Exploring Nuclear Power's Role in the Generative AI Era

Our sustainability strategists Stephen Byrd and Tim Chan discuss what’s driving new opportunities across the global nuclear power sector and some risks investors should keep in mind.

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Stephen Byrd: Welcome to Thoughts on the Market. I'm Steven Byrd, Morgan Stanley's Global Head of Sustainability Research.

Tim Chan: And I'm Tim Chan, Asia Pacific Head of Sustainability Research.

Stephen Byrd: And on this episode of the podcast, we'll discuss some significant developments in the nuclear power generation space with long term implications for global markets.

It’s Monday, July 29th at 8am in New York.

Tim Chan: And 8 pm in Hong Kong.

Stephen Byrd: Nuclear power remains divisive, but it is making a comeback.

So, Tim, let's set the scene here. What's really driving this resurgence of interest in nuclear power generation?

Tim Chan: One key moment was the COP28 conference last year. Over 20 countries, including the US, Canada, and France, signed a joint declaration to triple nuclear capacity by 2050. Right now, the world has about 390 gigawatts of nuclear capacity providing 10 per cent of global electricity. It took 70 years to bring global nuclear capacity to 390 gigawatts. And now the COP28 target promises to build another 740 gigawatts in less than 30 years.

And if this remarkable nuclear journey is going to be achieved, that will require financing and also shorter construction time.

Stephen Byrd: So, Tim, how do you size the market opportunity on a global scale over the next five to ten years?

Tim Chan: We estimate that nuclear renaissance will be worth $ 1.5 trillion (USD) through 2050, in the form of capital investment in new global nuclear capacity. And the growth globally will be led by China and the US. China will also lead in the investment in nuclear, followed by the US and the EU. In addition, this new capacity will need $128 billion (USD) annually to maintain.

Stephen Byrd: Well, Tim, those are some gigantic numbers, $1.5 trillion (USD) and essentially a doubling of nuclear capacity by 2050. I want to dig into China a bit and if you could just speak to how big of a role China is going to play in this.

Tim Chan: In China, by 2060, nuclear is likely to account for roughly 80 per cent of the total power generation, according to the China Nuclear Association. This figure represents half of the global nuclear capacity in similar stages, which amounts to 520 gigawatts.

And Stephen, can you tell us more about the US?

Stephen Byrd: Sure, during COP 28, the US joined a multinational declaration to triple nuclear power capacity by 2050. In this past year, the US has seen the completion of a new nuclear power plant in Georgia, which is the first new reactor built in the United States in over 30 years.

Now, beyond this, we have not seen a strong pipeline in the US on large scale nuclear plants, according to the World Nuclear Association. And for the US to triple its nuclear capacity from about 100 gigawatts currently, the nation would need to build about 200 gigawatts more capacity to meet the target.

In our nuclear renaissance scenario, we assume only 50 gigawatts will be built, considering a couple of factors. So, first, clean energy options, such as wind and solar are becoming more viable; they're dropping in cost. And also, for new nuclear in the United States, we've seen significant construction delays and cost overruns for the large-scale nuclear plants. Now that said, there is still upside if we're able to meet the target in the US.

And I think that's going to depend heavily on the development of small modular reactors or SMRs. I am optimistic about SMRs in the longer term. They're modular, as the name says. They're easier to design, easier to construct, and easier to install. So, I do think we could see some upside surprises later this decade and into the next decade.

Tim Chan: And nuclear offers a unique opportunity to power Generative AI, which is accounting for a growing share of energy needs.

Stephen Byrd: So, Tim, I was wondering how long it was going to take before we began to talk about AI.

Nuclear power generators do have a unique opportunity to provide power to data centers that are located on site, and those plants can provide consistent, uninterrupted power, potentially without external connections to the grid. In the US, we believe supercomputers, which are essentially extremely large data centers used primarily for GenAI training, will be built behind the fence at one or more nuclear power plants in the US. Now these supercomputers are absolutely massive. They could use the power, potentially, of multiple nuclear power plants.

Now just let that sink in. These supercomputers could cost tens of billions of dollars, possibly even $100 billion plus. And they will bring to bear unprecedented compute power in developing future Large Language Models.

So, Tim, where does regulation factor into the resurgence of nuclear power or the lack of resurgence?

Tim Chan: So, for the regulation, we focus a lot on the framework to provide financing: subsidies, sustainable finance taxonomies and also from the bond investor; although we note that taxonomies are still developing to offer dedicated support to nuclear. 

We expect nuclear financing under green bonds will become increasingly common and accepted. However, exclusion on nuclear still exists.

Stephen Byrd: So finally, Tim, what are some of the key risks and constraints for nuclear development?

Tim Chan: I would highlight three risks. Construction time, shortage of labor, and uranium constraint. These remain the key risks for nuclear projects to bring value creation.

US and Europe had high profile delay in the past, which led to massive cost overrun. We are also watching the impacts of shortage of skilled labor, which is more likely in the developed markets versus emerging markets. And the supply of enriched uranium, which is mainly dominated by Russia.

Stephen Byrd: Well, that's interesting, Tim. There are clearly some risks that could derail or slow down this nuclear renaissance. Tim, thanks for taking the time to talk.

Tim Chan: Great speaking with you, Stephen.

Stephen Byrd: And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.