Lately I have spent a lot of time going through BP’s recently-released BP Statistical Review of World Energy 2022. There are a number of important insights one can gain from reading the Review and plotting the data.

Renewables Can’t Do It All

For example, solar power continues to ramp up at incredible rates. Over the past decade, solar power generation has increased at an average annual rate of 32%. That’s a major reason I have invested in this sector for years. The growth rates will continue at double digits for many years.

Yet, here is something that is overlooked by many. As rapidly as renewable power scaled up last year, or over the past decade for that matter, the overall increase in energy demand was much greater. Last year energy demand grew over six times faster than renewable energy ramped up. For just solar power, overall energy demand growth was over 18 times the record increase in solar power output.

What are the implications of this? For a world that is increasingly concerned with growing carbon emissions, it means that renewables alone won’t get us to zero carbon. At least, not for decades.

Nuclear Power to the Rescue

What else is there that could help? Nuclear power.

Nuclear power is unique among energy sources. It can be scaled up to very large plants, it is firm power (available upon demand), and it produces no carbon dioxide while generating electricity.

A 2017 paper from the University of Texas identified nuclear and wind power as the power sources with the lowest levelized carbon dioxide emissions (link). The levelized carbon intensity is calculated by dividing a power plants’ emissions over its lifetime by the overall expected electricity output.

Nuclear and wind were respectively 12 and 14 grams of CO₂-eq (grams of CO₂ equivalent) per kWh of electricity. By contrast, power produced from coal — which is still the world’s largest source of electricity — produces more than 70 times as much CO₂-eq per kWh of electricity.

Based on the coal consumption statistics in the lastest Review, global coal consumption is responsible for about half of the world’s carbon dioxide emissions. Replacing the world’s coal-fired power plants with nuclear plants could reduce carbon dioxide emissions back to levels last seen in the 1970s.

It seems like a no-brainer. So, why aren’t we doing it?

A Promising Future Derailed

You have to wonder where things would stand today if not for the 1986 Chernobyl nuclear disaster. The world’s appetite for nuclear power had been rising rapidly, right up until that accident dramatically changed the growth trajectory.

Chernobyl substantially impacted the global growth rate of nuclear power, but it was still growing at a respectable rate following Chernobyl. For the next 25 years nuclear power would continue to grow around the world, but it would finally take a significant step back following the 2011 Fukushima disaster in Japan.

Those two incidents are the difference between a world that has rapidly phased out coal, and one that hasn’t. They contributed to a public distrust of nuclear power. It’s understandable. If you see nuclear accidents that cause people to have to permanently abandon their homes on a moment’s notice, of course people are going to distrust nuclear power. The general public has a fear of radiation that in many cases is irrational.

Although we can’t change the past, we can work to improve the public’s attitude toward nuclear power. It is possible to build, design, and operate nuclear power plants that can’t suffer the kinds of consequences seen in Chernobyl and Fukushima. It is naturally going to take some time to convince a skeptical public of this.

But the stakes are too high. We have to devote the energy and resources into doing this. Otherwise, taking a serious bite out of global carbon emissions may be an insurmountable challenge. I say this based on the overall demand growth for energy, and the inability of renewables to even keep up with demand growth.

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What does that mean? We are going to need a lot more nuclear power over the next few decades. As Jigar Shah, who is the director of the Loan Programs Office of the US Department of Energy (and founded SunEdison) wrote on Twitter:

“Many suggest that nuclear competes with renewables. As Robert Rapier has said many times, we need all of it as fast as we can get it and it still won’t be easy to get to zero carbon. You can’t get there without nuclear. All the models say that.”

Investment Implications

As an investor, how can you invest in a potential (and in my view inevitable) nuclear renaissance? Probably the easiest way is to invest in a nuclear power exchange traded fund (ETF). There are some that are focused on uranium mining (high risk, high reward), some that are focused on utilities that incorporate nuclear power (lower risk, income-oriented), and some that incorporate companies that build nuclear plants (intermediate risk).

The largest nuclear power ETF is the Global X Uranium ETF (URA) with $1.64 billion in assets. A more diversified option is the VanEck Uranium+Nuclear Energy ETF (NLR). This fund contains a number of utilities, uranium miners, and construction companies around the world. Note that this isn’t an endorsement of either of these ETFs. However, it does give you a reasonable place to start your due diligence if you agree that more nuclear power is inevitable.

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