After experiencing rapid expansion in the 1970s, the great glowing hope of nuclear power took a hit in the wake of meltdowns at Chernobyl and Three Mile Island. But nuclear has returned to vogue in both the developing and developed world. Not only is nuclear power relatively affordable, but it also doesn’t emit carbon dioxide (CO₂), easing concerns about climate change.

When you consider CO₂ emissions and overall efficiency, nuclear power is the best game in town.

Energy generation is expected to grow at an almost parabolic rate in developing countries because their economies are more energy intensive. The developing world requires the equivalent of 3.4 barrels of oil to produce $1,000 worth of gross domestic product (GDP). By comparison, developed economies need the equivalent of 1.1 barrels of oil to generate the same economic growth.

Lowering the overall cost of energy could unlock enormous growth potential in the developing world. Although nuclear power plants require substantial investment on the front end, the longevity of these facilities makes them low-cost generators of energy.

China currently generates roughly 70 percent of its electricity from coal-fired plants, the cheapest and dirtiest fossil fuel. But the country is attempting to change course. The country has allocated $110 billion annually toward efforts to generate 15 percent of its electricity from clean energy sources by 2020. If China meets this ambitious goal, the country’s energy intensity will drop by 20 percent in five years.

Nuclear power is a critical part of this program. China plans to construct roughly 10 nuclear reactors each year, expanding its current power generation capacity from 8,600 megawatts to 20,000 megawatts by 2013 and 70,000 megawatts by 2020. At this rate, China will build three times as many reactors as the rest of the world combined over the next decade, becoming the global leader in nuclear power capacity.

At present, India generates 4,000 megawatts of electricity from 17 nuclear reactors. But the country plans to ramp up its nuclear generation capacity to 200,000 megawatts in 20 years.

Although the US generates about 20 percent of its electricity from 104 nuclear power plants, the country hasn’t constructed a new commercial reactor in over 30 years. That could soon change. President Obama in January proposed tripling public financing for nuclear power.

The Energy Policy Act of 2005 provided financial incentives for the construction of advanced nuclear plants, including a 2.1 cents/kilowatt hour tax credit for the first 6,000 megawatt equivalent of capacity in the first eight years of operation. It also authorized federal loan guarantees for project costs. 

After the program went into effect in 2008, the US Dept of Energy received 19 applications for 14 plants and a total of 21 reactors. Applicants have requested a total of $122 billion in guarantees, but the program only authorizes $18.5 billion. President Obama’s plan to expand this program is in part a result of heavy interest from the nuclear power industry.

Today, there are plans to build almost 100 new reactors worldwide, and that number should soar in coming years. Furthermore, a bevy of related industries–from uranium mining to construction–will benefit from this trend.

The number of positions that would be required to capture the full benefit of the nuclear renaissance makes exchange-traded funds (ETF) the most attractive way to profit from this trend.

Market Vectors Nuclear Energy (NYSE: NLR) tracks the 40 stocks that make up the DAXGlobal Nuclear Energy Index. The fund’s portfolio holdings generate at least half of their revenues from the nuclear power business and include a number of smaller companies that other indexes overlook. The ETF acts as an excellent proxy for the global nuclear industry as a whole.

Although the fund offers broad exposure to a resurgence in nuclear power, its largest holdings hail from the mining, generation and infrastructure industries. Of the three ETFs, Market Vectors Nuclear Energy also has the most limited exposure to US markets.

The fund has a middle-of-the-road expense ratio of 0.61 percent, but boasts superior liquidity, the tightest spreads and the largest asset base in this niche.

Exelon (NYSE: EXC), which is cycling out of our Now vs. Then coverage this month, remains an excellent growth and income play on a nuclear revival. While I won’t dwell on the company at length–those interested can read our article in the November 2009 issue–a few salient points bear repeating.

Exelon is the largest nuclear plant operator in the US and can produce extremely low-cost electricity with low CO₂ emissions. This quality could actually make any future cap-and-trade scheme a net positive for the utility.

It’s also set to add around $1.3 billion in profitability to its bottom line next year as price caps in Pennsylvania expire and rate increases take effect for its PECO and ComEd subsidiaries. Additionally, I suspect Exelon will use some of the more than $1 billion it generates in annual free cash flow to make acquisitions.

Finally, for those with an appetite for speculation, EnergySolutions (NYSE: ES) is the only US-based nuclear services pure play. The company provides services throughout the life cycle of nuclear operations, from engineering to decommissioning.

EnergySolutions also owns the world’s largest commercial radioactive waste disposal facility and holds a portfolio of patents on almost 300 nuclear waste-processing techniques.

The firm faces very little direct competition for many of its services in the US and has a strong presence in the United Kingdom, where it manages 22 reactors. It also recently secured a foothold in China, where it will provide waste management services to China Guangdong Nuclear Power Holding Corp.