Investment Idea

Buy nuclear power with just one single transaction

Mikael Syding
03/03/2022 | 5 min read

You are often told that something is the "only solution" to a problem. That's never true. There are always other solutions that can replace or complement existing methods. Climate activists are shouting hoarsely that the only solution is to ban plastic straws or reduce carbon dioxide emissions, perhaps even that the "only solution" is to produce and consume less. Of course, this is not true, but it takes vision and innovation not to get caught up in a Malthusian view.

You are often told that something is the "only solution" to a problem. That's never true. There are always other solutions that can replace or complement existing methods. Climate activists are shouting hoarsely that the only solution is to ban plastic straws or reduce carbon dioxide emissions, perhaps even that the "only solution" is to produce and consume less. Of course, this is not true, but it takes vision and innovation not to get caught up in a Malthusian view.

Nuclear power is not the only solution either. On the other hand, nuclear power will for the foreseeable future be part of the solution to humanity's need for energy for increased prosperity, quality of life and the implementation of technologies for reduced harmful environmental impact. Today, about 80% of energy comes from fossil fuels (oil, natural gas and coal). Only the last small fifth comes from sustainable sources such as solar, wind, water and nuclear power. A fairly large proportion of it also comes from the combustion of biomass (wood and biofuel).

Storage solutions is the key to a transition to renewable energy sources such as solar, wind and water. However, it will take many years, probably several decades, to expand both solar and wind farms on a large scale at the same time as the storage infrastructure catches up with the development. A solar power park must be oversized for its area of use to suffice during seasons with less sun, days with less sun and time of day with weaker sun. When the sun is shining brightly and the demand is lower than the production capacity, the surplus must be stored in order to be able to be taken out during the night, and supplement the production during the hours with weaker sun. In a way, the energy produced during the surplus hours can be considered free - it must be stored or disposed of if it is not in demand at the time. This is the “free” aspect on which the LDES Council is based. The council includes i.a. Alfa Laval, Microsoft, Google and Swedish Azelio, as well as companies such as Siemens, BP and Shell. Renewable energy storage is simply a very important part of a better future for humanity.

It is still not the only solution, not least because it takes too long to expand wind power and solar energy parks, not to mention the storage solutions. There are not enough battery factories even to satisfy the transition to electric cars, let alone large-scale power grid storage that shifts energy from day to night or from wind to calm. Furthermore, the production of batteries and wind turbines is extremely China-dependent, where the key materials, anode graphite and rare earth metals are partly refined with great environmental impact, and the rest of the world is held hostage as China controls 90-100% of exports. From that aspect, lithium-ion batteries, electric motors and wind turbines are almost comparable to oil from dictatorships, from an environmental as well as a safety aspect.

During the cold winter and then the Ukraine war, not least Germany has experienced the costs of being dependent on Russian hydrocarbons, and then not even the environmental issue has been taken into account. If Germany had instead taken the advice of the smart French who for a long time strategically expanded their nuclear power capacity, they could have saved both money and global warming. France houses more than 10% of the world's total number of nuclear power plants (about 50 out of 450 reactors), and although more than 70% of France's electricity production comes from nuclear power, further expansion is planned. It's really smart. Not least climate-smart. For the time being, nuclear power is a prerequisite for being able to expand solar and wind power without at the same time being forced to invest capital in storage solutions. If you have a secure basic supply in the form of nuclear power, where production can be adapted to demand, the need for storage solutions decreases dramatically. Thus, to begin with, you can mainly spend the money on expanding the renewable electricity production itself, and let the storage solutions lag behind a bit.

Until the Ukraine war, Germany and the United States, as well as Japan, have been restrained in the nuclear issue. But apart from France, China has big expansion plans. Right now, the country is building almost as many reactors as the whole of France operates. In Europe, there is already a large documented interest in countries such as Bulgaria, Poland, Romania, Slovakia, Hungary and the Czech Republic. More people will follow suit - demonstrate the past year's energy problems, as well as be strengthened by the EU's classification of investments in nuclear energy as sustainable. Maybe even Sweden will follow. Not least the citizens of southern Sweden may be inclined to give their support to a nuclear-friendly party after enduring expensive electricity bills which have also been tarnished by climate change from Polish coal-fired power plants.

No, nuclear power is not the ultimate solution, neither for Germany, France nor Poland. Nuclear power, on the other hand, could be a quite necessary solution over the next few decades' time, in order to stop the harmful effects of oil, coal and gas as quickly as possible and enable a faster expansion of solar and wind power. The financial markets have only just begun to absorb this. The uranium sector still constitutes a vanishingly small part of the total market capitalization, despite the fact that energy is the basis of all other industry. In the coming months and years, several junior uranium mines are expected to reach production status, such as GoviEx, but also a handful of others of significant scope. When an explorer succeeds in switching to a proven producer with actual sales contracts, the market capitalization can sometimes be tenfold.

Furthermore, dozens of new nuclear power plants will start up in the next few years, while existing plants need to fill their stocks, and become increasingly stressed to sign long-term contracts for nuclear fuel when the uranium price continues to trend upwards. In just a few years, the spot price has tripled from 16 to 48 dollars per pound, and many estimate that a price of at least 75 dollars is required to open most existing uranium mines. The latter is needed, and more in addition, to meet the demand from both power plants and uranium investors such as SPUT. The latter has hoarded large amounts of uranium over the past year, and the pace is expected to increase further when SPUT is listed on the New York Stock Exchange, which is expected to happen any month now.

It looks more and more like the next few years will create a perfect storm for green energy and uranium companies. The Ukraine war has only contributed a little to putting the finger on the danger in the short term of relying on someone else's dirty hydrocarbons for their energy. But it can probably be a catalyst for funds to start allocating more serious amounts of capital to nuclear-related companies and build up expertise in the field. Once they have dipped their toes in the sector, I expect that gradually increased knowledge about nuclear power and uranium mines, combined with a kind of official ESG stamp from the EU, will drive a steady stream of new investments in nuclear energy companies such as included in the Vontobel Nuclear Energy Index. Investments in sustainable energy production are the very prototype for long-term responsible investments by, for example, pension funds. As a private investor, you can now obtain a diversified and updated exposure to the sector with a single transaction. Feel free to follow the links to the description of the principles behind the Vontobel Nuclear Energy Index and the included companies.

@Mikael Syding

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.