How to Invest in Nuclear Energy and the Uranium That Powers It - TheStreet

2022-09-17 08:38:39 By : Mr. Bruce zhu

More than 50 nuclear power plants operate in 28 states, but environmental and health concerns are holding back construction of new facilities.

Nuclear energy is energy created via a fission or fusion reaction of atoms. These reactions produce heat that is then used to generate electricity. While nuclear energy is a clean source of power, it is not renewable like solar or wind.

The U.S. is the biggest producer of electricity from nuclear energy, accounting for about a third of the global total, and requires large amounts of uranium to fuel reactors across the country.

As of 2021, there were 93 commercial nuclear reactors at 55 nuclear power plants in 28 states, and the average age of the reactors was about 40 years old, according to the Energy Information Administration. At this age, the conventional wisdom is that new reactors should be built to replace them, but their actual functional lifespan is unknown.

Construction of a nuclear plant can take about five to seven years and can cost billions of dollars, compared to a natural gas-fired facility, which would take about a third of the time and a fraction of the price.

In the U.S., nuclear energy accounted for about a fifth of the total of the 4,116 billion kilowatt-hours produced in 2021, according to EIA data.

Renewables include solar and wind energy, and either of them is eclipsed by nuclear energy in producing electricity.

Uranium and plutonium are the main minerals used in producing a nuclear reaction because they are viewed as easier to control, though uranium is more commonly used. For uranium to be utilized as a fuel, it must go through a process. After the ore is mined, the uranium goes through milling and refining, during which it becomes what’s known as yellow cake. That yellow cake is then mixed with fluoride, and then goes through an enrichment process, and the enriched uranium can be used in the manufacture of weapons or fuel fabrication to power reactors. After uranium fuel is used up, it can either be reprocessed or put into permanent storage.

A nuclear reactor works in the same way that a concentrated solar plant with mirrors or a coal plant does to produce electricity. Uranium is typically placed in metal rods—which are replaced every 12 to 24 months—and these control rods are manipulated to slow or accelerate the reaction. Uranium atoms are split, creating heat, and that heat is used to boil water, producing steam that turns turbines to generate electricity.

Nuclear fission occurs when a neutron splits an atom, and tremendous energy is released. Atoms are split, and neutrons are also released, which then split other atoms, creating what’s known as a chain reaction.

Nuclear fusion occurs when two atoms join together to form a heavier atom. The energy released by fusion is greater than that created by fission. Fusion reactions, though, are more difficult to maintain for a long period of time because massive amounts of pressure and temperature are needed to combine atoms.

According to the World Nuclear Association, Kazakhstan was by far the biggest producer of uranium in 2021, at 21,819 metric tons, followed by Namibia (5,753 tons), Canada (4,693 tons), and Australia (4,192 tons). A total of almost 57,000 tons were produced that year, which was down from a peak of about 74,400 tons in 2016.

The U.S. is far behind internationally in the production of uranium. 

Production of uranium in the U.S. is not enough to meet the needs of nuclear plants in the country. Almost all of the 46.74 million pounds in uranium purchased by owners and operators of nuclear power reactors in the U.S. in 2021 were imported, with just 5 percent sourced from the U.S., based on World Nuclear Association data. Major imports came from Kazakhstan (35 percent), Canada (15 percent), Australia (14 percent), Russia (14 percent), and Namibia (7 percent).

One way to invest in nuclear energy is by focusing on which companies are producing electricity from nuclear energy. Another way is by investing in the companies that are involved in the mining and processing of uranium, similar in the approach to investing in lithium.

Companies that mine in the countries that export the most uranium—Kazakhstan, Canada, and Australia—could be worth watching out for, while those operating in countries where production is increasing are also worth monitoring as annual overall output declines. Below is a graph of 2000-2022 spot and long-term prices compiled by the World Nuclear Association, showing that prices have stabilized in 2022 after peaking in 2007-2008.

Uranium prices peaked in 2007-2008 but have dropped sharply since then.

Screenshot via World Nuclear Association

While spot prices on uranium aren’t readily available in the open market, investors can monitor uranium through stock indexes, ETFs, and individual stocks.

The WNA Nuclear Energy Index tracks listed companies globally that are involved in reactors, utilities, construction, technology, equipment, service providers, and fuels. The index has a large weighting on companies in the U.S., particularly utilities that generate electricity from nuclear power.

The MVIS Global Uranium & Nuclear Energy Index has been tracking companies involved in the uranium and nuclear energy industries since 2006. The weighting of the index is skewed more toward utilities and less toward uranium mining companies.

ETFs’ holdings are generally skewed toward companies that operate nuclear power plants. For example, PNM Resources (NYSE: PNM), a public utility based in New Mexico, operates the largest nuclear reactor in the U.S., near Phoenix.

The VanEck Uranium+Nuclear Energy ETF, for one, holds shares in PNM Resources but also a lot of utilities located in other countries, such as Electricite de France and Korea Electric Power Corporation. American depositary receipts on most of these utilities are available for trading on U.S. stock exchanges.

Power producers such as Duke Energy (NYSE: DUK) count nuclear energy as the biggest source of electricity generation that is carbon-free or has low-carbon emission. But some companies, such as Constellation Energy (Nasdaq: CEG), have plans to decommission nuclear reactors, indicating a reliance on renewables and fossil fuels for power generation.

For a pure play on uranium, the biggest producers of the radioactive material by country are outside the U.S. and consequently some of the largest mining companies are likely to be based abroad. Just a few operate in the U.S. Moreover, there are a limited number of publicly traded companies because some of the largest-uranium producing nations, such as China and Russia, tend to keep production under state control. China has made equity investments in uranium mining companies in other countries such as Kazakhstan.

Some companies involved in the mining and processing of uranium include:

Nuclear energy is viewed as a clean source of power because of its low carbon emissions, but producing nuclear energy—especially with the construction of new reactors—poses challenges due to environmental and health risks from radiation exposure. There has been opposition to the building of new reactors, and some of the older ones are being decommissioned with no plans for replacement.

Nuclear meltdowns at Three Mile Island in 1979, Chernobyl in 1986, and Fukushima in 2011, and the disposal of nuclear waste, have caused the public to grow concerned about the safety of nuclear power plants and have contributed to Americans’ unwillingness or reluctance to embrace nuclear energy.

Despite a slowdown in the construction of new nuclear plants in the U.S., demand for uranium worldwide continues to increase, and uranium prices have stabilized in recent years.

While there aren’t many new reactors planned for construction in the U.S., some countries have plans to build up their nuclear energy infrastructure, and there might be opportunities for investment in companies that build turbines and reactor facilities. Some companies in countries like Thailand and India manufacture parts for nuclear reactors for shipment abroad, but that is a niche market. Some entrepreneurs are planning light commercial use of nuclear reactors for small installations, such as hospitals.

Nuclear energy has proven to be a carbon-free source of power and could help the U.S. and other countries achieve their climate change goals, but widespread safety concerns render the future of nuclear investment somewhat cloudy. 

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