Blackrock CEO Larry Fink last week released his annual shareholder letter, which has become an annual media event closely scrutinized as much for its political implications as its investment insights.
In this year’s missive, he briefly discussed the energy transition – the process of reducing the world’s reliance on fossil fuels in favor of low-carbon energy sources. He cited two of the big themes driving investment in the sector today – decarbonization and energy security. Decarbonization of course is the shift to less-carbon-intensive technologies to address climate change and take advantage of the compelling economics of wind and solar, which in many parts of the world cost less than traditional fossil fuels. At the same time, energy security has become a concern, thanks to Russia’s invasion of Ukraine.
Both factors led Fink to emphasize “energy pragmatism” – a belief that renewables and fossil fuels will coexist, perhaps for longer than climate activists would like, as the transition to a carbon-free economy continues. He writes:
Germany is a good example of how energy pragmatism is still a path to decarbonization. It’s one of the countries most committed to fighting climate change and has made enormous investments in wind and solar power. But sometimes the wind doesn’t blow in Berlin, and the sun doesn’t shine in Munich. And during those windless, sunless periods, the country still needs to rely on natural gas for “dispatchable power.” Germany used to get that gas from Russia, but now it needs to look elsewhere. So, they’re building additional gas facilities to import from other producers around the world
What Fink fails to mention however is that Germany is using gas (and oil) for “dispatchable power” – and missing its Paris climate goals in the process – because it shuttered its nuclear plants. Nuclear can play an essential role as a secure source of power not only in Germany but elsewhere. Closer to home, for example, Michigan is likely to reopen the Palisades nuclear plant, backed by a$1.5 billion loan guarantee from the U.S. Department of Energy, to “produce baseload clean power until at least 2051.”
Nuclear also gets overlooked by Fink when he discusses emerging zero-carbon energy technologies. Thermal batteries and carbon capture get a mention, but not advanced nuclear, even though it is getting closer to commercialization. TerraPower, a next-generation nuclear company backed by Bill Gates, recently filed permits to start building a plant in Wyoming.
To be fair, it’s not just Larry Fink. The mainstream investment community has a big blind spot when it comes to nuclear energy. Despite having promising technologies (not all will win, of course), rising electricity demand and favorable public policy tailwinds, nuclear still struggles to make much headway with investors. Until that changes – and getting a little more attention from Larry Fink would be a good start – nuclear’s potential will not be fulfilled.
There is one thing that will get the momentum started for nuclear financing, however. The first investor that mints an eye-popping return from a nuclear investment will get the rest of the pack to take a closer look. If they like what they see, more captial will follow into the sector. That’s been the pattern with every innovative industry. Nuclear should be no different.