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Outside the Box: Nuclear power is hardly the preferred alternative to oil, coal and other fossil fuels, which only makes these U.S. energy stocks more attractive

Global economies are beginning to transition away from carbon-based energy sources. But it’s increasingly obvious that renewable sources such as wind and solar are simply not enough to satisfy America’s need for energy. Despite their significant environmental benefits, renewable power sources have some serious limitations.

The solution? Nuclear power. Nuclear is a safe, reliable, efficient and environmentally friendly power source that can supplement renewable options.

Nuclear power is controversial, but that is changing. The 2022 Inflation Reduction Act (IRA) contains several provisions to help improve the competitiveness of nuclear power, incentivize investment in new facilities and upgrade existing plants in the U.S.

Limitations of renewable energy

Renewable power sources have two primary limitations: intermittency and energy storage. Inevitably, there will be days when the wind doesn’t blow or clouds starve solar panels of sunlight. While advancements in battery technology have helped renewables narrow the gap between their intermittency and the need for reliable and consistent power, even the most advanced batteries don’t have enough capacity to account for demand surges from adverse weather.

Nuclear plants, in contrast, run effectively around the clock at high utilization rates and are designed to require refueling only every 18- to 24 months, surpassing the capacity utilization of coal or natural gas generators, which require more frequent refueling and maintenance.

For example, Constellation Energy Corp.
the largest nuclear power company in the U.S., has operated its nuclear fleet more than 94% of the time from 2013-2022, exceeding the 55%, 54%, 37% and 27% average utilization rates of natural gas, coal, wind and solar generators, respectively.

In the U.S., less than 20% of electricity comes from nuclear power. There were 93 commercial nuclear power reactors operating across 55 sites in 28 states as of October 2021, the most recent information available from the NRC.

Safety concerns

While nuclear-power plant disasters including Chernobyl, Three Mile Island and Fukushima loom large, the actual human costs pale in comparison to the historical death toll from the extraction and refinement of traditional fossil fuels.

There were 32 nuclear fatalities globally from 1945-2007, excluding Chernobyl, with 24 deaths related to military nuclear weapons programs rather than civilian power production. The U.S. departments of Labor and Transportation reported a total of 37 mining- and 11 pipeline-related fatalities in 2021 alone.

The safety of nuclear becomes even more evident when considering the estimated fatalities stemming from the effects of air pollution generated by other energy sources. British medical journal The Lancet estimates that air pollution causes in excess of 6.5 million deaths globally each year, and this number is increasing. 

The total death toll from Chernobyl, including first responders and clean-up workers, was 30 people, according to a 2008 United Nations report. Neither the Three Mile Island nor Fukushima meltdowns resulted in any direct deaths. Fortunately, the industry has learned from these situations, retrofitting existing plants and designing future plants to account for such extreme scenarios.

In addition to worries about meltdowns, Americans’ resistance to nuclear facilities is often driven by concerns about radioactive waste, the byproduct of nuclear fission. People may not realize that waste products have been safely stored at nuclear facilities, without issue, for decades. In the 70+ years since the first U.S. nuclear plant began operating, the total radioactive waste generated by all U.S. nuclear plants amounts to about 90,000 metric tons. If assembled and stacked together, the entirety of the country’s nuclear waste could fit on a single football field at a depth of less than 10 yards.

In reality, the two biggest problems preventing the expansion of nuclear power are cost and schedule overruns. For example, Plant Vogtle, a project under construction near Waynesboro, Ga. for use by Georgia Power, is expected to cost more than twice its initial $14 billion estimate, and the completion date is still uncertain. The first new nuclear project in the U.S. in more than 30 years, it was directly responsible for the bankruptcy of Westinghouse Electric Co.

Moving forward

Despite these headwinds, the long-term prospects for nuclear energy are strong. For starters, policymakers and investors now acknowledge the benefits of nuclear power, and are devoting greater research and resources into its development as a sustainable solution.

Plus, new production tax credits provide up to $15 per megawatt-hour (MWh) subsidies through 2032 to help existing nuclear plants remain competitive with more technologically up-to-date electricity generators. With the average age of U.S. nuclear plants exceeding 40 years, the law attempts to incentivize new infrastructure investing by offering a tax credit equivalent to 30% of the capital cost of constructing nuclear plants.

The most direct way investors can capitalize on the advantages accruing to the industry is to invest in nuclear-operating power utilities. In addition to Constellation Energy, two other utilities that use nuclear power are Vistra Corp.

and NRG Energy
Both should be significant beneficiaries of increased subsidies as well as investment and innovation in nuclear power over the coming decades.

Reed Cassady, CFA, is a director and portfolio manager at ClearBridge Investments, a subsidiary of Franklin Templeton. ClearBridge has investments in Vistra, Constellation Energy and Southern Company

Cassady personally owns shares of Vistra and Cameco Corp.

His predictions are not intended to be relied upon as a forecast of actual future events or performance or investment advice. Past performance is no guarantee of future returns.

More: NRG Energy stock charges higher to pace S&P 500 gainers after BofA turns bullish

Also read: Climate tech risked becoming banking-crisis casualty. What’s next for solar, batteries and more?

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