Nuclear power has always generated controversy but is increasingly seen as a key component to the transition of the global economy away from fossil fuels over coming decades. Renewables have many advantages but their main disadvantages are the amount of physical space their generation often requires and the fact they often rely on conditions we can’t influence, such as how windy or sunny it is or how much water is flowing into a turbine.
Nuclear power, by contrast, is less tied to the geography of climate and other natural resources. It is hugely efficient, generating enough power for whole cities and regions, can be scaled up and down based on need and also doesn’t produce any emissions.
The two biggest issues with nuclear power, the safety of reactors and where to store the highly radioactive waste that results from the process, are largely being solved by modern technology.
Many expect the coming decades to represent a golden age for nuclear power and some investors see the sector as a meta trend to seek long-term exposure to. Let’s look at why exposure to nuclear power is considered by many to be such an astute investment, how the technology that underpins the sector is developing and some of the main options available to investors.
Is nuclear power an ESG investment?
ESG-themed investing has taken a bit of a battering of late thanks to a lack of sector consensus as to what should be considered sustainable.
The ESG credentials of nuclear power have always divided opinion. Some argue the environmental and health risk posed by nuclear power plants in the worst case scenario of a major radioactive leak, as famously happened at Chornobyl and more recently Japan’s 2011 Fukushima nuclear disaster, mean they cannot be considered sustainable energy.
The opposing view is that under normal circumstances the generation of nuclear power results in no harmful emissions, making it a key part of a future low-carbon energy mix. Nuclear power is both extremely efficient, producing huge quantities of power, and, unlike many renewable energy sources, controllably reliable. Within the framework of their capacity and technology, we can choose how much power is produced by nuclear plants and when.
Proponents of nuclear power argue it would be very difficult for a disaster like Chornobyl to happen again because it was the result of a combination of the inherent weaknesses in a now obsolete way of building nuclear reactors and political circumstances. Lessons have also, it is insisted, been learned from the Fukushima disaster which was also a result of unique circumstances – a massive earthquake and tsunami knocking out power supply to the region.
Modern nuclear reactor designs are presented as extremely safe, with smaller reactors and plants that are easier to control and work on smaller quantities of nuclear material the main direction of travel.
Ultimately, individual investors will have to make up their own minds if the risk posed by modern nuclear reactors disqualifies them as an ESG investment despite atomic energy’s emission-free nature. Or that the latter quality qualifies them because modern designs have hugely reduced the risk of accidents occurring.
Stocks for exposure to an age of nuclear power
Some of these companies are purer plays on nuclear power than others but the future success of all will be heavily influenced by the sector’s growth and their role in it.
Rolls-Royce
The British engineering company and FTSE 100 constituent Rolls-Royce is best known as a defence and aerospace company that makes most of its money from selling and maintaining jet engines to both the civil and military aviation sectors. However, nuclear power looks set to become a major part of its business over the next decade and beyond.
It is developing small modular reactors (SMRs) that are around the size of two football pitches – about a tenth of the size of a normal plant – and could power a million homes, or a city around the size of Leeds.They are expected to cost around £2 billion each and are seen as quicker to build and more flexible than full-scale nuclear reactors.
Rolls-Royce plans to develop as many as 16 of these stations around the UK by 2050 and would also expect to make inroads into a global market worth $250 billion.
The Rolls-Royce share price has taken a battering in recent years after it was hit hard by the Covid-19 pandemic’s impact on civil aviation. The company had to raise considerable funds from investors to maintain solvency but now has a strong cash position and should also benefit from the increased military spending that has resulted from Russia’s invasion of Ukraine.
More cautious investors might consider it still too early to invest in Rolls-Royce for exposure to a growing nuclear power sector and prefer to wait until it signs its first contracts to build its SMRs. But for those willing to take on some risk, the company’s currently depressed valuation could be seen as a good entry point ahead of a potential atomic windfall.
Yellow Cake
London-listed Yellow Cake offers investors direct exposure to uranium, the radioactive material that fuels nuclear power plants. Despite the stock market carnage this year, Yellow Cake is up almost 16% over 2022 to date.
Yellow Cake owns physical uranium and is a bet the nuclear power commodity’s value rises if demand increases in future years.
Geiger Counter
Another London-listed stock for nuclear power sector exposure is the Geiger Counter Investment Trust, which invests in uranium stocks and offers investors more diversified exposure to the raw material that powers nuclear reactors. While it is down around 10% year-to-date and by almost 23% over the past 12 months, Geiger Counter has simultaneously seen NAV growth of 31% suggesting it may well be currently undervalued and a victim of wider negative market sentiment.
UK-listed alternatives for nuclear power investment exposure
Several other UK stocks provide engineering support and related services to the nuclear industry. These include James Fisher, which focuses on testing and analysis as well as specialist equipment, and Babcock which has worked on nuclear decommissioning at Sellafield and has been a major supplier of services to the UK nuclear sector since the 1950s.
Another stock with diluted exposure to the nuclear power sector is the specialist engineer IMI, which around 50% of the world’s nuclear power plants rely on for critical valve technology/
In the small cap space, Goodwin produces various components for the nuclear sector including primary pump casings for nuclear reactors.
Cameco
For international exposure, Canada’s Cameco is worth a look. It is the largest listed uranium miner in the world and the second largest producer overall, second only to Kazakhstan’s state-run Kazatomprom. Its share trade on both the Toronto Stock Exchange and New York Stock Exhange.
The company has lost around 20% of its value over the past 12 months with the recent sell off coming after Cameco announced it is to take a stake in Westinghouse, a new electric company. That provides diversification but also gives Cameco a more complex profile.
However, if uranium prices stay solid or rise over future years, the company will be well positioned to benefit and there is an argument the stock currently looks cheap.
Nuclear Power ETFs
ETFs can be a convenient and often cheap way to gain diversified investment exposure to a sector and there are several ETFs that focus on nuclear power. The three biggest are:
- Global X Uranium ETF
- Sprott Uranium Miners ETF
- VanEck Uranium+Nuclear Energy ETF
The above is by no means an exhaustive list of potential options for investors targeting exposure to a predicted golden age for nuclear power. However, they are a good starting point to research into the choices available.
