Recently, we discussed the challenges facing the solar, wind industries, which have led to some investor disillusionment. However, sentiment shifted as growing optimism surrounding nuclear power emerged as a reliable alternative. The rising price of uranium over the past five years indicates a stronger focus on nuclear power.
In September, we provided an overview of the nuclear sector, including Small Modular Reactors (SMRs) and fusion energy projects. Since then, the price of uranium and stocks tied to uranium mining and nuclear energy generation have continued to rise. Given these trends, it’s a great time to revisit the industry and see what’s unfolding.
In this week’s, we’ll explore the key developments in the nuclear space and provide insight for those seeking to gain sector exposure.
🚂 Is Nuclear Energy Making a Powerful Comeback?
The price of uranium suggests that nuclear energy might be experiencing a resurgence, particularly as the solar, wind industries face challenges. However, despite the rising interest, tangible policy changes surrounding nuclear power still need to be expanded.
The price of uranium, remarkably the spot price, has steadily risen. This surge indicates market optimism but might reflect speculative activity rather than a fundamental shift toward widespread nuclear adoption.
Around 70 nuclear reactors are currently under construction, with the majority in China and other developing countries. However, many of these projects are in the early stages, and their completion might take decades. Even if all these reactors are finished, the increase in worldwide nuclear capacity would only partially offset the reactors’ decommissioning or retirement.
- A positive development emerged in the UK last week with the announcement of Europe’s inaugural facility dedicated to producing high-assay, and slightly enriched uranium.
- This fuel type will be essential for operating the advanced reactors the nation intends to construct in the future. By 2050, the UK aims to expand its nuclear energy output hitting 24 gigawatts. For comparison, China’s current nuclear power generation stands at 57 gigawatts, with an additional 30 gigawatts under development. Furthermore, China has 220 gigawatts in various planning stages.
✨ Nuclear’s Moment of Truth
While China’s nuclear goals might seem ambitious, they are significantly behind schedule. Back 2011, China unveiled its strategy to establish nuclear energy as the backbone of its power grid, aiming to expand capacity by 300 gigawatts within the next 10 to 20 years. However, since the Fukushima disaster, China has shifted its focus more towards solar, wind energy, which are less capital-intensive, while the nuclear agenda has lagged behind.
Despite nuclear power being a cost-effective energy source in the long term (with reactors lasting up to 80 years), the upfront investment costs remain a significant hurdle. Thus, while the nuclear renaissance may be on the horizon, it is still a long-term prospect shaped by technological advances, regulatory shifts, and the economic feasibility of such massive investments.
The push for nuclear energy could gain momentum, but it must overcome significant barriers before becoming a central part of the global energy mix.
The chart illustrates that the cost of reactors is rising, especially in developed nations, represented by the blue bars. Alongside the growing expenses, the duration required to construct a reactor serves as also becoming unpredictable. Many projects are requiring more time than initially anticipated and are exceeding their budgets.
Significant capital for nuclear energy projects is usually provided by large investors or the state entities.
From their perspective, evaluating these projects is particularly challenging. In the best-case scenario, it takes at least 8 years before any strong cash generation is realized. Given the current interest rate environment, the financial barrier is already substantial when it comes to recovering initial investments.
If costs exceed projections or timelines extend beyond expectations, the challenge becomes even greater. Delays lead to prolonged opportunity costs, while budget overruns require returns to be distributed among a larger pool of investors.
Further Setbacks for SMR
Building nuclear reactor demands significant capital, making it one of the most financially intensive infrastructure projects. To address this challenge, SMRs have emerged as a potential solution, allowing governments and utilities to scale increase nuclear capacity incrementally.
Currently, approximately 70 SMR initiatives are in different phases of designs, development worldwide. However, only four are under construction—two in China, one in Russia, another in Argentina—while just 2 are operational, both in Russia and China.
A study from October 2023 assessed the cost projections for 19 SMR models, revealing that initial expectations were overly optimistic.
Further complications arose in November, as the Utah-based municipal power network scrapped what was supposed to be the first functional SMR plant in the U.S. Originally launched by the company NuScale Power in 2015 with a $3 billion budget to generate 600 MW, initially targeted for 2023, costs had ballooned to $9,000 million by 2021, the projected output had decreased to 460 megawatts.
In the United Kingdom, RollsRoyce has also reduced its ambitions for two SMR production plants, citing a prolonged regulatory approval process that could stretch another four, a half years.
The SMR concept aims to reduce costs through large-scale production reactors in centralized factories instead of building them on-site. However, without high production volumes, these cost advantages may never be realized—leaving companies in the space highly speculative.
Similarly, fusion energy, which we explored in depth in September, remains in an experimental stage and should should also be viewed as speculative. at this point.
❓📈 Why, Then, Is Uranium Becoming More Expensive?
Given the significant hurdles in launching new nuclear projects profitably and on schedule—along with the regulatory obstacles slowing down deployment—it is reasonable to wonder: why is uranium’s price on the rise?
Two main factors are influencing this trend. As might be expected, constrained supply and growing demand are putting increasing pressure on uranium prices.
Examining global uranium reserves reveals some familiar names.
Australia dominates the list, possessing 28 precent (or 1.7 million tons) globally extractable uranium, then Kazakhstan, Russia, Canada, Namibia.
Several of these nations are experiencing geopolitical tensions that pose risks to worldwide logistics networks.
On Tuesday last week, the, the U.S. Senate approved a measure banning uranium imports from Russia. Yet, sanctions are not the only challenge to supply. In 2023, Niger accounted for approximately 4.1 precent of the world’s uranium output. Although this marked a slight increase from the prior year, production in 2024 could decline significantly due to political instability following a recent coup, disrupting shipments destined regarding Western Europe.
Even in more politically stable regions such as Australia, uranium mining remains a contentious issue. This was evident when Western Australia’s government enacted a restriction regarding new uranium mining projects in 2017.
Industry experts point to a broader underlying issue. Greg Cochran, Aurora Energy Metals’ managing director, notes that minimal exploration and mine development efforts have taken place over the past 15 years. As a result, the sector is now “scrambling to catch up.”
Supply constraints alone do not explain uranium’s price resilience.
Despite the challenges of initiating new nuclear ventures, one fact remains unchanged: nuclear power is the most efficient, clean, and safest large-scale energy source available. It continues to be a critical component in global efforts to meet Net-Zero carbon targets.
Renewed enthusiasm for expanding nuclear capacity has played a key role in driving up uranium prices.
Although there is no certainty that many of the proposed uranium initiatives will materialize, the U.S. U.S. Energy Department’s recent $500 million commitment to developing a local uranium source has only strengthened the positive market outlook for the mineral.
Examine the Nuclear Supply Chain, Much Like the artificial intelligence Value Chain
In February, we explored the artificial intelligence value chain, and similarly, there are multiple ways to gain exposure to nuclear power or uranium—ranging from uranium itself and mining companies to power companies and machinery.
All of these investment avenues operates under distinct market forces, making it crucial to grasp what you’re actually investing in.
For those who see strong future growth prospects in nuclear power and its production, certain segments of this value chain might be particularly appealing.
⛏️ Uranium, Mining Companies
Over the past year, firms engaged in exploring, extracting, and refining uranium have delivered a number of most impressive price gains.
Uranium Market Outlook
As the decade nears its close, the gap between supplies and demand for uranium is projected to expand due to the depletion of existing mines. However, like any other commodity, uranium tends to attract more investment and increased output when prices climb. Forecasts, including the example earlier frequently fail to fully account for the industry’s capacity to ramp up production.
For those looking into uranium producers, it’s essential to evaluate whether they maintain strong profit margins—such as Kazatomprom company, the industry’s largest supplier—and to ensure that rising costs aren’t outpacing revenue growth.
⚡ Power Providers
Electricity suppliers vary in their dependence on nuclear energy, as it is only one among several power generation methods they utilize. Their primary objective remains selling electricity profitably no matter the source.
⚒️ Infrastructure and Services
Some businesses focus on providing essential equipment, solutions for nuclear facilities. By serving both operational and newly built plants, these companies benefit from rising investment in the sector while remaining less vulnerable to shifts in uranium prices or electricity rates.
As AI data centers consume increasing amounts of power, nuclear energy has gained traction as a reliable solution. This trend has fueled speculation that certain nuclear-related stocks could see upside due to growing data centers.
