One of the most powerful earthquakes in history, the magnitude-9.0 earthquake that devastated Japan’s Tohoku region on March 11, 2011, generated a massive tsunami that measured over 100 feet in height. The human toll from this tragedy: 15,856 dead, 3,306 missing, 6,025 seriously injured and more than 700,000 rendered homeless.

In the days following the quake, the media’s attention shifted from rescue efforts to the crippled Fukushima Daiichi nuclear facility.

Despite enduring an earthquake of a much greater magnitude than their design specifications, the reactors emerged from the disaster without serious damage and with their radiation containment structure intact. However, the quake did cut off external power to the facility, causing the reactors to shut down automatically and firing up the back-up generators that supply power to the cooling system. These systems functioned as intended.   

The massive tsunami that hit the facility roughly an hour after the quake wiped out the generators, taking the cooling systems for all three nuclear reactors offline. With no way to cool the ultra-hot cores, the reactors came close to a total meltdown. Emergency responders resorted to helicopters, trucks, water cannons and pumps to douse the cores and spent-fuel ponds in an effort to prevent catastrophe. Within a few weeks, the reactors were under control. By October 2011, core temperatures had declined to about 80 degrees Celsius; by December 2011, all the facility’s reactors had reached a state of cold shutdown.

What transpired at Fukushima Daiichi was far more serious than the partial meltdown at the Three Mile Island nuclear power plant in March 1979, and the disaster exposed critical design flaws in reactors of this age. Although three workers at Fukushima Daiichi drowned when the tsunami hit and six employees have died since the disaster, a report released by the UN Scientific Committee on the Effects of Atomic Radiation (UNSCEAR) in late May 2012 found that none of these deaths stemmed from radiation exposure.

No cases of acute radiation poisoning have been reported, but concerns about the long-term health ramifications of the crisis are warranted. According to a 2008 UNSCEAR report on the Chernobyl disaster, 134 plant workers and emergency responders developed acute radiation syndrome, 28 of whom died from this exposure and 19 of whom passed over the next 20 years. In the case of the latter group, the majority of these deaths weren’t linked to radiation exposure. That being said, some of the survivors have developed radiation-related cataracts, skin conditions and other effects.

Exposure to radiation makes children and adolescents susceptible to thyroid cancer. Estimates attribute about 6,000 cases of thyroid cancer to radiation exposure, though only 15 of these cases had proved fatal as of 2005. UNSCEAR also estimates that 530,000 recovery workers were exposed to 120 millisieverts (mSv) of radiation, while the 115,000 people evacuated from the region were subjected to 30 mSv. Those who lived in contaminated areas for the two decades after the accident were exposed to another 9 mSv of radiation. To contextualize these figures, exposure to 100 mSv of radiation greatly increases an individual’s risk of cancer.

Calculating how many will die of cancer because of the fallout from Chernobyl is a fraught enterprise. Nevertheless, UNSCEAR projects that the cancer rate among the population of relief workers and evacuees from the immediate area might be 3 percent to 4 percent higher than in the typical population. This cancer rate amounts to 4,000 premature deaths that wouldn’t have occurred if the Chernobyl disaster didn’t happen.

On the International Nuclear Event Scale, the tragedy at Fukushima Daiichi rates at the same level as the explosion at Chernobyl. However, there are some salient differences between the two disasters.

The plant workers and first responders in Japan were far more careful than their counterparts in monitoring and limiting individuals’ exposure to radiation; reports suggest that Soviet officials lied to emergency workers about the risks to convince them to perform dangerous work. Japanese authorities also organized and implemented evacuation procedures for those in the plant’s immediate vicinity much faster than the Soviets did.

The incidence of thyroid cancer related to radiation emissions from Fukushima Daiichi is also expected to be much lower because Japanese authorities were quick to distribute iodine tablets to effected populations, especially children and adolescents. Those living near Chernobyl received no such treatment.

The World Health Organization’s (WHO) report on the disaster estimates that residents of the Fukushima prefecture were subjected to between 1 and 10 mSv of radiation in the year after the accident. But the WHO estimates that effective dose at 10 mSv to 50 mSv in two areas closest to the power plant.

The assumptions underpinning these estimates erred on the side of conservatism, assuming that Japanese citizens ate only food sourced from Fukushima in the year after the disaster. The end result of this exercise suggests that even those who lived closest to the power plant were likely exposed to less than 100 mSv of radiation, the inflection point for a significant uptick in the risk of cancer.

“Worldwide Health Effects of the Fukushima Daiichi Nuclear Accident,” a study conducted by two researchers at Stanford University, estimates that about 130 people will die of cancer in the coming decades because of radiation emissions related to the disaster. The report’s authors also indicated that the number of deaths could range from 15 to 1,300, and estimated that incidences of cancer could increase by as much as 0.5 percent.

This litany of statistics isn’t intended to minimize the potential health effects stemming from the disaster, but rather to throw into relief the media’s coverage of an earthquake and tsunami that killed more than 20,000 people.

That being said, media coverage of the disaster at Fukushima Daiichi changed the perceived safety of nuclear power. Investors must understand the context and scale of the accident; far too many assume that the disaster has permanently derailed the nuclear renaissance. Although some nations plan to scale back their reliance on nuclear power, the technology has a bright future in many energy-hungry emerging economies.

Japan

The Japanese public’s support for nuclear power plummeted after the Fukushima Daiichi accident. A poll conducted in March 2012 by Japan Association for Public Opinion Research found that almost 80 percent of the population would like the nation to eventually end its dependence nuclear power for electricity. Nevertheless, 69 percent of respondents backed the restart of some reactors to meet electricity demand this summer.

Prior to the disaster, Japan generated about 30 percent of its electricity from 50 nuclear reactors. This proportion was expected to reach 40 percent by 2017 and eventually eclipse 50 percent. In short, increased reliance on nuclear power underpinned plans to reduce carbon dioxide emissions and lower the nation’s dependence on energy imports.

The catastrophe at Fukushima Daiichi forced the nation to go back to the drawing board. The Japanese government is expected to announce an updated energy plan, a document that will likely call for more renewable energy, natural gas and conservation measures. Reports suggest that the government is weighing three potential end games for the country’s nuclear power capacity: eliminating the use of nuclear power as soon as possible; reducing its contribution to the electricity mix to 15 percent by 2030; or curtailing nuclear power to between 20 and 25 percent of the nation’s total generation by 2030.

There are no easy solutions. Because nuclear reactors can run at or near full capacity for extended periods, these facilities are critical sources of baseload power. Solar and wind energy may be popular replacements in the court of public relations, but these intermittent power supplies–the wind doesn’t always blow, and the sun doesn’t always shine–can’t take the place of the nation’s reactor. To compensate, Japan will likely need to build out its fleet of thermal power plants, especially those fueled by imported natural gas, a relatively clean-burning feedstock.  

Regardless of which course the Japanese government ultimately decides to take, the nation’s transition away from nuclear power will likely occur over decades. Investors should also remember that Japan accounted for only 4 percent of global nuclear power demand in 2011, down from 6 percent before the crisis. The nation’s new energy policy will have only a modest impact on demand for uranium.

Germany

Chancellor Angela Merkel had sought to extend the operating licenses on a number of Germany’s nuclear power plants, overturning a previous commitment to shut down all of the nation’s 17 reactors. This plan, which didn’t call for any new reactors, came to an abrupt end after the Fukushima Daiichi disaster.

The German public always had a strong anti-nuclear power streak, and the tragedy in Japan increased this hostility. Accordingly, the country has shuttered its eight oldest reactors and plans to phase out the remainder of its fleet by 2022.

Prior to this about-face, nuclear power accounted for about one-quarter of Germany’s electricity mix. We expect the nation to turn to imported electricity and natural gas to fill the void, especially after the nation’s subsidies for solar power have succeeded only in increasing the cost of electricity. All this adds up to rising demand for natural gas, some of which will be imported in liquefied form.

Germany only accounted for about 5 percent to 6 percent of global nuclear power generation; the nation’s new energy policy will have a limited impact on supply-demand conditions in the uranium market.

France

France’s fleet of 58 nuclear reactors generates about 75 percent to 80 percent of the nation’s electricity. A leading proponent of the technology since the 1970s, France has one advanced reactor under construction at Flamanville in Normandy and plans to build a second at Penly in northern France.

Public support for nuclear power suffered after the disaster in Japan. But a poll in March 2012 found that only 42 percent of French citizens supported a plan by the Europe Ecologie-Les Verts (France’s Green Party) to shutter the nation’s reactors. About 62 percent of respondents indicated that they trust Electricite de France (Paris: EDF) to prevent a similar disaster at its power plants.

Despite the public support for the country’s nuclear power plants, the recent presidential race between Nicholas Sarkozy and Francois Hollande raised some concerns, as the latter had agreed to shut down 24 of the nation’s reactors and halt new construction as part of a pact with the Green Party.

Fortunately, the Green Party’s dismal showing in the election enabled Hollande to back away from the agreement. The president-elect has subsequently indicated that he wouldn’t oppose the construction of additional reactors, a move that would not play well with the nation’s labor unions. However, Hollande has disclosed plans to shutter France’s oldest reactor, Fessenheim, which exports a significant portion of its output to manufacturing concerns in Germany.

Although Holland has also reference a vague long-term plan to reduce nuclear power’s contribution to the nation’s electricity mix to 50 percent by 2025, this plan is a long way from becoming a concrete policy.

France is the world’s largest next exporter of electricity and boasts the lowest prices of any country in Europe. We doubt that France, home to about 15 percent of global nuclear power capacity, will abandon the technology.

United States

With 104 operating nuclear power plants, the US is the world’s largest consumer of nuclear power in absolute terms. In 2011 these reactors generated about 20 percent of the nation’s electricity and accounted for almost one-third of global output from nuclear power plants.

Investors often ask how delays in permitting new nuclear power plants in the US will affect the global uranium market. But the US was never expected to expand its reactor fleet substantially.

The Energy Information Administration’s (EIA) Annual Energy Outlook 2010, published long before the disaster at Fukushima Daiichi, estimates that US nuclear generation capacity would increase by 10 percent between 2008 and 2020 and 12 percent by 2035. The EIA’s latest forecast factors in the closure of several older reactors and calls for nuclear power capacity to increase by 9.6 percent over the next 23 years.

The US has one reactor under construction and 11 nuclear power plants in the planning stage. Polls find that roughly two-thirds of Americans favor the continuing use of nuclear power.

Regulators have extended the operating licenses for many US nuclear power plants, but about 11 gigawatts (GW) worth of capacity is slated for retirement within the next decade. Over the next 20 years, 34 GW of capacity could close. The US will need to accelerate construction plans to offset those scheduled retirements or extend the operating licenses on some plants.

The biggest challenge to building these nuclear power plants is economic: Ultra-low natural gas prices mean that new nuclear power plants can’t compete with gas-fired facilities on cost. Whereas nuclear power plants require a commitment of at least 30 years to recoup construction costs, new gas-fired plants require far less up-front investment.

Although the US nuclear power fleet won’t expand significantly, it’s also unlikely to contract significantly.

China

In 2011 China generated 82.6 billion kilowatt-hours of electricity from nuclear power stations, about 10 percent of the 800 billion kilowatt-hours US reactors produced in 2011.

China’s insatiable appetite for electricity will continue to drive the nuclear renaissance. Although the country currently produces less than 2 percent of its electricity needs from nuclear power, this percentage will increase rapidly in coming years to keep pace with demand that’s growing at an average annual rate of 10 percent.

Twenty-six nuclear power reactors are under construction on the Mainland, with an additional 51 facilities at some stage of advanced planning. Prior to the Fukushima Daiichi accident, Beijing had planned to increase the nation’s nuclear power capacity to 80 GW from 11.9 GW. However, after the disaster in Japan, the government suspended approvals for new plants and conducted a comprehensive safety inspection of all its operating reactors, as well as those under construction.

This review process has almost run its course, and construction has resumed on a number of facilities. In June 2010, the State Council approved a nuclear safety plan that will be in force through 2015, though these requirements shouldn’t prove to be a major impediment; recent generations of reactor designs eliminated many flaws in older models, including the need for an external power supply to cool the core in an emergency. China has also enhanced flood controls at nuclear power plants in coastal regions.  

Although China has yet to update its goal for nuclear power, media outlets have suggested that authorities may lower the target to between 60 and 70 GW from 80 GW. Investors should also consider that China has a long history of exceeding these targets. In fact, if China builds all the reactors currently planned or proposed, the Mainland’s installed capacity would swell to more than 200 GW.

Emerging Nuclear Powers

China isn’t the only emerging economy that’s banking on nuclear power to meet growing electricity demand.

India recently approved the construction of a new nuclear power facility and has seven projects that are currently under way. An additional 15 nuclear power plants are in the planning stage.

President Vladimir Putin has affirmed Russia’s plan to grow nuclear power’s contribution to the nation’s electricity mix to 20 percent from 15 percent. The country has 10 reactors under construction and 17 in some stage of planning.  

The Verdict

The growth outlook for nuclear power has deteriorated slightly since the accident at Fukushima Daiichi. With the exception of Japan and Germany, nuclear power’s future remains secure in France, the US and other countries with large, established bases. Meanwhile, countries such as China and India continue to move forward with plans to grow their reactor fleets.

The Supply Side

The International Atomic Energy Agency (IAEA) forecasts that global nuclear capacity will grow to 429 GW in 2020 and 501 GW in 2030 from 375 GW. Many projections call for global uranium demand to reach 100,000 metric tons per annum by 2020, a substantial increase from an estimated 68,000 metric tons in 2012.

In 2011 uranium mining operations produced 58,000 metric tons of the feedstock–well short of global demand. Historically, the secondary market–for example, government stockpiles and reprocessed Russian nuclear warheads–has bridged the supply gap. But the Russian government will terminate its Megatons to Megawatts program at the end of 2013, placing the onus on mining outfits to offset the decline in secondary supplies.

Although uranium is relatively plentiful, production costs are the biggest impediment to supply growth. Cameco Corp’s (TSX: CCO, NYSE: CCJ) McArthur River uranium mine yields high-grade uranium ore and generates solid returns at the current spot price of $50 per pound. However, this mine, which produces about 15 percent of global supply, is the exception rather than the rule.

Many of the greenfield mines in development aren’t profitable in the current pricing environment, prompting some companies to mothball expansion plans over the past year.

To incentivize miners to ramp up production to meet anticipated demand growth, uranium prices would need to increase to at least $80 per pound.

China has taken advantage of weak uranium prices to add to its stockpile whenever the feedstock dips to the low end of its trading range. Investors should follow Beijing’s example.

Cameco Corp remains our top play on an eventual recovery in uranium prices. In addition to the low cost of production from its world-class McArthur Lake mine, the firm expects to start production from the promising (and long-delayed) Cigar Lake site, a development that management expects to eventually produce 8,165 metric tons of uranium per year.

Cameco Corp sells about 40 percent of its output under long-term contracts, which provides a cushion when uranium prices weaken. Buy Cameco Corp up to USD27 in my Best Buys List.