Japan Opens Serious Questions About a Nuclear Future

Includes: KOL, URA
by: Michael Shulman

The tragedy in Japan is already terrible and has yet to completely unfold. Markets have adjusted quite well, with obvious stocks – uranium companies, for instance – taking a hit, and not-so-obvious plays – Ralph Lauren (NYSE:RL) and Coach (NYSE:COH), companies with strong sales in Japan – also taking it on the chin. The larger question is: What does this mean for the stocks of coal and nuclear companies?

Nuclear power in the U.S. is touted as being economically and environmentally appealing, compared to coal-fired electric power plants. But it is not economically viable, due to potential environmental issues that are not built into the cost of building a plant due to a federal law passed more than two generations ago.

That law, the Price-Anderson Act, limits the liability of power plant operators to a pittance – and if they had to pay real insurance premiums for real potential damage, nuclear operators would voluntarily go out of business in a heartbeat. All those flag-waving, Tea Party-coddling, anti-government, anti-environmental legislators, pundits and activists forget about this subsidy by the government.

What subsidy? If and when a plant goes boom, the taxpayers pay the damages. Not so if a coal-fired plant goes boom. The law was last renewed in 2005, for 20 years. No nuclear plant can be built and go operational after it expires in 2025. Food for thought – and debate.

In the coming days, this little fact will bubble up, at least in some debates; the entire economic viability of nuclear power will also come up for debate. That will include a discussion of who pays for the caretakers of spent fuel rods and other nuclear waste for the next 2,000 generations. Imagine the future of the industry if those nuclear activists knew how to do an honest discounted cash flow analysis of those costs.

Then the debate will be joined in India and behind closed doors in China. China had planned to have more nuclear reactors on line than the U.S. within a generation; India had planned to solve its electric power problems with nuclear power. Reports coming out of India indicate the debate is already underway and analysts see public opposition stopping these plans cold. There is no public debate in China, but a new emphasis on some environment al protections means even the Chinese may slow things down a bit.

I write as an agnostic – a real agnostic – and the unfolding disasters in Japan will hopefully lead to a frank evaluation of the real costs of nuclear power – and reveal they are spectacularly prohibitive without government intervention.

And, as an agnostic trader, I also believe the debate will be nothing but bad news for uranium miners, a complete list of which can be found here. Good news for coal companies, but remember: This is not just a short-term trade that is already played out. The debate around the world begins in earnest in the coming days. Stay tuned.