PME, the €55.6bn pension scheme for the technology industry, wants to invest in the four nuclear power plants the new Dutch government intends to build. The pension fund fears that the energy transition in the Netherlands cannot be completed without nuclear energy, according to PME president Eric Uijen.
“The energy transition in the Netherlands is not going fast enough. In order to get to a carbon-neutral energy system, we also need nuclear energy,” Uijen told television show Nieuwsuur last week.
Speaking to IPE, Uijen said PME started its “internal thinking” about investing in nuclear energy about six months ago as political support for the controversial energy source was building.
“The previous government already wanted two nuclear power plants; the new one [government] even aims to build four. So there is political support for nuclear power and people are very keen for us as a pension fund to contribute to it,” he added. “In recent months, many civil servants and politicians have asked us about it.”
Activist investing
Ironically, PME has recently been criticised by these same Dutch politicians, who accused the pension fund of “activist investing” because of its decision to divest from fossil fuels and focus on renewable-energy investments.
“In fact, you can consider investing in nuclear power as activist as well,” Uijen noted. “But now you don’t hear those politicians, because they are generally in favour of nuclear energy. According to us, this step proves that we are not activist but that we judge every investment on its merits.”
Members support nuclear move
The pension fund’s members overwhelmingly support PME investing in nuclear energy. In a survey the pension fund conducted this year, 63% of members agreed, while only 16% disapproved.
“The basic attitude toward nuclear energy is positive among the majority of our members. However, there are concerns about the returns, risks and safety of nuclear power plants and the problem of radioactive waste, especially among retirees,” said Uijen.
The widespread support for nuclear energy may also be explained by the fact that a number of companies in the sector PME caters for are involved in the production of raw materials for nuclear energy.
“For example, one of our employers is developing a gas centrifuge technology for enriching uranium, which is used for nuclear fission. As a result, our participants may have more affinity with nuclear energy than the average Dutch,” Uijen noted.
PME does, however, have a range of demands to be met before it agrees to a possible nuclear investment.
“State participation is absolutely necessary to manage the risks involved. In addition, we have a preference for the Regulated Asset Base (RAB) model, allowing us to make a return on investment already during the construction phase,” according to Uijen.
This demand was also made by prospective investors in the Sizewell C nuclear project in the UK. The RAB model allows for returns before completion of a project by placing a small levy on customers’ bills on the basis that they will benefit from much cheaper electricity once the new nuclear power station is operational. Finally, a fixed electricity price is also necessary for a nuclear power investment to be viable, he said.
When it comes to the kind of investment, PME has “an initial preference” for debt financing.
“For a standard equity investment without additional guarantees, the risks are too high, said Marcel Andringa, PME’s chief investment officer. “Elsewhere in Europe you see that the construction costs of nuclear power plants are always much higher than budgeted,” he added.
Return
The return requirements for PME depend on the risks involved with the investment, according to Andringa. “The higher the risk, the higher the expected return must be. It has been a long time since the previous investment in a nuclear power plant in the Netherlands, so the risk involved is higher than for, say, an offshore wind farm. For this kind of investment, we have a return requirement of 7-8%, but for nuclear energy it will be higher.”
Finally, more investors need to come on board to make a viable investment proposition, he said.
“Clearly, one pension fund together with the government is not enough, as one single nuclear power plant already costs at least €20bn. We have also talked to other pension funds, but they often have not yet taken a position on investment in nuclear power. Hopefully that will change.”
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