The nuclear industry has been at the forefront of recent discussions in the journey to achieving net zero. According to the International Energy Agency, there are already 413 GW of nuclear capacity across 32 countries, which avoids 1.5 gigatonnes of emissions and 180 billion cubic metres of natural gas use per year. Nuclear is the second largest source of low-emissions power after hydropower.

In recent years, countries have adopted varying approaches to nuclear energy, with Germany closing the last of its reactors around the same time as Finland opened Europe’s largest nuclear reactor. Sweden, France and the UK are all looking towards nuclear power to not only meet their decarbonisation targets but to also improve energy security and reliability. Japan has also approved changes to its nuclear policy to extend the operation of existing reactors from 40 to 60 years and to develop next-generation innovative reactors to replace decommissioned reactors.

Nuclear power is not only about decarbonisation of the energy grid, but also ensuring energy security for nations, the creation of highly skilled jobs, as well as the potential export of technology around the world.

The UK

The 2023 Spring budget delivered good news for the UK nuclear industry by announcing that nuclear power would be classified as environmentally sustainable, subject to final sign off. UK Chancellor Jeremy Hunt also indicated that he wanted a quarter of UK electricity to be provided by nuclear by 2050.

The UK National Grid expects electricity consumption in the UK to increase by 50% by 2036 and more than double by 2050. The proportion of electricity generated by nuclear for 2021 was 14.9%, which was the lowest level since 2008. As such, if Hunt’s ambitions of a quarter of UK electricity being provided by nuclear by 2050 are to be met, and if the electricity consumption in the UK is set to double in the same time frame, the nuclear power industry will need to expand even more rapidly than other means of electricity generation. Given that the approval process and construction of a nuclear power plant has traditionally taken many years, it is clear that a new way needs to be found to accelerate this process.

The real test of the UK Government’s nuclear ambitions will therefore be whether there is a step-change in the rate at which new nuclear capacity is brought online. It is only when the turbines start spinning that any benefits are realised. Another indicator of government resolve is the amount of investment in research and development of new and improved nuclear technologies.

Boosting R&D investment

There are schemes in place which aim to boost investment in R&D and the generation of valuable intellectual property, but neither seem to do enough.

Firstly, the UK government has introduced a new R&D scheme targeting loss-making R&D intensive SMEs. A company is R&D intensive where its qualifying R&D expenditure is 40% or more of total expenditure. Eligible companies will be able to claim £27 from HMRC for every £100 of R&D investment. In the nuclear industry, given the very specialised nature of the industry, high costs, and presence of established players, the observed benefit of this R&D tax scheme, although welcome, will likely be less than that seen in other industries.

One option for the UK Government would be to extend such R&D tax relief to larger companies, but with a restriction that the R&D must directly relate to a green technology, and that the R&D takes place within the UK. In this way, technology which is in line with the Government’s decarbonisation strategy for decarbonising the energy grid, such as nuclear power, would be incentivised and highly skilled, well paid jobs in the UK would be secured. Although initially this would cost the government revenue, this would be outweighed by the growth of a high value sector.

Furthermore, both the USA and Europe have announced wide-ranging support for investment into clean domestic energy production, namely the Inflation Reduction Act and the Green Deal Industrial Plan. The UK has no such equivalent despite the Institute of Director’s reporting that nearly 8 in 10 businesses supported subsidies to improve how climate change is tackled or to level the playing field with the US and Europe. UK businesses are in competition with the US and Europe, so it is vitally important that the UK Government provides comprehensive, but targeted support to ensure the country’s place at the forefront of green technology. This should include ensuring that there is a workforce which is well trained, that funding is available for promising projects with high capex, and that decisions can be made quickly to prevent projects from stalling.

Having even a handful of well-funded, innovative companies in place results in the creation of other companies in the supply chain and also provides highly trained, experienced individuals who can go on to innovate and allow the technology to be exported around the world. If markets, supply chains, and training mature overseas, the UK will inevitably be left out of the benefits provided by the energy transition. The UK already has a developed nuclear industry and the Government needs to support it. If it is successful in leading the way in building safe and reliable SMRs, for example, the technology could be exported around the world to countries which still rely on coal- or other fossil-fuelled power stations. In these coal-heavy locations development of SMRs would have an even more profound environmental benefit than in the UK. According to the IEA, of the 31 reactors which began construction since the beginning of 2017, 27 are of Russian or Chinese design. With countries more aware of the susceptibility

of international supply chains being disrupted and the need to be able to take control of and manufacture key technologies, and the need to have a diverse mix of energy sources, it is clear the UK government should do more to support their domestic nuclear industry.

USA and Europe

The USA and Europe have enacted their own strategies for economic growth which include additional assistance and funding for green technologies. Whilst there was some controversy about the EU designating nuclear as a green technology, overall it seems that most were in favour of this decision.

The EU’s Green Deal Industrial Plan (GDIP) was in response to the USA’s Inflation Reduction Act and allows states to more easily provide aid to allow Europe to grow its green technology manufacturing base and avoid brain drain to the USA. Having a strong core of innovative companies which are well funded and profitable has a halo effect and results in spin-off companies, joint ventures, and supply-chain companies which all positively benefit the country where they are located. As can be seen in Silicon Valley, where there is a critical mass of companies with access to expertise and investment there is a large amount of positive reinforcement with which other places cannot compete. As such it is inevitable that as companies compete for market share in the European clean energy sector, that there will be an increase in the generation of intellectual property.

Recent changes to European patent law include the introduction of Unitary Patents and a Unitary Patent Court. It is still early days and the system remains untested with a significant proportion of existing patent right holders deciding to opt-out of the unitary patent system. Given that the nuclear industry is rather conservative, it is likely that most companies in the nuclear sector will decide to stay with the existing European patent system and opt-out of the unitary patent system, in line with other sectors. If more European countries grow their nuclear industries, the unitary patent system will be more attractive to innovators in the nuclear sector, but this is not currently the case.

The USA’s Inflation Reduction Act (IRA) aims to reindustrialise the USA and also create new jobs and investment via the transition to clean energy. The subsidies include US$369 bn for deployment of clean energy projects. The IRA provides Investment Tax Credit (ITC) and Production Tax Credit (PTC), which allow firms to deduct a percentage of the cost of renewable energy systems from their federal taxes. The nature of the project will determine eligibility for either ITC or PTC. It is not clear whether subsidies or some kind of carbon pricing are the optimal means of encouraging innovation, and a mixture of carrot and stick encouragements is most likely to spur innovation.

The USA is one of the largest filers of patent applications in the world and USA-based innovators are more likely to seek patent protection outside of the USA. As with Europe, the IRA will almost certainly increase the amount of research and development investment being made annually, which will inevitably lead to a growth in green technology inventions coming out of the USA. Both the IRA and GDIP include geographical restrictions on manufacture of green technologies. Companies based in the US, China, and EU are more likely to file patent applications to protect their valuable intellectual property and prevent loss of market share, as they will be forced to manufacture products in these markets and so it is more important than ever for them to protect their IP in the places where they will be operating.

Patents analysis

Looking at patent filing data comparing China, France, the UK, and the USA, both the UK and France have a Relative Specialisation Index (RSI) with regards to nuclear technology that is positive. This indicates that the UK and France file relatively more patents concerning nuclear technology that would be expected based on the total number of patent applications filed. China and the US have a negative RSI, indicating that they file relatively fewer nuclear technology patents than would be expected.

Despite this seeming lack of specialisation in China, a search for patent applications with the term “nuclear reactor” in the title or abstract reveals that of the 100 most recently published applications, 99 were first filed in China, with the other single case being filed in South Korea. Expanding this to the 600 most recently published patent applications, the situation is largely unchanged, with four first filed in Poland, two first filed in Japan, one first filed in the UK, one first filed in South Korea, and the remaining 592 first filed in China. Whilst this is not a definitive search as there may be nuclear-related applications which do not include the wording “nuclear reactor”, it is certainly an indication of how much innovation is happening in China as compared to the rest of the world. Historically, most Chinese patent applications are not extended outside of China, but even if only a small proportion of these applications are extended outside of China, it is clear that China will dominate the intellectual property landscape in the nuclear sector.

The UK Intellectual Property Office (UK IPO) is the government body which examines and grants patents in the UK. In May 2009, the UK IPO introduced the Green Channel system, which allows applicants to request accelerated processing of a patent application if the invention has an environmental benefit. As of the time of writing, there were 3347 published Green Channel patent applications, of which six include “nuclear” in the title and 16 include “reactor” (with three overlapping cases which include both words). The benefit of the Green Channel is that applicants can get an earlier understanding of whether their application is likely to lead to a granted patent and they can also obtain a granted patent more quickly for the purpose of investment or enforcement.

Whilst the Green Channel is useful in certain circumstances, its existence is not a deciding factor in driving innovation or encouraging applicants to seek a patent in order to protect their investment in research and development. Furthermore, whilst there is no worldwide equivalent to the Green Channel, this is also unlikely to impact on the fundamental rate at which research and development takes place. What is more important to innovators is the knowledge that a sophisticated, thorough, and fair patent system exists through which companies can protect their research and development investments and prevent third parties from stealing technology. Despite longstanding misconceptions about third parties being able to avoid infringement by making irrelevant changes to a technology and about certain countries being biased against foreign applicants, this is not a true reflection of what happens nowadays.

Driving innovation forward

The recent introduction of the USA’s Inflation Reduction Act and the EU’s Green Deal Industrial Plan are already having an impact on nuclear R&D investment, and this will only grow with time. There is expected to be a large increase in the generation of intellectual property and patent applications as a result of these programmes. Increased competition, pledges to reach net zero, and new technology from China will spur innovation over the coming decades and will all contribute to the energy transition.

Author: Giles Pinnington, Partner at Marks & Clerk