Meeting the world's growing energy needs

As the world grapples with the need to transition to cleaner energy sources, the debate around the most viable alternatives intensifies.

Solar, wind, and hydrogen present promising renewable options but face challenges of intermittency, infrastructure needs, and production costs. Traditional fossil fuels, despite their established infrastructure and economic benefits, pose potential environmental risks as they relate to carbon emissions.

At first glance, nuclear power and renewables seem to be worlds apart. Wind and solar energy are decentralised and variable, whereas nuclear power is centralised and stable. However, both share a critical trait: they are low-carbon and vital to the energy transition.?

Uranium, the key fuel for nuclear power, offers a robust solution to meet growing energy needs while addressing environmental concerns. Europe, China, and Japan are increasingly turning to uranium as a critical component of their energy strategies.

France, which has safely generated most of its electricity through nuclear fission for years, plans to build at least six and possibly up to 14 new nuclear power stations. India aims to construct at least 18 by the early 2030s, and China plans to build at least 100 new reactors by 2035.

The push back on renewables

Australia tends to lag behind the US and Europe in political trends. The Australian Greens Party seems to be banking on this trend with their new “No coal. No Gas. No Nuclear” campaign, following the Coalition’s support for domestic nuclear power development.

However, a "greenlash" is brewing as voters in developed countries realise that renewables may not be all that that they're cracked up to be. The clever branding of wind and solar power as “renewable” is losing its charm, given that their infrastructure requires more frequent replacement than nuclear or fossil fuel power stations.

In the US, support for nuclear energy rose from 43% in 2020 to 57% in 2023, according to Pew Research published last August. The prospect of even higher energy prices, amid a general rise of at least 20% in overall prices and even more in house prices will likely prove to be politically toxic.

The number of nuclear reactors in the US, which supply about 20% of the country’s electricity, has fallen from a peak of 111 in the late 1980s to 93. However, as anti-nuclear hysteria fades, more reactors are being proposed. The Biden administration now sees nuclear power as the only realistic way to provide reliable zero-carbon energy.

Regarding safety, more people tragically died in a South Korean electric battery manufacturing plant last week (at least 22) than in nuclear power-related accidents since the poorly managed Chernobyl disaster in the 1980s.? People who grew up near Sydney’s Lucas Heights reactor know nuclear power can be very safe.?

Net zero by 2050 'an illusion?'

The goal of achieving “net zero” by 2050 is an illusion, according to Canadian scientist Vaclav Smil in a recent essay.? The transition hasn’t even started despite trillions spent. “Since the world began focusing on ending fossil fuel combustion, we have not made the slightest progress towards absolute global decarbonisation,” he points out.

Since 1997, fossil fuel consumption has increased by 55% in absolute terms, with its share only dropping from 86% to 82%. “All we have achieved halfway through the grand global energy transition is a small relative decline,” Smil writes.

For affluent nations to meet the net-zero carbon goals outlined in international treaties, they would need to commit to annual expenditures of at least 20% of GDP for decades - more than the Soviet Union spent during its struggle against Germany in World War II.

The International Energy Agency notes that more than 80 million kilometers of new transmission lines (equivalent to redoing the entire global grid) would need to be built by 2040.

Europes Energy Strategy

The Russia-Ukraine conflict has significantly influenced Europe's energy strategy, prompting the EU to launch the REPowerEU Plan . This nearly €300 billion initiative aims to eliminate dependence on Russian fossil fuels by 2027. Central to this strategy is the pivotal role of nuclear power in ensuring energy security and advancing the transition to a low-carbon economy.

Nuclear energy is at the forefront of the EU’s plan to secure energy supplies and meet climate targets. One of the key components is fossil-free hydrogen, produced using nuclear power, which is expected to replace natural gas in various applications.

Currently, nuclear power is a major contributor to the EU's energy mix, generating electricity in 14 out of the 27 member states. It accounts for 25% of Europe's electricity and 50% of its low-carbon electricity .

At the COP28 conference in late 2023, a coalition of 20 countries, led by French President Emmanuel Macron and US Special Presidential Envoy for Climate John Kerry, pledged to triple global nuclear energy capacity by 2050 , a crucial step toward achieving net-zero carbon emissions.

Among those leading the charge for nuclear energy is France, which leads the world in generating approximately 70% of its electricity from nuclear power. The country plans to extend the life of its existing reactors and invest in new ones to ensure energy security and meet its carbon reduction targets.

The UK is also expanding its nuclear capacity with projects like Hinkley Point C, a new nuclear power station under construction. The UK government views nuclear energy as essential for achieving net-zero emissions by 2050.

China's Nuclear Expansion

Likewise, China is rapidly expanding its nuclear power capabilities as part of its broader strategy to reduce air pollution and reliance on coal.??

China is developing 36 new reactors and is projected to surpass France as the world’s largest nuclear power source by the end of the decade, according to Bloomberg . Despite this significant progress, the country’s rapid adoption of solar and wind energy has largely overshadowed its nuclear advancements.

However, solar and wind technologies, while renewable, have the drawback of generating electricity only at specific times, creating challenges for China's power grids, which are already struggling with intermittent generation. In contrast, nuclear power provides reliable, around-the-clock electricity, seamlessly integrating into the grid and replacing gas and coal-fired power.

China can construct reactors at a fraction of the cost compared to countries like France and the US, partly due to low lending rates from supportive state-owned banks. Additionally, China employs smart construction strategies, prioritising the development of multiple reactors of the same design. This approach builds a skilled workforce and a ready supply chain, reducing both time and costs.

Japan's Nuclear Revival

Japan's relationship with nuclear power is complex, especially following the Fukushima disaster in 2011. However, nuclear energy remains a critical part of the country's energy strategy.

Japan is poised to advocate for increased nuclear power in its upcoming energy policy update, scheduled for next year. This move aims to ensure a stable electricity supply amid rising demand and escalating geopolitical risks, though experts believe Japan may struggle to meet its targets.

Following the Fukushima disaster, Japan drastically reduced its reliance on nuclear energy, turning to fossil fuels, which now account for 70% of its electricity generation. This shift occurred even as the country committed to achieving net-zero carbon emissions by 2050.

However, in light of 2022's coal and gas price spikes and supply disruptions caused by Russia's invasion of Ukraine, the Japanese government seeks to bolster its use of nuclear energy alongside wind and solar power to maintain a stable energy supply.

An increased reliance on nuclear power by Japan, the world's second-largest importer of LNG and a significant buyer of thermal coal, will impact fossil fuel exporters like Australia, Qatar, the US, and Indonesia.

The government projects that Japan may need to boost power output by up to 50% by 2050 to meet rising demand from semiconductor manufacturing plants and data centres.

Global shifts in Uranium Demand

The United States recently cut off Russian uranium imports as part of sanctions over the Ukraine invasion. This move, coupled with similar considerations by other nations, underscores the shifting dynamics in the uranium market.

Moreover, the US is among 27 nations committed to ramping up nuclear energy. US Energy Secretary Jennifer Granholm highlighted the nation’s new era of nuclear energy, the largest source of carbon-free electricity. The US plans to invest up to $900 million to accelerate nuclear deployment, expand small modular reactors, and deliver clean energy to more Americans. To support this, the US aims to source nuclear fuel both domestically and from allied nations.

Opportunities for Australian Uranium

Australia, a key US ally, possesses the world’s largest proven economic uranium reserves. This positions ASX uranium stocks for significant opportunities. US congressman Neal Dunn has previously questioned Australia's stance on uranium, emphasising the commercial potential due to its abundant resources and expertise.

The political landscape in Australia is evolving. Opposition leader Peter Dutton and the Coalition advocate for substantial investment in nuclear plants, despite strong opposition from the Labor government. If Australia were to relax its restrictive policies on uranium exploration and mining, it could unlock substantial gains for ASX uranium stocks.

Investment Insights and Market Potential

Morgan Stanley predicts a substantial "nuclear renaissance," estimating a need for $1.5 trillion (AU$2.3 trillion) in investment by 2050. According to analyst Shannon Sinha, easing Australia's restrictions could lead to significant benefits for ASX uranium stocks like Paladin (ASX:PDN). Morgan Stanley projects that Paladin’s share price could surge to $32.00, a 142% increase from its recent closing price of $13.24, if the government’s stance changes.

With the global push towards nuclear energy and shifting geopolitical dynamics, ASX uranium stocks are poised for growth. Policy changes in Australia could further enhance their potential, making them a promising investment in the evolving energy landscape.

Global initiatives to reduce carbon emissions will see uranium and nuclear adoption rise as a crucial power source to facilitate the clean energy transition. The case for uranium today is perhaps the strongest it’s been in a decade driven by increasing global demand and nuclear power capacity.

As the world seeks carbon-free baseload power, the demand for uranium is projected to outstrip supply through to 2040, according to the World Nuclear Association . This trend bodes well for ASX uranium stocks, especially as geopolitical shifts and policy changes favour the sector.

Do not hesitate to contact me if you would like more information regarding funds that provide exposure to leading global companies involved in the mining, exploration, development and production of uranium and modern nuclear energy, or if you are looking to invest in uranium stocks directly.

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