Nuclear energy is a low-emission power source, yet it presents challenges like the safe management of radioactive waste and the potential risks of nuclear accidents. Below, we provide a comprehensive analysis of the pros and cons of investing in the nuclear power sector, along with our insights on the subject.

Is nuclear power clean?

Yes, nuclear energy is considered a clean energy source due to the following reasons:

• Zero Emissions: Nuclear power plants generate electricity through nuclear fission, which doesn’t produce greenhouse gases like carbon dioxide or methane during operation.
• Air Quality: By avoiding the burning of fossil fuels, nuclear energy helps keep the air clean, reducing pollutants that contribute to smog, acid rain, and respiratory diseases.
• Land Efficiency: Nuclear plants require significantly less land compared to other renewable energy sources like wind and solar.
• Minimal Waste: Although nuclear energy does produce radioactive waste, the volume is relatively small and can be managed and stored safely.

However, it’s important to note that while nuclear energy is clean in terms of emissions, it does come with challenges such as the safe management of radioactive waste and the potential risks associated with nuclear accidents.

Radioactive waste management

Radioactive waste management involves several key steps to ensure the safe handling, storage, and disposal of waste generated from nuclear activities:

• Pre-treatment: This initial step involves sorting and segregating waste to separate contaminated items from non-contaminated ones.
• Treatment: The waste is processed to reduce its volume and change its form to make it safer for storage and disposal. This can include methods like compaction, incineration, and chemical processing.
• Conditioning: The treated waste is then solidified and placed in containers that are designed to prevent the release of radiation.
• Storage: Depending on the type of waste, it may be stored temporarily in facilities designed to contain radiation and prevent environmental contamination.
• Disposal: The final step involves placing the waste in disposal facilities. For low and intermediate-level waste, near-surface disposal is common. High-level waste, which remains hazardous for thousands of years, is typically disposed of in deep geological repositories.
• Monitoring and Maintenance: Even after disposal, these facilities are monitored to ensure they continue to contain the waste safely and protect the environment and public health.

Managing radioactive waste is crucial for the safe and sustainable use of nuclear technology. International organizations like theIAEAand theOECD Nuclear Energy Agencywork to develop standards and share best practices to ensure safety and efficiency in radioactive waste management.

How do countries choose disposal sites for nuclear waste?

According to the latest reports beiIAEA, choosing disposal sites for nuclear waste is a complex process that involves multiple technical, environmental, and social considerations. Here are some key factors that countries typically evaluate:

• Geological Stability: Sites are selected based on their geological characteristics, such as rock type and stability, to ensure they can safely contain radioactive waste for thousands of years.
• Hydrology: The movement of groundwater is carefully studied to ensure that any potential leakage of radioactive materials would not contaminate water sources
• Seismic Activity: Areas with low seismic activity are preferred to minimize the risk of earthquakes that could compromise the integrity of the waste repository.
• Environmental Impact: The potential impact on local ecosystems and biodiversity is assessed to ensure minimal environmental disruption.
• Proximity to Populated Areas: Sites are usually located far from densely populated areas to reduce the risk to human health and safety.
• Social Acceptance: Public opinion and acceptance play a crucial role. Governments often engage with local communities to address concerns and gain support for the project.
• Regulatory Compliance: Sites must meet national and international regulatory standards for safety and environmental protection.
• Accessibility: The site must be accessible for the transportation of waste materials, but also secure enough to prevent unauthorized access.

There are several notable nuclear waste disposal sites in Europe:

Onkalo, Finland:This is the world’s first deep geological repository for spent nuclear fuel. Located in Olkiluoto, it is designed to safely contain high-level waste for thousands of years.

Bure, France:The Bure site in northeastern France is being developed as a deep geological repository for high-level and long-lived intermediate-level waste.

Germany:is in the process of finding a permanent disposal site for its high-level radioactive waste. Currently, the country uses several interim storage facilities. Some notable sites include:

• Ahaus: Located in North Rhine-Westphalia, this site stores spent nuclear fuel and other radioactive waste.
• Lubmin: Situated in Mecklenburg-Western Pomerania, it serves as another central interim storage facility
• Konrad: A former iron ore mine being converted into a disposal facility for low and intermediate-level waste

Germany aims to identify a permanent disposal site by 2031 and begin using it by 2050.

Austria:The country currently does not have nuclear power plants, but it still generates low and intermediate-level radioactive waste from medical, industrial, and research activities. The primary facility for managing this waste is:

• Seibersdorf: Located near Vienna, this facility handles the treatment, conditioning, and interim storage of radioactive waste. Austria’s waste management strategy focuses on safe interim storage and eventual disposal, with ongoing efforts to modernize facilities and improve regulatory frameworks.

The future of the nuclear power energy in Europe

In 2024, nuclear power remains a crucial component of the EU’s electricity generation mix. In 2022, nuclear energy accounted for approximately 21.8% of the total electricity produced within the EU, a figure that has seen slight fluctuations over the years but remains relatively stable (World Nuclear Association). The EU’s energy policy emphasizes the importance of nuclear power as part of its strategy to reduce carbon emissions and transition towards more sustainable energy sources.

The year 2024 has seen efforts to bolster nuclear capacity.The Nuclear Alliance of EU Member States has plans to increase nuclear capacity from 100 GW to 150 GW by 2050, aligning with the EU’s Net Zero Nuclear commitment (SNETP). Furthermore, nuclear generation in the EU was up by 1.5% in 2023 due to fewer plant outages and increased operational efficiency (Ember Climate).

As of today, nuclear power plants contribute significantly to the electricity grid in Europe. Nuclear energy accounts for about 24% of the total electricity production in the European Union (compared to the mentioned above 21.8% in 2022). This remains a stable share amidst the push for more renewable energy sources. In comparison, renewable energy sources like wind and solar have seen substantial growth, collectively contributing around 50% to the EU’s electricity mix.

Projections for 2025-2026 in the European Union

Looking ahead to 2025, the nuclear power sector in the EU is expected to maintain its significant role in the energy mix, despite some challenges.

The global nuclear power generation is forecast to grow by almost 3% annually on average through to 2026, reaching a new record high by 2025 as was highlighted byWorld Nuclear News. This growth is driven by increased investments in nuclear technology and the need for low-carbon energy sources to meet the EU’s stringent climate goals.

However, there are contrasting forecasts regarding the EU’s nuclear capacity. Some projections indicate a potential decline in nuclear capacity leading up to 2025, followed by stabilization at around 95-105 GWe until 2050, according toWorld Nuclear Association). This scenario would require substantial investments, estimated at €45 to €50 billion, to sustain and modernize the current nuclear infrastructure.

For the coming years 2025-2026, the share of electricity produced by nuclear power plants in Europe is expected to remain relatively stable or see slight fluctuations. The International Energy Agency (IEA) forecasts a global increase in nuclear power generation, potentially reachingnew record levels by 2025. This growth is driven by the commissioning of new reactors and the restart of several plants, particularly in France, Japan, and newly emerging markets in Asia.

I also would like to highlight thatwind and solar energy have been at the forefront of Europe’s transition towards a greener energy mix.Wind power alone accounts for approximately 15% of the EU’s electricity, while solar power contributes around 8%, as is estimates byEurostat. This surge in renewable energy is part of the broader goal to reduce carbon emissions and dependency on fossil fuels. For instance, in the first half of 2024, emissions-free sources produced 74% of the EU’s electricity, with half of this stemming from wind and solar energy.

The future of nuclear energy in Europe is nuanced. While there are plans for new reactors, many of the existing ones are aging.As of 2023, 95 of the 109 nuclear power plants in the EU and UK are over 30 years old,leading to concerns about their long-term viability and the need for significant investments to maintain or replace them. This also implies that in the coming years 2025-2026 nuclear power energy sector in Europe will require significant investments and modernization.

Despite the challenges, we saw, several nuclear power companies in Europe are showing signs of profitability. 

For instance, EDF (Électricité de France) has reported a significant turnaround, with an EBITDA (earnings before interest, taxes, depreciation, and amortization) of €39.9 billion, up from a loss of €4.9 billion. This improvement is largely due to higher nuclear output.

Companies involved in nuclear power generation:

Ibedrola SA (XETRA: IBE1), which demonstrated continuing positive surprise in its net income and revenue for the second quarter 2024. Based in Spain,Iberdrolais another major player in the European energy market, including nuclear power, and has reported strong financial results.

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Iberdrolaannounced its second quarter 2024 financial results on July 24, 2024. Here are some key highlights from their performance:

• Record Investments: Iberdrola reported record investments of €5.28 billion, a 16% increase compared to the same period in the previous year.
• Net Profit: The company achieved a net profit of €4.13 billion for the first half of 2024.
• Renewable Capacity: Iberdrola’s renewable capacity reached 43,400 MW by the end of the first half of 2024, with nearly 3,100 MW of new capacity added in the last 12 months.

Ibedrola currently trades at P/E ratio of 12.32x; P/BV of 1.89x; and P/Sales ratio of 1.9x. During the past six month the company shares appreciated by 14.5% (4.32% ytd). In our view, Ibedrola could be attractive addition to a conservative long-term investment portfolio.

E.ON:A German energy company, E.ON has a substantial presence in the nuclear sector and has been profitable, supported by its broad energy portfolio.

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E.ONreported its H1 2024 financial results onAugust 14th.  Here are the key highlights:

• Adjusted Group EBITDA of €4.9 billion and adjusted Group net income of €1.8 billion after six months in line with expectations. The adjusted Group EBITDA was below the high prior-year figure, which was characterized by positive one-off effects (H1 2023: €5.7 billion). E.ON’s investment-driven growth and good operating performance in the current fiscal year were overshadowed by the non-recurrence of these effects. That is why we witnessed a negative EPS surprise compared to consensus estimates. The adjusted Net Income was also below the previous year figure of €2.3 billion).
• Guidance for fiscal year 2024 reaffirmed: adjusted Group EBITDA of €8.8 to €9.0 billion and adjusted Group net income of €2.8 to €3.0 billion expected.
• Investments in the energy transition increased to €2.9 billion in the first half of 2024, about €500 million more than in the prior-year period.
• Most of these investments – over €2.1 billion – went toward E.ON’s Energy Networks business.

E.ON attributed its positive performance to increased efficiency measures, higher energy prices, and successful cost management strategies. The company also highlighted its ongoing investments in renewable energy projects and digital transformation initiatives as key drivers for future growth.

In our view, E.ON currently trades at relatively expensive P/E ratio of 17.96x; and assuming the negative earnings surprise, the fair price for E.ON will be adjusted downwards. As of today, the market sentiment surrounding E.ON is somewhat mixed. The stock is currently trading at €12.39, which is approximately 8.09% below its 52-week high of €13.48 set on May 16, 2024. Despite recent market headwinds, E.ON’s focus remains on expanding its energy infrastructure and adapting to the regulatory landscape.

Analysts have set various target prices for E.ON for the years 2025-2026. According to a consensus of financial analysts, the target price for E.ON in 2025-2026 ranges between €14.80 and €17.60. Investors have high expectations for E.ON’s financial performance and strategic initiatives in the coming years. The company plans to invest around €42 billion from 2024 to 2028, focusing on enhancing energy networks and expanding renewable energy projects. Additionally, E.ON aims to achieve a 10% compound annual growth rate (CAGR) in its regulated asset base and a 13% CAGR in its energy infrastructure segments.

In summary, market sentiment around E.ON remains cautiously optimistic with solid growth and investment plans, although the stock is currently trading below its recent highs. We currently have a HOLD rating on the stock.

To summarize the highlighted topic in regard to theEuropean nuclear power sector, we anticipate that in total investments in nuclear power will increase, with the share of nuclear in clean power investments rising after two consecutive years of decline. Total investment in nuclear is projected to reach $80 billion in 2024.

Overall, the nuclear sector in Europe is experiencing a positive trend in profitability and investment, reflecting its crucial role in the region’s energy mix.

Growth of Nuclear Power Energy in the USA

In the United States, nuclear power remains a cornerstone of the country’s electricity generation, accounting for about 30% of the world’s nuclear electricity generation (World Nuclear Association). As of today, the USA had 93 operating commercial nuclear reactors across 54 nuclear power plants in 28 states (EIA).

In the USA, nuclear generation saw a 5.7% increase from May 2023 to May 2024, reflecting a growing trend towards nuclear energy as a reliable and low-carbon power source. This growth is part of a broader global trend where nuclear power generation is expected to reach new record levels by 2025, driven by increased output from existing plants and the commissioning of new reactors.

In our view, the future of nuclear power generation in the USA looks promising (and more attractive than in the EU). There are several key developments and projections indicating growth and increased reliance on nuclear energy:

• Increased Capacity and New Developments: If the current nuclear plants are to retire after 60 years of operation, the USA would need an additional 22 GWe of new nuclear capacity by 2030 and 55 GWe by 2035 to meet energy demands (World Nuclear Association).
• Record-Breaking Output: According to the latest research ofThe Guardian, globally, nuclear power generation is expected to reach record highs in 2025, driven by investments in new reactors and a shift towards low-carbon energy sources.
• Supportive Policies and Public Opinion: Policy support, such as the Inflation Reduction Act, provides incentives for both existing and new nuclear developments. Additionally, a majority of Americans support the expansion of nuclear power, reflecting public backing for nuclear energy as part of the clean energy transition.
• Challenges and Closures: Despite the positive outlook, the industry faces challenges, including the planned closure of several reactors by 2025, which could impact overall capacity. However, the construction of new plants and advancements in reactor technologies are expected to mitigate these closures.

Several companies have announced plans to increase their nuclear power capacity in the years 2025-2026:

TerraPower(privately owned company: Backed by Bill Gates, TerraPower is set to begin constructing non-nuclear electricity generation infrastructure by 2025. This is part of a broader effort to advance their nuclear reactor technologies (Utility Dive).

Southern Company(SO):Vogtle Unit 4, which is part of Southern Company’s Vogtle Electric Generating Plant, is anticipated to begin commercial operations in 2024. This addition will contribute to the overall increase in nuclear power capacity in the U.S.

Talen Energy (TLN) – our top pick highlighted in January 2024 for ourPremiumandProfessionalinvestment community:

Talen Energyhave announced plans to add significant capacity, with a total of 6,820 megawatts cleared for the 2025/2026 planning year. These efforts are part of a broader push to modernize and expand nuclear power infrastructure in the U.S., focusing on advanced reactor designs that promise enhanced safety and efficiency.

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Investment Prospects in the Nuclear Power Sector (2025-2026)

Investing in the nuclear power sector in the USA appears to be a sound decision based on several factors:

• Government Support and Incentives: The U.S. government has shown strong support for nuclear energy through policies and budget allocations aimed at developing new reactor technologies and maintaining existing plants. The Inflation Reduction Act, for instance, includes significant investments in clean energy, which benefits the nuclear sector (Energy.gov).
• Market Dynamics: The pricing for power plants in the 2025-2026 period indicates favorable market conditions, which could enhance the profitability of nuclear investments.
• Resurgence and Growth Projections: The International Energy Agency predicts a notable resurgence in nuclear power generation, with global output expected to increase by nearly 10% by 2026 compared to 2023. This growth is partly driven by the need for reliable, low-carbon energy sources.
• Long-Term Viability: Advanced nuclear energy models suggest that incorporating nuclear power into the U.S. clean energy transition will require substantial capital investment but offers long-term benefits in terms of emissions reduction and energy security.

In our view, the future of nuclear power generation for 2025-2026 appears robust, with strong growth prospects and supportive policies. Investing in this sector is likely to be beneficial, given the favorable market dynamics and government backing. PleaseSUBSCRIBEto get All-In-Access to our investment ideas and detailed insights.