As the world’s energy needs amplify, volatility in oil and gas continue to prevail and rising concerns over global warming loom on the political forefront, there are numerous reasons to keep an eye on nuclear energy.
According to the Nuclear Energy Agency (NEA), global demand for electricity is expected to rise by 2.5 times over the next 40 years and is suggests that nuclear energy should be the answer to this uptick in demand. In fact, the NEA has forecasted the number of nuclear reactors worldwide to grow 600 and 1,400 by 2050, translating into a necessary investment of between $680 billion and $3.9 trillion. One major driver behind this belief is that at current utilization rates, nuclear energy generates nearly 15% of all global electricity. In some countries, nuclear energy plays a much more significant role in providing electricity-in France, the country with the second largest number of nuclear plants, 80% of all electricity is generated via nuclear reactors.
A second reason to consider nuclear energy is its eco-friendliness. Nuclear energy doesn’t produce carbon dioxide like its fossil fuel competitors. This is important because nearly every nation in the world is focusing on reducing greenhouse gases.
Thirdly, nuclear energy is receiving wide range global political support. President Obama recently launched a federal program which gives $8.3 billion worth of loan guarantees for funding the construction of two new nuclear reactors and is expected to seek an additional $46 billion in his budget request for the coming year. Additionally, Vladimir Putin has pledged that Russia would boost nuclear-energy use on its soil and is putting away $6 billion for the cause. Similar trends have been seen in Asia, as China is expected to have as many as 150 new nuclear power reactors become operational over the next 10 years and India plans on doubling the share of nuclear power on its grid to greater than 8% over the next 20 years.
Fourthly, the use of nuclear energy seems to make economic sense. Granted, the initial construction costs of a nuclear plant are huge, but the ongoing maintenance and fuel costs have proven to be far lower than that of other energy sources. Additionally, new nuclear power plants seem to have a longer life-span of nearly 60 operational years compared to 30 or 40 of older ones.
In a nutshell, nuclear energy offers economic, political, social and scientific reasons why it is a viable source of energy and is likely to be an answer to the expected supply and demand imbalances that the energy sector is likely to see in the near future.
Three ways to play nuclear energy include:
- PowerShares Global Nuclear (PKN) which has 63 holdings, carries an expense ratio of 0.75% and includes companies that are involved in uranium mining.
- Market Vectors Nuclear Energy (NLR), which has 23 holdings and carries an expense ratio of 0.61%. NLR includes utility services holdings like Constellation Energy (CEG) and Exelon Corporation (EXC) who are involved in the generation, transmission, distribution, and sale of electricity to residential, commercial, industrial, and wholesale customers.
- iShares S&P Global Nuclear Energy (NUCL), which has 23 holdings, carries an expense ratio of 0.48% and gives one global exposure to nuclear energy. Its top holdings include nuclear energy and uranium mining company Cameco Corporation (CCJ) and power generation systems firm McDermott International (MDR).
Although an opportunity seems to present itself in nuclear energy, some concerns that could put a damper on its future include the absence of a stable and lasting strategy for nuclear waste management, and a potential weakness in credit markets as the result of the sovereign debt crisis.
To help mitigate the effects of these threats, the use of an exit strategy which identifies price points at which systemic risk may push values down is important. Such a strategy can be found at www.SmartStops.net.