With every passing day, our core thesis set here last December that uranium stocks are poised for a historic surge (see "Uranium Stocks Soar: Is This The Beginning Of The Next ESG Craze"), is getting closer to widespread adoption, and today uranium stock spiked to a fresh multi-year high
The reason behind the latest spike is a report that in a world where ESG is all the rage, and the transition from coal to cleaner sources of energy is paramount, China has emerged as "the world’s last great believer" in nuclear power "with plans to generate an eye-popping amount of nuclear energy, quickly and at relatively low cost."
As Bloomberg reports, China has over the course of the year "revealed the extensive scope of its plans for nuclear, an ambition with new resonance given the global energy crisis and the calls for action coming out of the COP26 Climate Summit in Glasgow. The world’s biggest emitter, China’s planning at least 150 new reactors in the next 15 years, more than the rest of the world has built in the past 35."
And while this information was publicly available, it wasn't until today's extensive report from Bloomberg that traders finally paid attention.
The effort, which could cost as much as $440 billion and which by the middle of this decade could see China surpass the U.S. as the world’s largest generator of nuclear power, would mean an unprecedented scramble to secure uranium raw materials, including yellow cake, oxide and so on.
To be sure, Beijing has never been shy about its interest in nuclear, along with renewable sources of energy, as part of President Xi Jinping’s goal to make China’s economy carbon-neutral by mid-century. But earlier this year, the government singled out atomic power as the only energy form with specific interim targets in its official five-year plan. Shortly after, the chairman of the state-backed China General Nuclear Power articulated the longer-term goal: 200 gigawatts by 2035, enough to power more than a dozen cities the size of Beijing.
What makes China's nuclear ambitions so appetizing to uranium investors is that unlike other countries, it can actually achieve them:
It would be the kind of wholesale energy transformation that Western democracies — with budget constraints, political will and public opinion to consider — can only dream of. It could also support China’s goal to export its technology to the developing world and beyond, buoyed by an energy crunch that’s highlighted the fragility of other kinds of power sources. Slower winds and low rainfall have led to lower-than-expected supply from Europe’s dams and wind farms, worsening the crisis, and expensive coal and natural gas have led to power curbs at factories in China and India. Yet nuclear power plants have remained stalwart.
“Nuclear is the one energy source that came out of this looking like a champion,” said David Fishman, an energy consultant with The Lantau Group. “It generated the whole time, it was clean, the price didn’t change. If the case for nuclear power wasn't already strong, it’s a lot stronger now.”
It may not have changed much until now, but as demand for nuclear surges, we would expect a gradual increase in baseline prices as operators pass through costs.
By ramping NPP production, China would kill two birds with on stone: not only would it boost its GDP, but it could also deflect criticism that it hasn't done anything to offset it massive CO emissions. China says its plans could prevent about 1.5 billion tons of annual carbon emissions, more than what’s generated by the U.K., Spain, France and Germany combined. For those who see nuclear power as critical to weaning off planet-warming fuels like coal, it’s a wildly exciting experiment at a scale proportional to the problem.
China’s ultimate plan is to replace nearly all of its 2,990 coal-fired generators with clean energy by 2060. To make that a reality, wind and solar will become dominant in the nation’s energy mix. Nuclear power, which is more expensive but also more reliable, will be a close third, according to an assessment last year from researchers at Tsinghua University.
According to Bloomberg, other countries would have to stretch to afford even a fraction of China’s investments. But about 70% of the cost of Chinese reactors are covered by loans from state-backed banks, at far lower rates than other nations can secure, said Francois Morin, China director at the World Nuclear Association.
That makes a huge difference because most of the cost of atomic energy is in upfront construction. At 1.4% interest, about the minimum for infrastructure projects in places like China or Russia, nuclear power costs about $42 per megawatt-hour, far cheaper than coal and natural gas in many places. At a 10% rate, at the high end of the spectrum in developed economies, the cost of nuclear power shoots up to $97, more expensive than everything else.
“People say nuclear is expensive in the West, but they forget to say it’s expensive because of interest rates,” Morin said.
While China keeps the exact costs a state secret, analysts including the World Nuclear Association estimate China can build plants for about $2,500 to $3,000 per kilowatt, about one-third of the cost of recent projects in the U.S. and France.
The 2035 goal of an additional 147 gigawatts would cost between $370 billion and $440 billion, a potential windfall for investors in CGN Power Co., China National Nuclear Power Co., and China Nuclear Engineering & Construction Corp. As it is, shares in listed units of all three state-owned companies are up between 19% and 43% since August, compared with a 2.3% drop in Hong Kong’s Hang Seng Index.
Remarkably, prior to the meltdown at Fukushima, China’s nuclear goals were even bigger. Within a week of the tsunami that triggered a meltdown at the Japanese atomic plant, the Chinese government put a moratorium on new projects and began a deep safety review of its entire program. By 2014, it decided against building any more reactors that required active safety measures, like the one at Fukushima did. It paused approvals again for several years until it was satisfied with its new technology.
There is much more on China's nuclear ambitions in the Bloomberg article, but one thing is clear - for China to reach its green ambitions and to shift away from an economy mostly reliant on coal, it will have no choice but to aggressively ramp up nuclear power. And the biggest winners will be those who were investing in the uranium sector with precisely this catalyst in mind...