A Resurgence of Nuclear Energy?

The crucial role of nuclear energy

As of 2022, nuclear power was responsible for 9% of global electricity generation and nearly 25% of global, low-carbon electricity generation.¹ Per the International Energy Agency (IEA), in the last 50 years, nuclear energy has averted over 60 gigatonnes of CO2 emissions—approximately equal to two years’ worth of total energy-related emissions worldwide.² Nuclear energy’s consistent power output offers an efficient alternative to traditional fossil fuels and a solution to escalating energy demands, especially in rural regions where access to electricity remains sparse.

Moreover, nuclear plants, unlike intermittent renewables such as wind and solar, maintain nearly full capacity operations. This ensures power delivery even during extreme weather conditions — an increasing concern given that 2023 has been the hottest year on record since the 1890s.

Global Electricity Generation by Fuel (2022)

Source: Energy Institute. Data as of December 2022.

The price of moving away from nuclear

The world's nuclear infrastructure is aging, with many reactors nearing their design end-of-life. The premature decommissioning of these reactors might disrupt energy transition plans, potentially leading to an additional 4 billion tonnes of CO2 emissions, per the IEA.³ Substituting nuclear capacity with renewables like wind or solar would demand an unparalleled deployment pace. The decline in nuclear power could also require an extra $1.6 trillion in investments from advanced economies, translating to higher consumer electricity prices.⁴ Importantly, in many scenarios – on a levelized cost basis over several decades – prolonging a reactor's lifespan is estimated to be more economical than constructing new renewable energy infrastructures.⁵

Innovations in nuclear technologies

The nuclear sector is far from static; it's evolving. The spotlight on technology development in the space is currently on Small Modular Reactors (SMRs) which promise heightened efficiency, affordability, and flexibility. Their compact size and enhanced safety attributes make them highly adaptable, even holding the potential to replace older fossil fuel units. The market for SMRs, at present, is projected to grow to around $6.8 billion by 2030 (around a 2.3% compound annual growth rate), with companies like NuScale Power and BWXT Advanced Technologies at the forefront.⁶

Certain SMR designs have the capability to recycle existing nuclear waste as fuel. Additionally, nuclear fusion, the energy source of the sun and stars, is undergoing intensive research. Companies like Helion Energy and Nucor are collaborating to harness this immense power. And on the tech frontier, giants like Microsoft are exploring nuclear energy to power energy-intensive operations like artificial intelligence.

The current dynamics of uranium pricing

Uranium prices have seen considerable fluctuations recently. Factors like long lead times for mining projects, reduced capital expenditure on new sources, existing supply deficits, and geopolitical tensions, notably in Europe, have driven prices upward.⁷ These dynamics are influencing the broader industry. Utility companies are grappling with escalating costs, whereas uranium miners are poised to gain, attracting increased investor interest.

Uranium Exploration Budgets ($M)

Source: S&P Global Market Intelligence. Data as of October 2022.

Uranium Supply Surpluses and Deficits

Source: S&P Global Market Intelligence. Data as of October 2022.

The path forward

A glance at Japan provides a lens into the evolving nuclear narrative. After the Fukushima disaster, Japan curtailed its nuclear operations. However, faced with the global energy crisis and geopolitical tensions, such as the Russia-Ukraine war, Japan is reviving its nuclear reactors, marking a significant policy pivot. Other nations like Germany, Belgium, and India are also re-evaluating their nuclear strategies. As countries grapple with energy security and decarbonization, nuclear energy, with its promise of reliability and zero emissions, is regaining prominence.

Bottom line

The drive towards decarbonization, coupled with geopolitical shifts, has elevated nuclear energy's significance in the energy transition narrative. Despite the promising investment prospects, especially with advancements in nuclear technologies and energy policy reformation, the sector is not without its challenges, such as:

• Uranium Price Volatility: Miners must navigate fluctuating uranium prices which directly impact revenues.
• Developmental Hurdles: Utility companies could face unforeseen costs and delays in reactor projects.
• Policy Shifts: Regulatory changes, particularly after major events or the emergence of alternative technologies, can transform the industry.

Given these challenges and the evident opportunities, particularly with nuclear technological advancements and policy transformations, investors should tread carefully, measuring potential rewards against the inherent risks.

VanEck Uranium and Nuclear ETF (NLR)

VanEck Uranium and Nuclear ETF (NLR) offers exposure to a pivotal segment of the clean energy sector, addressing the growing demands associated with combating climate change. This passively managed fund tracks the MVIS^® Global Uranium & Nuclear Energy Index (MVNLRTR). It encompasses companies throughout the uranium and nuclear energy spectrum, from uranium mining to electricity production, as well as suppliers and service providers. By doing so, the Index balances the stability of utility companies with the dynamism of uranium mining entities.

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