Environmental campaigner George Monbiot is in all sorts of trouble with the green movement because he has suggested that nuclear power is going to have a role in cutting greenhouse gas emissions. This view isn't popular - but it is rational. Nuclear energy just isn't going to go away.
Big Fact 1:
Although nuclear power is touted as essentially carbon-free, in reality it does produce carbon emissions at various stages of the life cycle of the industry, particularly during mining, ore transport and construction. But these emissions are, in total, incredibly low compared with other energy sources. Analysis conducted by the University of Wisconsin found that nuclear's life-cycle emissions are 17 tonnes of carbon dioxide equivalent per gigawatt hour, just slightly more than wind (14 tonnes of carbon dioxide equivalents per gigawatt hour) and geothermal sources (15 tonnes).
Big Fact 2:
China has announced plans to spend $50m on 32 nuclear plants by 2020. Some experts from the Tsinghua University (China's leading technical university) think it could end up building another 300 by the middle of the century.
Big Fact 3:
Even allowing for the expected huge increase in capacity, researchers from the Oxford Research Group estimate that, over the next 25 years, global capacity is actually set to decrease as older plants are retired at an accelerating rate.
The Big Story:
There's been a huge debate over the green impact and economic benefits of nuclear power, but this debate is now largely academic - governments around the world have decided to go nuclear and it's now just a matter of waiting for the construction boom to begin. There are 439 nuclear plants in operation worldwide, 33 under construction and 94 in the advanced planning stages, according to the World Nuclear Association, plus another 222 that are projected and planned but not yet confirmed.
Although there's considerable debate about the merits of nuclear as a business proposition - with optimists pointing to the private sector funding of Finland's new reactor - there is a wide consensus that once the power station is actually built, nuclear power can produce cheap electricity - according to the Nuclear Energy Institute, nuclear plants cost about 1.72c per kilowatt-hour to operate, compared with 2.21c for coal plants, 7.51c for gas and 8.09c for oil. There's an even more fundamental point; if the world is to seriously tackle climate change and replace the already aging power infrastructure, an awful lot of new nuclear power stations are going to get built regardless. And that'll mean a huge increase in demand over the long term for uranium miners and for the big integrated reactor builders.
But nuclear power cannot expand ad infinitum - there are limits to its growth potential, limits that could put a premium on the supply of uranium ore in the global market place. The chief executive of the world's largest uranium miner (Cameco) recently admitted that demand for uranium will probably exceed supply for the next eight to nine years, forcing utilities to reprocess or use existing inventories of fissionable fuel. Cameco couldn't even expand by acquisition to supply more fuel - according to Cameco's chief executive "there isn't a whole lot out there to acquire that's meaningful". Independent nuclear analyst Jan Van Leeuwen reckons that, at current rates of consumption, high-grade uranium will only last to about 2034 and nuclear energy will be a net energy loser by 2070. Needless to say these productions of peak uranium supply are bitterly contested, but they do help underpin the arguments of some uranium ore bulls that prices will start trending upwards over the next two decades.
How to access the theme:
The best way to access this story in the long term is the specialist uranium investment fund run by new City - the Geiger Counter fund. It's an offshore Channel Islands listed closed-end investment fund that invests in everything from uranium miners to technology suppliers. SocGen in the UK also has its own Uranium index, which is in turn tracked by a listed structured note called URAX. Over in the US, there are two major exchange-traded funds (ETFs) from Market Vectors and Powershares which track each of the main nuclear indices. In terms of listed UK plays, two companies stand head and shoulders above the rest - nuclear power outfit British Energy and nuclear service provider Babcock. Shipping and industrial services group James Fisher also has some big interests in the nuclear sector. Probably the best company to buy globally is Canada-listed Cameco, the world's largest Uranium miner, although it also mines for gold which accounts for a quarter of all revenues.
Benchmark index: The World Nuclear Association Nuclear Energy Index is a widely followed index that includes a number of companies that supply into this sector - overall the index comprises 25 per cent power generation, 25 per cent technology/equipment and services, 20 per cent nuclear fuel, 15 per cent reactor vendors and 15 per cent construction. The WNA Nuclear Energy Index is comprised of 64 companies and is tracked by a US ETF called PowerShares Global Nuclear Energy Portfolio (PKN). The other alternative index is called the DAXglobal Nuclear index and comprises 42.2 per cent uranium mining, 25.6 per cent plant infrastructure, 24.0 per cent nuclear power generation, 4.6 per cent uranium storage, 2.3 per cent uranium enrichment and 1.3 per cent nuclear fuel transport. This focus on mining for the DAX index worries some analysts - according to one market commentator, "uranium accounts for less than 10 per cent of a nuclear operation yet in this [DAX] index it accounts for 42 per cent of the portfolio. There's a great opportunity in companies that are tied to the actual deployment of nuclear reactors."
Leftfield ideas:
One of the most interesting companies is called USEC (USU), which operates the only uranium-enrichment facility in the US - it supplies more than half the US market and more than a quarter of the world market. One of its major raw material sources is decommissioned Russian nuclear warheads. It has been making rapid progress on new technologies and it's even profitable - revenues have grown in every year since 2004, closely followed by profits. But it did run into technical problems in the past year and profits took a hit, but USEC has a great track record and is in the sweet spot globally when it comes to reprocessing dangerous used nuclear fuel.
Caveats:
Uranium is not like other commodities - its pricing terms are set through private, long-term negotiations while trade in physical uranium in contract form is a limited market. Also it's worth bearing in mind that the uranium mining business is actually very small - the whole nuclear fuel market is estimated at just $16bn a year, with only $1.2bn spent on uranium in 2006. This small market means that the price of uranium is hugely volatile. Indeed, it has shot up from $50 an ounce to $135 and all the way back down to $60. Prices have recently started rising, but this huge volatility has had a major impact on the uranium miners and their shares, which tumbled to all-time lows at the beginning of this year.
