It is important for investors to stay well ahead of the shock waves emanating from Japan’s worsening nuclear crisis. Mainstream media are focusing on the spread of radiation and the dramatic efforts to contain the Japanese disaster. But, as an investor, I’m looking ahead at the economic effects on the energy front.
I believe that it is fair to say the world is entering a nuclear winter. That means a very dramatic reduction in nuclear reactor construction and planning.
It goes without saying that the climate for the construction of new nuclear plants in the United States has entered a deep freeze. It is hard to imagine the American public warming up to nuclear power again until years after the Japanese disaster has been fully contained and made safe. And that’s not happening anytime soon.
Sadly, Japanese officials have minimized the nuclear crisis from the very beginning. But over the weekend they did concede that it will take months to stop the leakage of radioactivity from the stricken Fukushima plant.
During these coming months it is a certainty that increased radiation will appear virtually everywhere on the planet. It will appear in milk. It will appear in the global food supply. The amounts of radioactivity may be very small by industry standards. But that won’t make the public any less sensitive or alarmed.
In a nutshell: “Should any nuclear accident happen somewhere in the world, it becomes an accident of the whole globe.”
That’s not Greenpeace talking. It is Tetsuya Endo, the former governor of the International Atomic Energy Association (IAEA) in an interview with the Asia Times. In a masterpiece of understatement he said, “The nuclear renaissance will diminish.”
That’s putting it mildly.
Nuclear Winter or Ice Age?
How long and just how extensive will the coming chill on global nuclear energy be? Last January we published a list of the most optimistic estimates for future nuclear construction. Taking the U.S. out of the mix, one fact pops out.
Maximum Outlook for Nuclear Construction Pre-Japan
(not including all countries)
The overwhelming importance of China to the nuclear energy industry is obvious. More than half of the world’s future nuclear reactors were to be built there. A change in direction would have global consequences. Well beyond industries related to nuclear power, the conventional energy industry will also be affected in a major way.
Currently China has 13 active nuclear reactors. Beijing has approved the construction of ten more nuclear power plants. In addition, 25 nuclear power plants are already under construction.
Sixty more reactors were planned as part of China’s investment of more than $120 billion by 2020 to boost nuclear power generation. I believe that China is about to put the brakes on nuclear expansion.
Officially China still says: “Nuclear safety standards will be reinforced, but China’s plan for nuclear power remains unchanged”. But China’s energy future remains under review and officials say they will settle for nothing less than a 100 percent safety guarantee. That leaves lots of room for change.
Reports from China indicate that many landlocked provinces have not welcomed Beijing’s plans to populate the nation with nuclear reactors. Now the Fukushima disaster has made it clear how important large amounts of water are in case of emergency. Interior regions are reportedly alarmed at the prospect of nuclear plants in relatively dry or quake-prone areas.
Signs of a major shift in Chinese energy policy have filtered out in recent days. As most energy investors know, China has taken a global lead in renewable energy by doling out massive loans to wind and solar power companies. The problem has been the relatively high cost of energy from these sources.
In a dramatic stroke of centralized government power, Beijing has dealt with the problem. China now plans to raise the price of power generated from “renewable sources” over the next two years in order to stimulate clean energy investment.
The clean energy surcharge will raise the price of renewable power by 50 percent. What’s more, Chinese consumers have no choice but to use all of the “clean” power that the country produces. China’s renewable energy law requires power companies to buy all the electricity produced by renewable sources and allows them to pass on additional fees to buyers.
A Quantum Shift in Energy
Nuclear power plant exporters including the U.S., France, Canada, Russia, Japan and South Korea are suddenly facing very severe global headwinds. Germany stands out as a good example of what is likely to happen in many industrialized countries.
Germany’s Chancellor, Angela Merkel, has been forced to abandon her pro-nuclear position. She has suspended plans to extend the lives of the nation’s seventeen nuclear plants. And she has ordered the closure of all seven nuclear plants that began operating more than thirty years ago.
In the U.S. we are hearing increasingly frequent stories about the possible dangers of a nuclear accident from existing reactors in this country. Many of the reactors now operating are of the Mark I design which has become notorious during Japan’s crisis. Renewal of their operating licenses could become as controversial as any attempt to build new reactors on U.S. soil.
But here is the problem. Hundreds of new nuclear reactors were already built into global plans for future electricity generation. There’s no telling how many proposed plants will be canceled and how many existing plants will eventually be mothballed. The number will likely be large and that means a quantum change is in the wind for the energy sector.
Wind and solar power won’t get a huge boost in the U.S. without major government subsidies. But that seems unlikely in today’s fiscal environment.
In the short run, burning more coal for energy seems inevitable. That’s why we’ve seen shares in many of the nation’s coal producers rising in value.
The next generation for clean energy in the United States may be natural gas. I’m going to be investigating all aspects of the natural gas industry for future growth potential. That includes gas producers, pipeline companies, and natural gas generator manufacturers.
Change is inevitable. Keep watching this column as I search for new energy investments that may gain as the world becomes increasingly suspicious of nuclear power.
Related Tickers: Powershares Glob Nuc Energy ETF (NYSE:PKN), iShares S&P Global Nuclear Index Fd ETF (NASDAQ:NUCL), U.S. Natural Gas ETF (NYSE:UNG), First Trust ISE Revere Natural Gas ETF (NYSE:FCG), Market Vectors Nuclear Energy ETF (NYSE:NLR), Global X Uranium ETF (NYSE:URA).
Jim Trippon, founder of Trippon Financial Media, Inc., is a maverick that has dedicated his investment career to helping investors make smarter financial and stock selection decisions. Trippon, an internationally recognized expert on global and value investing, has a deep passion for finding hidden value in global equity markets. Trippon started his career as a financial statement examiner with Price Waterhouse which allows him to dissect a public company’s financial picture and better identify hidden gems. Trippon’s savvy approach to investing and personal finance makes him in high demand by major media who seek his unique perspective on stocks and global economics. He has been featured in top publications both in the US and abroad including Bloomberg, Investor’s Business Daily, The New York Times, The International Herald Tribune, Stock Futures and Options Magazine, The Bull and Bear Financial Report and he regularly appears on broadcast television including as an on air contributor to CNBC, CNN, Fox Business, and Fox News.
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