from a nuclear power plant is its capital cost. If they're setting themselves up for green finance, which in some circumstances can be dramatically lower capital cost, then that will help new reactor technology to build out the green energy portfolio.

Matthew Gordon: The implications are significant, both as a message to the financial markets, which is great because that's where the pressure is coming from, and we can possibly expect to see other energy suppliers try and do the same thing. That suggests that a big wave of ESG-type investing could come into the nuclear energy space, and the renewable space more broadly.

Do you think that this will be a catalyst? This is the first meaningful reaction to Biden's big green energy plan. Do you think we'll see more of this? Do you think it sends signals into the marketplace and has the ability to start changing the narrative? I keep coming back to the reaction from Texan senators and some of the locals about where the problem lay with the outages. It was laid firmly at the door of wind. I know this is hydro-wind-solar- nuclear-gas, so there's a bit more to it, but the narrative is mixed.  

Brandon Munro: It is. The comments and support from the Biden administration, with bipartisan support from the Republicans, are a helping hand. But remember that this support hasn't initiated this trend. The green money trend was building up a head of steam already. The bipartisan attitude towards nuclear and the fairly significant turnaround in the Democrats’ support for nuclear energy in the US has helped open a channel where some of those money flows can be directed towards nuclear energy in the US, and that's what has changed. In that respect, I expect to see more restructuring in favour of ESG financing, not only in power plants, but in many different types of industries.

Matthew Gordon: We've been talking to a lot to battery manufacturers recently and some automotive companies, and we've got to remember that creating an EV car doesn't necessarily solve the problem. Not only does the supply chain for the entire battery need to be clean and on brand, but the energy that goes into those batteries also has to have a green story to be holistically held together. If you've got energy from sources which are not adhering to the brief, that's arguably ethically wrong. I think some of these ESG companies may start looking at that side of things too because there's a lot of money going into the ESG narrative around cars and batteries, but now with this Exelon deal, people will start looking at the type of energy that's feeding in here too. 

Brandon Munro: I agree with you entirely. If you've got electric vehicles running off a fossil fuel source, whether that's coal or gas, all you're doing is centralizing the pollution. You do achieve an advantage because it's not getting spewed out of the tailpipe, however, it's still being put into the atmosphere in a perhaps more efficient way. This issue is even more acute when you look at industrial power demand where large, single users of electricity have more market power to demand that that electricity is green, or clean at least, and also a bigger incentive than an individual driver of an electric vehicle.

Cameco see as this a key driver, even more so than government policy, and I agree. It was interesting to see those comments in their last conference call. It is definitely a big thematic to watch. Going back to the Exelon deal, as I say, we've got one of the big gorillas in the room who has a vested interest in making this work, so I expect to see some leadership on this, which will be helpful for our sector.