New Policy In Line with Expectations: On September 14, Japan released its new energy policy aiming for zero dependence on nuclear power over the next several decades. While the policy is broadly in line with our expectations there are a few key points worth emphasizing:
Guideline, Not a Specific Program: The policy is written as a guideline, not a specific program with hard targets and milestones. As such there is some room for maneuvering when it comes to implementation. Should the public sentiment change in the future or if developing alternatives to nuclear power would prove too costly, changing the anti-nuclear policy course would be possible.
Key nuclear policy highlights include:
- All resources will be leveraged to enable zero use of nuclear power plants by 2030s
- Plant operations to be limited to 40 years
- Restart of nuclear operations to be limited to plants deemed safe by nuclear regulator
- There would be no new construction of nuclear power plants
Market Effect: Effect on equities with exposure to the new policy likely to take time to work its way through. The initial reaction to the announcement from investors was mixed. The uranium price responded with a further decline to $47/lb, while uranium equities extended their gains on the heels of "risk-on" attitude following central banks' actions earlier this month. Global X Uranium ETF (URA) and Nuclear Energy ETF (NLR) are both firmly up since the announcement. While the implications of this policy shift are complex, the net effect on most nuclear equities is likely to be negative (despite of the initial gains so far). Japan's decision further increases the risk profile of the industry, which ultimately should be reflected in equity risk premiums. We also see a negative effect on Japanese power generators and the heavy industry sector.