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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Nuclear Energy: Not What The World Wants But Maybe What It Needs

Nuclear Energy: Not What The World Wants But Maybe What It Needs

Perhaps no source of power is more controversial than nuclear energy. Nuclear produces virtually no pollution by volume compared with any other energy source and is vastly more efficient in terms of materials and land used.

Yet despite that, nuclear power is arguably the most vociferously protested source of power on the planet. Environmental groups decry its risks and residents protest any time a new nuclear plant is proposed in an area. At the same time though, mankind might be approaching a tipping point for climate change. With fossil fuel production continuing to grow, environmentalists now face a choice – potentially unstoppable global warming or more nuclear plants? Related: Global Oil Supply More Fragile Than You Think

Scientists are now increasingly coming to advocate the view that without a substantial boost in both nuclear power and other renewable fuels, society is not going to be able to stop global warming. Broad groups of scientists have published several open letters taking exactly this position. This leaves the world with a conundrum – which is worse, nuclear power and the associated risk of accidents or global warming and the havoc it will cause?

The truth of the matter is that, for all of the cost declines in renewable energy production, wind and solar power are necessarily intermittent. And while systems like Tesla’s Powerwall can help to deal with this issue, it would take an unprecedented level of investment to create enough batteries to power the world with intermittent generation sources. Nuclear is the only low polluting option that provides consistent power. For that reason combined with the low level of cost associated with nuclear power once the plants are constructed, nuclear is probably indispensable. Related: The Saudi Oil Price War Is Backfiring

The irony of the nuclear power issue is that, for all of the concerns over nuclear power accidents, there are actually very few deaths associated with nuclear. For instance, no one has died in the wake of the Fukushima plant accident, the worst accident in a generation. The World Health Organization reported that health risks are minimal from the “disaster” in fact. Yet coal pollution contributes to more than a million deaths each year.

None of this is to say that coal mining should be stopped tomorrow or that nuclear power is an overnight savior. In a capitalist economy, people have to let the markets decide what technologies are most efficient. But at the same time, if coal power is producing unpriced externalities like health risks, then it probably warrants greater scrutiny from investors simply to avoid future legal risks. Related: The Price Of ‘C’ In China

What does all of this mean for investors? Well to start with, if the pro-nuclear camp starts to gain steam, it would mean a dramatic change in the way investors look at nuclear power related stocks like BWX Technologies (BWXT) and Exelon Corporation (EXC). These companies are not expensive by most metrics, which probably reflects a combination of pessimism around nuclear power construction, and the low current prices for wholesale electricity.

It’s hard to say what would cause a tipping point that would shift the way the public thinks about nuclear power, but one possibility could be a bold political statement. As the U.S. Presidential campaign starts to get under way, investors should keep an eye on the campaign to see if any of the candidates embrace nuclear power as a partial panacea for global warming.

By Michael McDonald of Oilprice.com


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  • OhBrother on August 11 2015 said:
    Michael McDonald should lose his job over such a false article. Every word written is a bald faced lie.

    "Nuclear produces virtually no pollution by volume compared with any other energy source"

    Nuclear produces the most toxic pollution known to man, something that is radioactive for thousands of years. Hydro, solar, wind, tidal and geothermal produce no pollution.

    "is vastly more efficient in terms of materials and land used."

    Not cost wise. Forbes magazine termed "nuclear the worst managerial disaster in US history. " The costs of fueling, operating and storing the waste continue to skyrocket while solar continues to drop in price. Nuclear is a fools errand and a terrible business decision. It takes 10 years to plan and build a nuclear plant. It takes 100+ years of expenses to decommission one. Check out the Sellafield disaster in the UK. By comparison it takes 9 months to build a wind farm of equal generating capacity and when it fails it doesn't take out a whole region.
  • Bob Wallace on August 11 2015 said:
    Let's start with the cost of nuclear today. 12.5c/kWh for Russian built nuclear in Turkey. 15c/kWh for Chinese/French built nuclear in the UK. 13c/kWh for US built nuclear in the US. Both the UK and US prices are subsidized, the real cost is higher.

    Olkiluoto 3 and Flamanville? I don't think the nuclear industry wants to talk about how much their power will cost. If they ever come on line.

    Now, let's real-up about nuclear. Got to have spinning reserve in case the reactor goes down without notice (and it happens a lot more often than most realize). Got to either use only a small amount or use storage/load-following to keep from over supplying the grid during times of low demand. Both storage and load-following cost money and add to the 12.5+c/kWh of new nuclear.

    What's the option? Wind and solar, along with some other renewables. Onshore wind in the US is now under 4c/kWh (2.3c/kWh with subsidies) and solar is now about 6.5c/kWh (5c/kWh with subsidies). A mix of 4c wind, 6.5c solar and 10c storage simply smokes nuclear.

    I think if you look back at the scientists making the 'we need nuclear' claim none of them work in energy (unless some work for the nuclear industry). Being an expert in one area does not mean that you are knowledgeable in all areas.
  • Phillip Whitaker on August 20 2015 said:
    Prof. McDonald writes "without a substantial boost in both nuclear power and other renewable fuels, society is not going to be able to stop global warming."

    This is unarguably false and the fact that a small number of scientists have arrived at that conclusion doesn't make it true.

    To believe it true you must begin your reasoning with a lack of knowledge of the way various energy sources function physically and economically together. It is also necessary to understand the physical, economic and social realities that impede or promote deployment.

    As an example, the role of storage in the article is miscast and misunderstood. Not only is storage a much, much smaller part of the solution than one intuitively envisions, but it is available in a wide variety of forms other than dedicated batteries. However, those other forms are cost effective and easily developed as part of the transition away from large scale, centralized generation and its economic model built on a premise of ever expanding energy consumption.

    The key to not being led astray by false arguments put forth by those entities seeking to maintain the status quo (including nuclear) is to turn upside down your view of how power is produced and consumed. Start with the end user and build up and out from there. Also, be absolutely sure you understand the way energy efficiency measures are a core conceptual element of the picture you are developing.

    You'll want to begin this learning process with understanding all of the different possibilities that are available to make Individual off-grid homes (keyword: net-zero energy) and businesses function.

    Then move on and gain a complete comprehension of how 'microgrids' comprised of clusters of homes and/or businesses are able to work together to economically produce and balance their own power.

    Once you have that down, you'll easily see how they can be linked to the local distribution grid in order to export during times of excess or import during times of shortage. From there the vision quickly emerges of how regional microgrids would be interconnected to form a more stable energy providing national entity than presently exists.

    Unless one has a detailed and in-depth understanding of the economics and engineering of the microgrid model, informed judgement about the alternative to fossil and nuclear isn't possible.

    Yes, it makes intuitive sense to think that variable renewables are problematic, but if you hadn't grown up seeing every day that the centralized grid does, in fact work, it would be just as easy for your intuition to lead you astray regarding the viability of that system. (ex: what about all those people out in the country? Or, what do you do when an energy hungry factory suddenly starts or stops operations?)

    Anytime you read the claim that our choice is limited to "nuclear power and the associated risk of accidents or global warming and the havoc it will cause" you can be sure that you are not getting information that is grounded in the best science. There is no authoritative industry independent scientific body that supports that claim. In fact, virtually all such groups envision a full transition to the renewable energy powered system described above.

    The real questions are
    How fast can we effect this transition;
    what is the least cost option; and
    what are the most environmentally benign energy sources consistent with the other goals?

    Here again, renewable energy sources are clearly superior.

    They deploy far faster than nuclear, which provides an extremely important advantage in carbon reductions.

    They are already less expensive and the gap is getting wider as nuclear costs continue to escalate while the renewable cost curve continues to decline.

    And contrary to several factually incorrect papers recently sponsored by the nuclear industry, the life cycle for renewable energy sources is far more environmentally friendly than the life cycle of nuclear power power plants past, present and/or future.

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