Excellent, farsighted report on nuclear power
Comment of the Day

May 23 2011

Commentary by David Fuller

Excellent, farsighted report on nuclear power

My thanks to a subscriber for this report - Uranium: Down but not out, from Morgan Stanley. Here is an interesting section:
The Fallout and the Future of the Sector

While virtually every country with existing nuclear power programs ordered investigations into the safety of their reactor fleet, there was a clear divergence in policy stance. Major nuclear power users such as South Korea, Russia, Britain, and France have said they would leave their nuclear energy policies largely unchanged as well as a number of countries with plans for future programs such as Poland, South Africa and Turkey.

In Britain, the government's climate advisory panel said in April that the country should considering investing more - not less - in nuclear power as it "appears likely to be the most cost-effective form of low-carbon power generation" in coming years. The panel's report envisioned more than doubling Britain's dependence on nuclear energy to 40%, and played down risks of a Fukushima-like crisis. "The likelihood of natural disasters of this type and scale occurring in the U.K. is extremely small," the report said.

In the US, The Nuclear Regulatory Commission is continuing with its review of applications for licensing recently submitted for 12 nuclear power plants, according to the commission's chairman. On the other hand, some energy policy makers have significantly altered their commitment to nuclear power and in some cases plan on abandoning the power source altogether.

Japan: Prime Minister Kan said on 10 May that plans to build 14 new nuclear power plans would be scrapped while the government re-evaluated its energy policies. As part of the safety review of Japan's 54 nuclear power plants, the Japanese Prime Minister has urged one of the country's power companies to suspend three reactors at coastal sites while safety measures are taken to ensure damage from a major earthquake or tsunami does not cause a second nuclear accident

Germany: it appears the Merkel government has reversed last year's decision to extend the operating lives of 13 newer nuclear power plants. Immediately following the Fukushima accident, Chancellor Merkel ordered seven of plants to be temporarily closed, instituted a moratorium on construction of new reactors, ordered an intensive review of security and safety measures and appointed an ethics committee to recommend a future direction in German energy policy. In May, Chancellor Merkel said it was certain that Germany would end its reliance on nuclear energy and it was only a question of how long it would be needed as a "bridge technology" until other forms of energy could provided for the country's needs.

The other important repercussion for the future of nuclear power is the likelihood of an increasingly challenging environment to install new capacity. Prior to Fukushima, building a new reactor anywhere in the world already faced cost and financing challenges, but the post-Fukushima era will likely significantly increase the hurdle rates.

Nevertheless, we believe nuclear power will remain an important component in the mix of global electricity generation diversification. As the growth in global power consumption is rapidly outpacing the progress in low emission energy generation sources, nuclear power remains a proven and available source of energy with no emissions impact (once capacity is installed). Even the German Ethics Committee acknowledged that it was not possible to greatly accelerate the development of renewable energy. At this point in history, the leading sources of alternative energy, namely geothermal, wind and solar, each lack the capability of nuclear power in terms of efficiency, cost performance and environmental protection.

We also believe the "bridge" between other forms of energy technology may be longer than some energy policy architects are initially imagining. Any rapid withdrawal of nuclear power would seriously challenge many countries' economies, leading to electricity shortages and requiring energy imports. In the case of some Western European nations, this could mean increasingly relying on France and other energy exporters, who in fact generate much of this power from nuclear. Given Japan currently relies on nuclear power for 30% of its energy needs, the phase out and replacement sources will take several years to reach the grid.

We maintain our long-standing view that the long-term outlook for the global uranium market remains constructive, primarily as a result of the demand growth in emerging markets. According to the latest International Energy Agency's annual World Energy Outlook, India is the second-largest contributor to the increase in global demand to 2035, accounting for 18% of the total increase in demand. However, China remains the standout driver of growth in uranium demand.

David Fuller's view I think this is a balanced, objective summary. A reduction in Germany's and Japan's nuclear power will increase energy costs and carbon emissions in these two countries.

Globally, the already precarious energy supply/demand balance will be aggravated by delays and high-hurdle costs for nuclear development in the post-Fukushima era. For instance, I expect this to be a problem in the UK, despite the government's climate advisory panel's sensible conclusions.

For a really significant reduction in carbon dioxide emissions, using proven and efficient technologies, the world needs to generate a much higher proportion of its energy requirements from nuclear power and natural gas.

Investors holding uranium mining shares should expect a lengthy convalescence before significant recoveries occur. Nevertheless, from current levels few other sectors have the same limited downside risk relative to eventual upside potential. Unfortunately, one is not rewarded with dividends during the wait.

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