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Daily Update: August 24, 2023

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Daily Update: August 24, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

North America Turns to Nuclear

The start of commercial operations for a new unit at Southern Co.'s Alvin W. Vogtle nuclear plant marks a major turning point for the company and may have broader implications for the US nuclear industry.

For Southern, the completion of the 17-year project means it can begin to recover the substantial construction costs from ratepayers. S&P Global Commodity Insights Senior Research Analyst Dan Lowrey said Southern will likely not get much pushback from regulators and should recoup a significant portion of its estimated $10.6 billion investment. 

The improved prospects for cash flow and dividend growth have prompted securities analysts to take a more bullish view of Southern stock, with Mizuho Securities USA upgrading the company to “buy” from “neutral” in April. This contrasts starkly with the consequences NRG Energy faced in the market after the company sold its stake in the South Texas Project nuclear plant and saw its shares fall 4%.

Beyond the fortunes of individual companies, the opening of Southern's new facility may indicate a brighter future for nuclear energy in the US. Representing the country's first new nuclear since unit 2 of the Watts Barr Nuclear Plant went online in 2016 — the development of which started in the early 1970s, was abandoned in 1985 and restarted in 2007 — the new Alvin W. Vogtle unit signals to the energy industry that nuclear is still doable with policy support.

That support was available to the Alvin W. Vogtle expansion in the form of a constructive regulatory environment, which somewhat de-risked Southern's investment in the new plant. Elsewhere in the US, federal and state net-zero commitments and tax credits made available via the Inflation Reduction Act are laying the groundwork for a resurgence in nuclear energy that, along with renewables, could replace coal and gas generation capacity destined for retirement.

In Canada, growing energy needs and looming net-zero commitments have already begun fueling a nuclear energy expansion. In assessing a potential moratorium on new natural gas generation, a report from Ontario's Independent Electricity System Operator concluded that the province’s capacity would need to more than double by 2050 to meet energy needs. The provincial government is assessing the feasibility of adding up to 5 GW of nuclear power at one existing facility and has begun predevelopment work to add three small modular reactors (SMRs) at another site. This expansion would likely be just the first step in a larger effort to scale up Canada's nuclear capacity. Gary Rose, SNC-Lavalin’s executive vice president for Canada nuclear, told S&P Global Commodity Insights in an email that the country would need to build 45 SMRs and 20 Canada Deuterium Uranium (CANDU) reactors by 2050 to satisfy a threefold increase in electricity demand and current net-zero goals.

Canada’s nuclear fleet comprises 19 CANDU reactors, which run on natural uranium that does not need to be enriched, allowing the country to independently source its nuclear fuel supply. As the energy transition progresses, however, Canada will likely incorporate SMRs or other technology — some of which is still being developed. TerraPower President and CEO Chris Levesque told S&P Global Commodity Insights that the company's first Natrium reactor, a sodium fast reactor design that incorporates molten salt-based energy storage, will be online in 2030. Meanwhile, Type One Energy is exploring the use of three-dimensional printing to develop commercially viable fusion power systems. 

Regardless of which technologies the industry embraces, it appears that nuclear will expand and play an important role in the green energy transition. In a panel discussion at the Edison Electric Institute's 2023 conference, US Energy Department Senior Adviser Julie Kozeracki said that nuclear has "a pretty good competitive shot at … 200 GW of that 700 or 800 GW of clean, firm capacity that we're going to have to add to the grid by 2050."

Today is Thursday, August 24, 2023, and here is today’s essential intelligence.

Written by Adam Rihner.


Japan's Economic Growth Quickens In August As Service Sector Counters Factory Decline

Growth across Japan's private sector economy quickened midway into the third quarter of 2023, according to flash PMI data. This extended the growth streak that began at the start of the year and was again supported by solid services activity growth. Manufacturing output, however, remained in contraction. Cost pressures rose in August with higher input cost inflation though the passthrough to selling prices was limited by efforts to drive sales particularly amongst goods producers.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Bankers Lower Deposit Hopes; Deposit Rate Specials To Continue – S&P Survey

S&P Global Market Intelligence surveys conducted between June 7 and July 7 found that 47.3% of US banking executives project deposits to increase at their institution over the next 12 months, down from 53.1% in the first-quarter survey and 51.1% in the fourth-quarter 2022 survey. The most bullish responses, those executives expecting deposit growth of 5% or more, fell to 7.3% of respondents, down from 11.6% and 13.5% in the previous two surveys, respectively.

—Read the article from S&P Global Market Intelligence

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Global Trade

Lower Sulfur, Warmer Oceans: Scientists Debate Unintended Impact Of IMO 2020

A growing chorus of climate scientists are asserting that the huge reduction in sulfur emitted by the shipping industry might be a contributing factor to the warming of seas. Sulfur has long been a dirty word among the shipping community, with concerns about human health, acid rain and environmental damage putting pressure on the International Maritime Organization (IMO) to sharply curb emissions since the early 2000s.

—Read the article from S&P Global Commodity Insights

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Listen: What To Expect From Climate Week NYC 2023

There is one month until Climate Week takes place in New York City Sept. 17-24. Now in its 15th year, this is a big week for the sustainability world, bringing together thousands of stakeholders for hundreds of events across the city. This episode of the ESG Insider podcast dives into Climate Week: what it is, why it matters and what to expect.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1

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Energy & Commodities

Listen: Narrow Margins Are Back For US Gas, But Will Producers Slow Output?

US Henry Hub natural gas prices have averaged just $2.43/MMBtu this year, pushing many producers close to, or even below, their breakeven price. Mild weather and weak gas demand this past winter were largely to blame, triggering a selloff that dropped gas prices from historic highs. US gas producers were slow to respond to the selloff, however, and only recently cut rigs, slowed new well starts and dialed back completions. At over 102 Bcf/d, though, US gas production remains near record highs this summer. Will recent capex cuts be enough to balance the market?

—Listen and subscribe to Commodities Focus, a podcast from S&P Global Commodity Insights

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Technology & Media

Media Quick Take: Disney's Revenue Grows As Transformation Continues

Walt Disney Co. reported mixed results for its fiscal third quarter ended July 1 as a reduction in streaming losses was paired with continued declines in the traditional TV business. The Aug. 9 earnings release came one day after Disney announced a partnership with PENN Entertainment Inc. to use the ESPN brand for an online sportsbook in a deal estimated to be valued at about $2 billion.

—Read the article from S&P Global Market Intelligence

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