Make no mistake... the nuclear revival is gaining steam.
And while a few greens are still prepared lie across the tracks to stop it, the renewed push for nuclear power is trend that cannot be stopped.
In fact, America has come so far from the dark days of Three Mile Island that more than 60 percent of the public now supports the use of nuclear power, according to a Gallup poll released just yesterday.
Now some thirty years later, the U.S. is finally ready to go nuclear again.
Fortunately, this is a trend that we spotted over two years ago. In fact, I wrote so often about nuclear green shoots back then that it became sort of old hat.
The Nuclear Power Bandwagon
Two years later, the nuclear power band wagon was starting to fill up, and due to the economic crisis, it has been a long time coming.
In fact, we recognized that the industry's rebirth was on its way during the Bush Administration — specifically, with the Energy Policy Act of 2005, which provided the nuclear industry the following:
$3 billion in research subsidies
Over $3 billion in construction subsidies for new nuclear power plants
Nearly $6 billion in operating tax credits
Over $1 billion in subsidies to decommission old plants
Federal loan guarantees for the construction of new power plants
Since then, the industry has been slowly rebuilding itself, providing investors with the chance to profit on this future growth opportunity.
And while the United States had not ordered one new nuclear reactor since the 70s, President Obama moved the ball one step closer to the goal line last month when he announced that the Energy Department had approved an $8.3 billion loan for the construction of two nuclear reactors in Georgia.
Needless to say, it was something of monumental breakthrough.
Meanwhile, the nuclear industry couldn't ask for a much better advocate than Energy Secretary Stephen Chu.
Not only does Chu have deep understanding of all the technical issues surrounding the sector, he was one of the signatories on a pro nuclear document released in August 2008 entitled "A sustainable Energy Future: The Essential Role of Nuclear Energy."
You can read that report here.
To sum it up, the paper argued that a coherent, long-term nuclear power strategy is needed; nuclear power is a major and essential part of solving our energy problems.
Further, it proposed the United States should:
maximize current reactors (plant life extensions, uprate)
deploy advanced light water reactors
license Yucca Mountain and research advanced fuel management
pursue aggressive R&D on advanced reactors
So two years later, it's really not that surprising that President Obama plans to finance the construction of two nuclear reactors — the nation's first project of this kind in three decades. Chu obviously has the President's ear on this one.
Disruptive Nuclear Technologies
Yet it's not the fact that the industry is working on adding 25 new U.S power plants in the future — or even that China's planning on increasing its nuclear capacity 500% by 2020 — that has me so bullish on this sector.
Instead, the disruptive technologies currently bubbling just below the surface are what I see driving nuclear. These are the new and unexpected innovations that have the power to change the industry, much in the same way that the calculator overtook the slide rule.
One of these developments is the design and construction of what is known as small modular reactors (SMR). The category is defined as reactors making less than 300 megawatts of electricity, or the amount needed to power 300,000 American homes, which is a quarter of the energy output of big reactors.
Factory-built and delivered on site, small modular reactors will be an absolute game changer.
Here's why: It is as simple as time and money.
Unlike large reactors that cost as much as $10 billion and take five years to build, small modular reactors can built in half the time and for as little as $5000 per kilowatt capacity. The modular units arrive on site — ready to "plug and play" — dramatically changing the old model of time and cost.
What's more, Stephen Chu was quoted in the Wall Street Journal this week:
Their size would also increase flexibility for utilities since they could add units as demand changes, or use them for on-site replacement of aging fossil fuel plants. Some of the designs for SMRs use little or no water for cooling, which would reduce their environmental impact. Finally, some advanced concepts could potentially burn used fuel or nuclear waste, eliminating the plutonium that critics say could be used for nuclear weapons.
According to the Energy Secretary, that's why small modular reactors are "one of the most promising areas" in the industry, even as we build a new generation of traditional nuclear plants.
One way to play this trend is with a company called McDermott International Inc. (NYSE: MDR).
McDermott is an engineering and construction company with specialty manufacturing and service capabilities. The company is focused on energy infrastructure. McDermott's customers are predominantly utilities and other power generators, major and national oil companies, and the United States Government.
With its global operations, McDermott operates in over 20 countries with more than 25,000 employees.
And while McDermott may not be as obvious as a company as the Shaw Group (NYSE: SHAW), its Babcock & Wilcox subsidiary is actually a pretty big player within in the nuclear industry.
In fact, the Wall Street Journal reported last month that the Tennessee Valley Authority, First Energy Corp., and Oglethorpe Power Corp. have signed an agreement with Babcock & Wilcox to build nuclear reactors that are no larger than the size of a railroad boxcar.
You can learn more about these new units by clicking here.
Called the mPower reactor, these units would be capable of generating 135 to 140 megawatts of power; their cost would be much less than a traditional reactor. (Compare this new technology to the first commercial reactor built in the U.S. in 1957, which was only about 60 megawatts in size.)
But Babcock and Wilcox is hardly alone in this arena, since according to the International Atomic Energy Agency, the global demand for small modular reactors could reach 500 to 1,000 reactors by 2040.
Accordingly, numerous U.S. companies are currently promoting nine designs for small reactors. Among them are intriguing designs by Hyperion Power Generation and NuScale Power.
But no matter how you decide to invest in this resurgence, I think it's pretty obvious that nuclear power has broken out of its doldrums.
Your bargain-hunting analyst,
Steve Christ, Investment Director
P.S. Small modular reactors aren't the only opportunity in the nuclear bull market. In fact, my pal Nick Hodge has discovered what he believes is the "most profitable nuclear advancement in the last 50 years." But, more importantly, he thinks it could triple shareholder value in the next 6 months... To learn more about this company, click here.