Last week, the International Atomic Energy Agency (IAEA) has released its annual report in which it gave a glimpse of how the U.N. Agency views the future of nuclear energy and what it might mean for investors. According to the report, the Fukushima Daiichi accident resulted in a slowing of the expansion of nuclear power, but did not reverse it. The agency expects global nuclear power capacity to grow from 369 GWe (at the end of 2011) to between 540 GWe in the low demand case and 746 GWe in the high demand case (by 2030). This represents a demand increase of 36% and 102%, respectively.
The IAEA stresses that the continued growth in both the low- and high-case projections suggests that factors that contributed to increasing interest in nuclear power before the Fukushima Daiichi accident have not changed: including increasing long-term demand for energy as well as concerns about climate change, volatile fossil fuel prices and security of energy supply.
Most of the future growth is expected to occur in countries that already have operating nuclear power plants, with China, India, Korea and Russia leading the way. The growth is expected to continue even despite Germany's decision to discontinue the use of nuclear power, and re-evaluation of nuclear programs by other countries, including Japan, Belgium, and Switzerland.
While the overall tone of the report paints an optimistic picture for the long-term future of nuclear energy, some of the details tell a more cautionary tale:
First, a range of growth estimates provided by IAEA is remarkably wide. On one side, 102% cumulative or 2.7% average annual capacity increase by 2030 under the high demand case is impressive and is solidly above 1.6% average annual global energy growth (as estimated by BP) over the same period. On the other side, 36% cumulative or 1.1% average annual capacity increase under the low case scenario is sub-par and enough to put any hopes for nuclear renaissance firmly to rest. While it is too early to tell which scenario is more realistic, the wide range of projections is a clear testament to a considerable uncertainty facing the industry.
Second, IAEA's post-accident projections of global nuclear power capacity in 2030 are now 7-8% lower than what was projected before the accident. The revision reflects the expectation that nuclear build-out will be slower and more cautious than was originally anticipated. But don't be surprised to see more delays in the future. According to the World Nuclear Industry Status Report, at least 18 of 59 units listed under construction by IAEA have encountered construction delays, most of them multi-annual. With increased focus on safety and complex politics surrounding nuclear energy, more delays are likely in store.
As a result, we are likely to see a highly uneven road for nuclear equities ahead. Nuclear power remains an important option for countries around the world and should IAEA's more optimistic projections materialize, long-term investors in nuclear energy stocks (including Market Vectors Nuclear Energy ETF / NLR, PowerShares Global Nuclear Portfolio / PKN, Global X Uranium ETF / URA) could be richly rewarded. However, near term uncertainties and risk of less optimistic outcome will continue to contribute to elevated sector volatility and fears of further downside.