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Over the course of next week Japanese policymakers are expected to finalize the much-awaited long-term energy plan. While exact details remain undisclosed, some public statements by government officials suggest that Japan is likely to target a gradual phase-out of the third largest commercial nuclear fleet in the world.

The move may prove to be costly for the Japanese economy. Early estimates prepared by the government panel indicate that abandoning nuclear power could reduce Japan's GDP by as much as 7.4% over the next two decades. Consumers and businesses would likely face considerably higher electricity costs and the nation's earlier pledge to reduce greenhouse emissions would have to be set back.

If "zero nuclear" policy is adopted, Japan would follow Germany, Switzerland and Belgium in phasing out nuclear power. However this time, the effect on the global nuclear energy market would be far more substantial. Germany was eyeing reducing the role of nuclear power long before the Fukushima accident. Japan, on the contrary, was strongly committed to developing the atomic power until March of last year. And until recently very few analysts assigned any meaningful probability to Japan's complete nuclear energy exit. Investors should also note that Japan has almost twice as many nuclear reactors as Germany, Switzerland and Belgium combined.

Although the phase out would likely be gradual and take several decades to fully take effect, the negative impact on nuclear equities would be more near-term. The new policy could further erode already battered investor confidence in the sector. As a result, equities with outsized exposure to nuclear (including Market Vectors Nuclear Energy ETF / NLR, PowerShares Global Nuclear Portfolio / PKN, Global X Uranium ETF / URA and their key constituents) could be affected. In addition, the policy may have a negative effect on public sentiment far outside of Japan's borders and contribute to taming nuclear ambitions in other countries that currently favor nuclear energy growth. Finally, with Japan representing nearly 10% of the global nuclear generation capacity, the new policy would re-set the supply and demand dynamic of the global nuclear market.

Nuclear Energy Development Policies by Country

Pro-NuclearAnti-Nuclear
China

India

Russia

Korea

France

United States

United Kingdom

Vietnam

UAE

Germany

Switzerland

Italy

Belgium

Japan?

Source: NEIG, WNA

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