On Sunday, June 10, 2012 Japan's nuclear safety commission effectively approved the restart of two reactors at the Ohi nuclear plant. The units would be the first Japanese reactors to restart since the Fukushima accident in March 2011.
Although a number of industry analysts view the restart as a bullish sign for the global nuclear industry, we remain cautious and believe that at this stage the decision lacks conviction and is not a credible catalyst for nuclear equities:
- The Ohi reactor restarts are driven by commercial reasons aiming to diminish upcoming power shortages this summer. In an unusual move, Prime Minister Noda went on national television prior to the approvals to stress that Japan needs electrical output from nuclear reactors. But with most Japanese opinion polls favoring reduced dependence on nuclear and a relatively short shelf life of Japanese Prime Ministers, timely restart of the remaining nuclear fleet is anything but certain.
- The government is looking to develop a new national energy policy and has not yet defined long-term nuclear energy targets. We expect more details to appear at the end of this summer, but it is likely to target reduced reliance on nuclear energy in the 15%-20% range of total electricity generation (vs. 30% prior to Fukushima). Such a decline in the nuclear share of electricity generation would certainly be less than bullish. In addition, lack of long-term commitment from the central government would make approval from local municipalities significantly more challenging and further delay larger scale restarts.
We should look for more clarity on Japan's long-term energy policy and improvement in public sentiment as a more definitive positive catalyst. In the meanwhile the uncertainty will likely to continue to be an overhang on the performance of nuclear equities, including industry broad ETFs (NLR, URA, NUCL, PKN) and major industry participants (CCJ, PALAF.PK, SXRZF.PK).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.