Dispelling The Nuclear Power Myth

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Includes: URA
by: Opportuna Investments

Summary

Nuclear power production and capacity is rising despite widespread belief to the contrary.

Renewables, despite having more production capacity, struggle to produce a third of what nuclear power produces.

The rise of cryptocurrencies has led to a material underestimation of future energy demand.

A cyclical low presents a great opportunity in the nuclear sector.

Nuclear power continues to be a controversial term leading to awkward conversations followed by a quick change of subject. Perhaps this is why it suffers from the common misconception that it is in decline: no one wants to talk about it.

But this widespread misbelief presents a compelling investment opportunity to those who can stomach going against the grain. A cyclical low in the nuclear industry with irrational negative sentiment and a very positive outlook make a good case for uranium, the key input in nuclear power.

In this article, we will debunk the misconception that nuclear power is in decline, see how renewable energy sources are failing to provide adequate electricity, and discover the tailwind that nuclear reports have omitted to date: the rise of the energy-consuming cryptocurrencies.

The Nuclear Power Misconception

But wait a second, isn't nuclear power a thing of the past? Isn't it in decline? A glance at the International Atomic Energy Agency's chart reveals rising nuclear electricity production across the globe.

Source

Between 1990 and 2010, world nuclear capacity rose by 57GWe (17.75%), while nuclear electricity production rose 755 billion kWh (40%). Between 1996 and 2016, eighty reactors closed while ninety-six started operation.

But what isn't obvious when simply looking at the number of operating nuclear reactors is that newer units produce considerably more power than older ones.

For example, between 2000 and 2006, there was no net increase in operating reactors, yet there was an increase in nuclear energy production of 210Twh, about the amount thirty new and large nuclear power plants would generate. This is one of the most overlooked properties of nuclear power production in the 21st century.

The U.S. Energy Information Administration's power consumption by energy source predictions agree with the IAEA's chart, and we can see nuclear energy trending higher well into the future.

Source

Why then is it commonly believed nuclear power is on its way out? The rapid growth in wind and solar renewable energy sources could partly explain this misconception. These sources have experienced massive growth in a short amount of time because they are relatively new industries. Smaller industries have far greater growth potential than larger ones.

But the IAEA, in their International Status and Prospects for Nuclear Power 2017 report, asserts:

Although new renewables (which include wind, solar and geothermal power, but not hydropower) have surpassed nuclear power in total installed capacity, their share of actual electricity generation is less than one third of that produced by nuclear power because of their intermittency.

Nuclear power doesn't need a sunny or windy day to provide power.

Renewable energy production like wind and solar are becoming cheaper and cheaper to make and install, but most of this capacity is not used, as we can see from the following chart.

Source

We can see the wasted capacity that wind and solar energy incur, unlike nuclear energy. So a question comes to mind: does it matter if wind and solar production are becoming cheaper if we don't use what we make with it?

Renewable energy sources are ideal in theory but not in practice. It should be mentioned here that nuclear power is carbon free and, since we can source it from sea water (though not economically for some time yet), is actually renewable as well.

It should also be mentioned that the recent proliferation of wind and solar energy production, while admirable, is largely due to government subsidies like the EU Green Certificates that are earned from the PRODUCTION of renewable energy, not the SALE. But I digress again..

The World Nuclear Association (WNA)

The WNA provides regular updates on nuclear reactor activity across the globe. If you weren't aware, here's an update:

Reactors

Description

447 reactors currently operating

Connected to the grid

58 under construction

First concrete for reactor poured, or major refurbishment underway

157 planned

Approvals, funding or commitment in place, mostly expected in operation within 8-10 years

351 proposed

Specific programme or site proposals, timing of start of operation very uncertain

Source

Not seen in the table are the 250 research reactors in operation across 55 countries, with more being constructed, nor the 180 nuclear reactors powering around 140 ships and submarines.

International Atomic Energy Agency (IAEA)

The IAEA provides a table that is skewed favorably for nuclear power, and therefore uranium.

Source

Diving further into the Agency's International Status and Prospects for Nuclear Power 2017 report yielded high and low predictions for global nuclear installed capacity, which, as we've seen above, matches production.

I took the average of the IAEA's high and low projections for global installed nuclear power capacity and calculated the following:

Global Installed Nuclear Power Capacity

Base Year 2016

2030

2040

2050

% Change

27% higher

49% higher

67% higher

Since nuclear power capacity basically equals production, these projections indicate a substantial rise in production and thus uranium consumption over the coming decades.

If nuclear power capacity and production becomes 27% higher by 2030, we will see uranium's price per pound rise dramatically, leading to a rising tide in the industry.

So we have seen that nuclear power is growing and expected to grow further from global nuclear authorities. Why then do we see reports claiming the opposite to be true? Let's look into the most cited nuclear-bearish report.

The 2017 September World Nuclear Industry Status Report

This report, which is bearish on nuclear power, deserves special mention as several SA readers pointed to it after my last update on uranium and nuclear power production.

While this report does a service by providing more information on nuclear power, its total lack of objectivity (the authors want nuclear power to end, apparently) results in a net disservice.

The authors write off any positive nuclear energy developments to what they call "The China Effect", believing that things don't count if they happen in China. This write-off occurs so frequently in the report it became humorous.

If China has such a large effect in the nuclear industry and outlook, why didn't it get its own section like four other countries did?

Why wouldn't you highlight the country that seems to be having the largest effect on the topic of your report? Probably because it would undermine the bearish stance they assumed.

Even Germany got a special section and it's shutting down its nuclear power industry...

One can forgive a lack of objectivity, but numerous contradicting statistics and assertions try one's patience.

For example, the report reads "Nuclear power is far from dead but it is in decline…" Then it goes on to read, "The nuclear share of the world's power generation remained stable over the past five years."

The report continues:

The 1991-2000 decade showed far more startups than shutdowns (52/30), while in the decade 2001-2010, startups did not match shutdowns (32/35). Between 2011 and mid-2017, the startup of 41 reactors-of which 24 in China alone-narrowly outpaced the closure of 38 units over the same period.

So since 1991 there have been 125 startups and 103 closures.. Is this an industry in decline, especially when we remember that newer models produce more than older ones.

And then…

With electricity generation worldwide increasing slightly faster (+8.9 percent since 2012) than the increase in nuclear generation (+5.5 percent since 2012), nuclear has been losing roughly 0.3 percentage points in the nuclear share since 2012.

These statistics, when not properly understood, could partly explain the declining nuclear power misconception. People are quick to assume that because something is losing market share, it is in decline. This is only true if the market's size is stable or shrinking. If a market is growing, like the electricity production market is, then a market incumbent could still be growing despite losing market share.

Since global electricity production has increased 8.9% since 2012, and nuclear power production increased 5.5% since 2012, we can see that nuclear power has still INCREASED despite losing market share. But you wouldn't know it from the phrasing and word usage like "losing" that these authors use.

I could go on but I think you get the point. Nuclear power is not in decline, and the report admits it whether they are aware of it or not.

Rise of the Cryptocurrencies

The wonderful, decentralized, alternatives to fiat currencies are in fact energy-consuming monsters.

If bitcoin miners were a country, they would rank 61st in the world for electricity consumption, and that is JUST bitcoin. Consider all the other cryptos popping up and all the energy they consume.

If you pay for a lunch with bitcoin, it is likely it will cost more to process the payment than the cost of the lunch. According to Electric Choice, the average cost of a kWh in California is $0.1816, meaning a single bitcoin transaction would be around $45.

In fact, the electricity it takes to power just one bitcoin transaction could power 17.24 U.S. homes for a day each.

(For more fun facts on bitcoins power consumption, read here.)

What is the point of all this? I seriously doubt that any recent and relevant report that made energy projections and predictions factored in the exponential energy consumption that cryptocurrencies represent.

What this means is that these reports and predictions all underestimate future energy demand, and most likely by a lot. Since mining cryptocurrencies generally becomes more and more difficult, thereby requiring more and more computing power and thus energy to mine, we can expect global energy demand to rise substantially higher in the coming years than these reports estimate.

As we have seen, renewable sources like wind and solar produce less than a third of nuclear sources, despite more capacity because of their inherent limitations. The world (think China) is moving away from fossil fuels. What then will supply this surge of energy demand created by cryptocurrencies? Nuclear power.

A Cyclical Low Presents Opportunity

I love it when I see a commodity that is priced well below its cost of production (US$40-50/lb) and yet has a very positive outlook. Currently, uranium is trading around $23/lb. This represents limited downside potential and maximum upside potential; in other words, an attractive risk/reward ratio.

Source

Even industry incumbents, represented by the Global X Uranium ETF (NYSE:URA), are in a cyclical downturn, representing a bargain should nuclear power continue to rise while consuming more and more uranium.

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Takeaway

It has been my goal to dispel the misconception that nuclear energy is in decline. As we have seen, nuclear energy is growing despite a slight reduction in the growing total energy mix.

We saw that, although renewable sources now have more installed capacity, output is generally half of capacity, unlike nuclear power. This is why the share of renewable electricity generation is less than a third of that generated by nuclear power.

We also saw that the bearish 2017 September World Nuclear Industry Status Report, despite honorable intentions, actually provided more evidence that nuclear power is not in decline. One can hope that it focuses on the key players in the next report (China!), rather than the few countries who are moving away from nuclear power.

The unforeseen and exponential growth of cryptocurrencies has resulted in a material understating of future global electricity demand, no matter what source you use. This will be a tailwind for nuclear power in the years to come.

Lastly, the nuclear industry and its company incumbents are in a cyclical downturn, representing a great opportunity to get in early and at bargain prices before uranium rises to, at the very least, its cost of production (a 45% rise in price.

For a more holistic and complete perspective on the positive prospects for uranium and the nuclear industry, feel free to consult my last article on the subject.

Small to mid-cap uranium producers, leveraged to the price of uranium as they are, will see large share price appreciations as the nuclear industry picks up.

I have written on a uranium producer that I believe offers exceptional value and growth prospects: Fission Uranium Corp. (OTCQX:FCUUF). Fission is a junior exploration company operating in mining-friendly Canada with 100% ownership of the most significant undeveloped, near-surface, high-grade deposit in the Athabasca Basin: the Triple R Deposit.

The deposit is part of the Patterson Lake South (PLS) project, which was ranked top undeveloped uranium project in the world by The Mining Journal last year.

I will be writing further on uranium and the nuclear industry, and on several prospective industry incumbents. If you would like to be notified when these are released, I encourage you to follow me.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.