I have never opened an article with a dictionary definition. But it seems fitting this time.

Renaissance (noun): A revival or renewed interest in something. From the Latin for rebirth.

That’s exactly what’s happening with nuclear energy right now.

But before we get to the renaissance (and how investors can profit), we first have to understand how we got here…

Why The World Turned Away From Nuclear

In March 2011, a magnitude 9.0 earthquake struck off the coast of Japan, unleashing a catastrophic 45-foot tsunami that inundated the country and destroyed over a million coastal buildings. Directly in the path, the Fukushima Daiichi nuclear power plant withstood the initial shock and went into emergency shutdown mode. But backup power generators running the cooling pumps and heat exchange systems failed, leading to core meltdowns at three reactors.

… and the worst nuclear scare since Chernobyl in 1986.

Despite its best efforts, the Tokyo Electric Power Company (Tepco) lost containment of radioactive material. While no deaths were directly attributable to the disaster, tens of thousands were forced to evacuate their homes. The incident contaminated food crops and drinking water for hundreds of miles.

In the wake of the accident, all 54 of Japan’s nuclear reactors were taken offline for precautionary reasons. Public support for nuclear energy cratered, not just in Japan but around the globe.

Germany closed half its reactors and vowed to gradually phase out the rest. So did Belgium. Spain and Switzerland banned the construction of new plants. Still, others remained staunchly opposed to any nuclear power. Australia, Denmark, and Italy, just to name a few.

Uranium Prices Crater

Needless to say, it was a dark time for nuclear energy proponents. And investors deemed this sector to be every bit as toxic as the stuff leaking into the sea at Fukushima – they were afraid to touch it. Between flagging demand and excess supply, the uranium market collapsed.

It didn’t happen overnight. Physical supplies aren’t traded on an open market like gold or copper. While some deliveries are made at current spot prices, buyers and sellers typically negotiate fixed rates through long-term (2-10 year) purchase agreements. From a peak of $136 per pound a few years earlier, uranium prices sank below $50, then $40, and then $30, finally bottoming below $20 in November 2017. And there they stayed, on life support with little hope for a recovery.

Until now…

_{Source: Cameco}

 

Nuclear Is Making A Major Comeback

There are currently 440 nuclear reactors operating in 32 countries around the globe. These plants provide roughly 10% of the world’s electricity. That percentage stands at approximately 20% here in the United States, or one out of every five homes. Nuclear is the chief power generator in European countries like France, accounting for nearly 70% of its power needs.

 

_{Source: Foro Nuclear}

Of course, these plants have a hungry appetite for uranium fuel… and supplies must be replenished.

Some of these facilities are nearing the end of their useful lifespan and will be decommissioned. But new ones will be ready to take their place. According to the World Nuclear Association, 60 new reactors are being constructed. As we speak, there are 100 more on order or in the planning phase.

That’s to say nothing of expansion projects (or “uprates”) that have boosted capacity at existing plants.

A New Day For Nuclear

Some of the same countries that swore off nuclear power a decade ago have changed their position. Belgium has reversed plans to exit nuclear power and is extending the life of its reactors by at least another decade. In South Korea, newly-elected President Yoon Suk-yeol overturned his predecessor’s decree for a full phaseout and moratorium on new construction. Now, the country is aiming to expand its capabilities, restarting construction on halted projects.

Perhaps most notably, Japan has pivoted away from earlier plans to displace nuclear energy by the end of the decade. Ministers have pledged a renewed commitment (with new safety protocols), and recently outlined plans to triple nuclear’s share of the country’s power mix from 7% to 20%+. Local utility companies have applied for restarts at 27 reactors. Of those, 17 have already passed safety checks and resumed operations.

Far from downsizing, the country is now pushing ahead with the development of new next-gen reactors. Keep in mind Japan has a dearth of homegrown oil and gas deposits, so nuclear is one of the few options that don’t involve costly imports from overseas.

Meanwhile, the United States will soon welcome its first new reactor in decades. Located in Georgia, the Vogtle 3 will begin meeting the power needs of millions of homes and businesses by June. Backed by billions in tax credits and loan guarantees from the Department of Energy, Vogtle 3 (and sister unit 4) are expected to generate 17 million megawatts of per year.

Nuclear Makes Geopolitical (And Green) Sense

Why the 180-degree turnaround in public approval and government policy? Well, for starters, nuclear energy has zero emissions and can help countries further their clean energy standards and objectives. The European Union has now (finally) classified nuclear power as green energy.

Wind and solar have their place but are intermittent sources whose output fluctuates. By contrast, nuclear can provide steady baseload power and meet peak demand when electricity consumption surges.

But that’s only half the picture. The geopolitical climate has also played a role. Specifically, I’m referring to Russia’s invasion of Ukraine, a prolonged conflict that has disrupted natural gas supplies across Europe and caused power grid chaos. The war has served as a clarion call for energy security.

Kazakhstan accounts for roughly half of the world’s uranium production, while Russia handles 50% of all enrichment capacity. As you might expect, Western buyers have been turning to non-Russian supplies and services, driving prices upward.

Nuclear Energy’s Bright Future

Here’s what top forecasters see unfolding. By 2035, there will be 512 reactors in operation, representing 488 megawatts of installed capacity. That’s about a 26% increase from current levels.

By that point, uranium usage could reach 240 million pounds annually. And consider this: the market is already in a deficit. While production rose 6% to 132 million pounds last year, hungry utilities gobbled up 193 million pounds. That’s a shortfall of 60 million pounds.

Closing that gap isn’t as simple as turning up a spigot. Many marginally profitable mines were shuttered during the lean years. And prices still aren’t at levels that will sufficiently encourage new exploration activity. In the meantime, more than 30 countries are planning to start their own nuclear programs, from Indonesia to Chile to Saudi Arabia. And others are ramping up. China’s nuclear power capacity has quadrupled since 2011 to meet rising electricity demand and shift away from coal.

Then there’s the deployment of small modular reactors (SMRs), yet another growth driver we haven’t discussed. Add it all up, and you can understand why Cameco (NYSE: CCJ) just shared this bullish assessment:

“Demand for nuclear power, supported by growth across the near, medium and long-term, is driving the best fundamentals we have ever seen for the nuclear fuel market.”

–Tim Gitzel, Cameco CEO

That’s not just idle talk. The company signed a record number of contracts last year, selling 80 million pounds at significantly higher prices. It also raised its 2023 earnings guidance. No wonder analysts are raising their targets.

Action To Take

I wouldn’t write the obituary for nuclear energy just yet. And after more than a decade, uranium is suddenly alive and well.

Investors are taking notice. Don’t just take my word for it. Take a look at the chart above for Cameco, owner of the world’s largest high-grade uranium mine. As you can see, market sentiment for the beleaguered producer appears to be growing increasingly optimistic. After years of hibernation, the stock has tripled since January 2020.

And this could be just the beginning.

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