This is ‘the golden age of nuclear power’. Or so we have been told by the Government and others – and it is a claim sure to intrigue even the most cynical investor, especially since shares in a few of the companies in the ‘nuke’ sector have more than doubled this year.
By 2040, the bankers Goldman Sachs expect global nuclear generating capacity to rise to 575 gigawatts, against the current 378 gigawatts, as countries focus on this technology ‘after many years of underinvestment’.
This would supply 12 per cent of global electricity demand, up from 9 today, with FTSE 100 names including Centrica (the British Gas group) and aerospace and defence titan Rolls-Royce, benefiting from the surge.
Factors driving this shift include western countries’ heightened emphasis on energy security following Russia’s invasion of Ukraine and the push for clean energy. Nuclear has some of the lowest carbon emissions of any energy source.
David Coombs, of asset manager Rathbones, says: ‘As recently as four or five years ago, nuclear was a no-go zone. But now it’s clear that it has to be part of an energy strategy. You can’t store the energy produced by wind or solar.’
Nevertheless, some investors will still be wary of nuclear’s altered image in light of disasters such as Fukushima in Japan in 2011 and Three Mile Island in the US in 1979.
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Sign of the times:Â This is ‘the golden age of nuclear power’ – or so we have been told by the Government and others
Three Mile Island was officially shut down in 2019. But the plant is being reopened by US tech titan Microsoft, which needs extra power for its data centres. These sheds – full of computers and cabling – require the ‘baseload’ (uninterrupted) power that nuclear can provide.
Shares in Three Mile Island’s owner
Constellation Energy have jumped by 75 per cent over the past year to $319. The recognition that nuclear may be the answer lies behind the building of the Sizewell C plant in East Suffolk (B plant, pictured) which, or so it said, will provide power for 6m homes for at least 60 years.
The Government has pledged £14.2billion to this ten-year project in which Centrica is committing £1.3billion for a 15 per cent stake. Centrica is also looking into prolonging the lives of its other plants.
The controversy and delays over the construction of Sizewell C explains the enthusiasm for small modular reactors (SMRs). These are cheaper and easier to build.
This is a business into which aerospace and defence giant Rolls-Royce is moving, with the aim of building 400 SMRs by 2050, costing around $3billion each.
Rolls-Royce has gained government approval to deliver the UK’s first SMRs.
Centrica has also intimated that it would like to enter the SMR sector, which is tipped to be worth £500bn worldwide by 2050.
You may be impressed by these forecasts but remain sceptical; in 2021, the enthusiasm over wind power was at fever pitch.
This month the trailblazing Danish company Orsted is launching an emergency rights issue to recover the losses from its American operations, which has suffered from US President Donald Trump’s opposition to the energy source.
Orsted shares have tumbled by 50 per cent this year, suggesting caution should be your watchword if you opt to go nuclear.
Here are the companies and the funds you can consider to take a bet on this energy source and the fuel – uranium – that makes nuclear fission happen.
The top candidates?
The 90 per cent-plus rise in Rolls-Royce shares this year has been fuelled by its defence division, but also by its resolve to be pre-eminent in nuclear.
Chief executive Tufan Erginbilgic declared last month: ‘There is no private company in
the world with the nuclear capability we have. If we are not the market leader globally, we did something wrong.’
Despite the jump in the price, nine out of the 14 analysts that follow Rolls-Royce rate the shares a ‘buy’. This week Jefferies set a new target price of 1290p. It stands presently at 1130p.
Coombs sounds a note of caution, however, pointing out that the SMRs will not be operating until the 2030s, which means that you have to take a ten-year view if you buy at this elevated level.
Centrica shares have risen by a more modest 17 per cent this year, although they jumped by 15 per cent on the day that news broke of the investment in Sizewell C.
This seems to have been prompted by the perception that Centrica should enjoy a measure of protection against extreme expenditure overruns on the project, which may cost £40billion. The assumption seems to be that taxpayers will foot the bill. Once more Jefferies is optimistic about the prospects, setting a target of 200p. The average is 180p. It now stands at 160p. But again the rewards will take some time to flow.
Britain may be promising a ‘golden age of nuclear’. In America, the pledge of a ‘renaissance of nuclear energy’ has been sufficient to spark this year’s 264 per cent rise to $81 in the shares of Oklo.
This start-up business which designs SMRs was initially backed by Sam Altman, boss of OpenAI, the Silicon Valley company that created AI system ChatGPT. Considerable excitement surrounds Oklo’s plans for a facility that will convert nuclear waste into fuel for the reactors. That is one reason why Bank of America has set a $92 target price for the shares.
But note that the first of the Oklo reactors will not be launched until the end of this decade.
A different kind of precious metal
In another illustration of the risks of investing in nuclear, shares in Yellow Cake, a UK company that holds stocks of uranium, was one of the most shorted in the London market this summer. This reflected the decline in the uranium price, although this has recovered. Yellow Cake shares have also revived, but they seem suited for the strong-nerved.
The exchange traded funds (ETFs) Global X Uranium and Sprott Uranium Miners and the Geiger Counter investment
trust provide exposure to this metal which is mined in Kazakhstan, Australia, Canada and Namibia. New sources are being keenly sought, however, in Arizona and Sweden.
Investors who want a quieter life might prefer to hold EDF and Westinghouse – the two names most associated with nuclear.
Sadly, this is not possible since EDF is owned by France. It holds eight UK nuclear plants.
Costs continue to balloon at Hinckley Point C, another of its UK ventures which was expected to start generating power this year but may not do so until 2031.
The fortunes of Westinghouse, the American nuclear pioneer, also underline the hazards of nuclear. It was bought out of bankruptcy in 1999 by the Canadian private equity business Brookfield in combination with Cameco, another Canadian company. Shares are 118 per cent higher than a year ago, but the majority of analysts still rate them a ‘buy’.
This optimism for nuclear power’s prospects is infectious. But, for me, a fund like iShares’ nuclear energy and uranium mining may be enough of an adventure.
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