The clock is ticking on the nuclear renaissance

Good morning and welcome back to Energy Source, coming to you this week from New York.

Results season is in full swing and this morning BP surprised the market with better than expected fourth quarter earnings and a boost to planned share buybacks, which had helped the stock climb 6 per cent by lunchtime in London.

This follows strong results from US supermajors ExxonMobil and Chevron, which reported combined profits worth $57bn on Friday. Big Oil also received a boost from the withdrawal of a shareholder resolution by two green activist groups (read more below).

But our first item will focus on the role that nuclear power will or won’t play in the energy transition following news of a new delay to the completion of Plant Vogtle, the largest nuclear power plant in the US.

Nuclear renaissance faces fresh delays

A plan by the US and its allies to deliver a nuclear renaissance that can provide enough emissions-free power to help the world meet the Paris Agreement climate targets faces a stern test in the coming months.

Two gigantic projects at the vanguard of US and UK plans to revive their domestic industries face fresh delays and cost overruns, highlighting the complexity and risks involved in building large-scale nuclear projects.    

Last week, Georgia Power revealed the latest delay to the expansion of Plant Vogtle, a nuclear power station near Augusta which contains the first new reactors built entirely from scratch in the US for more than three decades.  

The company said unit 4 of the plant would not begin generating power before the end of March due to the discovery of vibrations in a cooling system in the reactor. A similar problem affected the launch of unit 3 before it finally began operating this past July, after seven years of delays.

Georgia Power said the problem with Vogtle’s unit 4 had been fixed and it should begin operating in the second quarter. But the disclosure marks the latest in a series of delays and cost overruns at the flagship US project, which is forecast to cost more than double the original price tag of $14bn.   

Across the Atlantic, the UK’s plan to reboot its nuclear sector has also run into trouble. Last month, French utility EDF announced that Britain’s flagship Hinkley Point C power plant had been delayed until 2029 at the earliest, with the cost spiralling to as much as £46bn in today’s prices. The initial budget was £18bn, with a scheduled completion date of 2025, but the project has faced repeated setbacks.

EDF cited the complexity of installing electromechanical systems and intricate piping at the site in Somerset for the most recent delay. The French government is pressing London to plug a multibillion-pound hole in the budget of nuclear power projects being built in Britain by EDF, according to a report by my FT colleagues.

Both projects are showcases for new, advanced, pressurised water reactors — EDF’s EPR2 in the UK and Westinghouse’s AP1000 in the US — underscoring the critical importance of getting them up and running as soon as possible to encourage other customers to commit to the technologies.

US officials warn time is running out for the nuclear industry to prove it can contribute to the country’s 2050 climate goals due to the long lead times required to build reactors. Between five to 10 contracts to build new units need to be signed within the next two to three years to enable the sector to reach the commercial lift-off required to provide enough clean power by the middle of the century, according to Kathryn Huff, the US assistant secretary for nuclear energy.

This explainer published by the FT last week details some of the challenges the industry and governments face, including: technical complexity, shortages of qualified staff, supply-chain disruptions, strict regulation and voter pushback against nuclear energy.

Patrick Fragman, chief executive of Westinghouse Electric Company, said the timelines advanced by some industry players were “a little bit aggressive, if not unrealistic” due to the complexity of the sector and tight regulation. But he said the world needed nuclear power to meet its decarbonisation goals and highlighted the crucial role the AP1000 can play.

The AP1000 should be cheaper to build than previous generations of reactors, according to Westinghouse, because it is smaller and many parts can be manufactured in factories rather than custom-made at construction sites. It uses passive safety systems that do not require human intervention, further reducing costs, said the company.  

“It is a reactor that has taken all the lessons learned from all the past 70 years of operation of commercial reactors, including the Fukushima incident,” said Fragman, referring to the earthquake and tsunami in Japan in 2011 which caused a leak of radioactive materials.

“From a safety standpoint it’s absolutely a game-changer. From an economic standpoint it is new for the US but not new for the world because four of those reactors are already in operation in China.”

Fragman said China was building a further six units with the AP1000 and had praised the Westinghouse reactors as the “best performing” units within its nuclear fleet.

But getting nuclear reactors built in the US and other western nations takes longer than in China, according to the International Energy Agency. Experts say differences in regulation, market structure and legal processes in western nations often cause cost blowouts and delays. Unless these challenges are addressed, a nuclear renaissance may never come to pass and the sector may not play a central role in the energy transition.

Shareholder activists dealt chilling blow in Exxon challenge

Exxon and Chevron executives could be forgiven for cracking open a few bottles of champagne on Friday after the US oil majors posted their second-highest annual profits in a decade and the former company won a victory over climate campaigners.

A surge in US oil production helped to offset a slide in prices last year, delivering the two biggest western producers a combined $57bn in net income in 2023. Unlike last year when the Biden administration condemned Exxon and Chevron for making “outrageous” profits in the aftermath of Russia’s full-scale invasion of Ukraine, there was little political pushback against their results.

A moderation in oil prices had lowered the political temperature surrounding Big Oil’s profits, even in an election year, said Bob McNally of Rapidan Energy Group, a Washington-based consultancy.

On the same day, two green activist shareholder groups withdrew a climate resolution at Exxon after the oil giant had sued them in a Texas court. Follow This, an Amsterdam-based investor activist group, and Arjuna Capital, a US-registered investment adviser, wanted shareholders to vote to require Exxon to set more ambitious climate targets at its annual meeting.

Follow This and Arjuna withdrew the resolution before the court could make a ruling, a retreat that experts suggest could have a chilling effect on similar shareholder activism. They accuse Exxon of using “intimidation and bullying” tactics to sidestep a critical accountability mechanism.  

Exxon is seeking to continue the litigation, saying the court still has “important issues” to resolve. It argues that the Securities and Exchange Commission has been too willing to allow resolutions to proceed to a vote, even when similar motions have received little backing.  

“The case raises the question over whether companies will make greater use of the courts rather than the SEC process to fight shareholder proposals that they don’t want to see on their proxy card,” said Lindsey Stewart, director of investment stewardship research at Morningstar.

The action by Exxon follows a big increase in shareholder resolutions in recent years, reflecting a greater focus by investors and shareholder activists on environmental, social and governance issues. The high-water mark for this trend occurred in 2021 when Exxon was defeated in a shareholder rebellion from activist hedge fund Engine No. 1, which won three seats on the board with a demand for the company to prepare for the energy transition.

But the mood in the US has changed radically since then. Exxon’s legal action against Follow This/Arjuna comes amid a political backlash against ESG which has prompted many of the big asset managers to temper their support for climate-related resolutions.     

A report by ShareAction, a charity working on investor issues, found only 3 per cent of the 257 environmental and social shareholder resolutions voted on in 2023 received majority support — the threshold needed for a resolution to be approved. This was a big decrease from the previous two years, with 14 per cent of resolutions passing in 2022 and 21 per cent in 2021.

US oil companies already face less pressure from investors than they did just a few years ago — and Exxon’s lawsuit against Follow This/Arjuna could deal a further blow to shareholder activism.   

Power Points

• Anglo American boss resists asset sales despite investor pressure over its misfiring portfolio

• Biden decision will ‘erode confidence’ in LNG industry, Shell CEO says

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.