Canadian uranium producer Cameco Corp. has enjoyed a good run with investors embracing nuclear energy as a key solution to climate change. But can nuclear power live up to growth expectations when wind and solar power are gaining traction and are unequivocally green?
Anything tied to green energy has been surging in popularity over the past year – partly because the United States has a new president who takes climate change seriously and partly because the declining cost of producing wind and solar power is driving tremendous growth opportunities for renewables.
The iShares Global Clean Energy ETF, which serves as a good proxy for the green trend, has risen 130 per cent over the past 12 months.
Whether nuclear power deserves to be included in this green wave is a thorny issue: It depends on whether you focus on the relatively clean emissions or decidedly unclean radioactive waste.
Sustainalytics, which provides research and ratings on environmental, social and governance factors (ESG), believes nuclear energy has a number of advantages, including a strong overall safety record and low emissions, which figure prominently in the ESG ratings for a number of utilities.
What’s more important to Cameco investors, though, is whether nuclear energy – green or otherwise – is a bet worth making. Since last March, the bet has been a good one: Cameco’s share price has more than doubled from its lows. On Wednesday, after the company reported a fourth-quarter profit that easily beat analysts’ expectations, the shares hit a six-year intraday high of $21.26 in Toronto. They closed at $20.02 Friday.
The next move for the stock is far from clear, though.
The opportunity arises from the fact some forecasts suggest the use of nuclear power, which uses uranium as a fuel source and is generally more reliable than wind and solar power, will expand amid rising global electricity requirements and renewed government commitments to limit carbon emissions.
The International Energy Agency expects the already formidable challenge of meeting Paris Agreement targets on carbon reductions will be far greater without an increase in nuclear power generation.
While its glory years in developed economies may be fading, nuclear power contributes more than 10 per cent of the world’s electricity supply and has appeal in developing countries, where expanding the power grid is key to economic development.
According to the International Atomic Energy Agency, global nuclear electrical capacity could rise as much as 82 per cent by 2050 under a sunny scenario in which policy makers and the public get behind the clean energy source and expand its current footprint.
If not – and this is where the downside for Cameco kicks in – the IAEA expects capacity could shrink by about 7 per cent by 2050, weighed down by the world’s aging fleet of reactors.
While nuclear plants are relatively cheap to operate, they are certainly not cheap to build. Lazard, the asset management firm, has crunched numbers to show the levelized costs of various energy sources, an approach that takes into account the cost to build and maintain an asset over its lifetime. Nuclear is pricey, with an average levelized cost of US$163 a megawatt hour. Wind and solar generally cost far less – about US$40.
Part of the issue here is that the levelized cost of unsubsidized wind and solar energy production has fallen between 70 per cent and 90 per cent since 2009, owing to bigger scale and better technology. The cost to produce nuclear energy, however, has risen 33 per cent over the same period, according to Lazard. No wonder the nuclear industry is busily developing smaller, cheaper reactors.
So where does this leave Cameco investors? The company has trumpeted its contribution to a lower-carbon economy and expects production curtailments will lead to higher prices for uranium. But in the rush for green energy, the case for nuclear remains far from clear.
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David Berman