By Agvisors LLC
No, we are not talking about the situation that is ongoing with Iran and the geopolitical issues associated with that country. We are talking about supplying the world's energy needs using nuclear power and what we see happening inside the investing world. As the focus lately has been on the cost of oil and gasoline, we thought it might be refreshing to discuss alternative sources of energy and how investors might be able to incorporate this concept into their portfolios.
It bears mentioning that the nuclear industry has gone through various highs and lows of public relations nightmares. Three Mile Island (1979), Chernobyl (1986) and the Tepco nuclear generating facilities in Japan (2011) all bring to the forefront the dangers of using nuclear reactors to generate electricity. We all remember watching the containment buildings exploding as the events of the Japan tsunami unfolded. Mother Nature provided the catalyst in creating a very public and devastating nuclear event. Conversely, the events in Chernobyl were largely hidden from public view and safety measures were implemented too late. The start of the disaster stemmed from the initiation of a test to determine how long the steam turbine blades would generate power to the main circulating pumps if the main power supply was lost. Human error along with a serious design flaw started a series of events that put the reactor in a state that could not be corrected. Radioactive material was released into the environment for 10 days before control was achieved of the accident. The Three Mile Island incident was found to have been caused by a faulty indicator that led operators to initiate actions that aided in the meltdown. Although the reactor was destroyed, there were no casualties and all radioactive material was contained.
Having covered the obvious negative side to generating nuclear power it is obvious that there are numerous advantages. The largest advantage is zero generation of carbon dioxide, although building the plants and the production of the fuel do create carbon dioxide that impact has been proven to be less than that of conventional methods of generating electricity.
The United States produces the most electricity using nuclear generation. In 2010 the US generated slightly more than 800 billion kilowatthours (source: EIA.gov) France was second with a little more than 400 billion KW hours. France produces 80 percent of its electrical needs from nuclear facilities. In total the top 10 nuclear generation countries produced 2,229 billion KW hours in 2010.
Since the destruction of the reactors in Japan there has been the expected knee-jerk reaction to stop utilizing nuclear power plants. Germany has set in action a plan to idle a majority of its nuclear generating facilities over the next few years. Conversely, the U.S. just granted the necessary permits to allow for construction of two more reactors in Georgia. Keep in mind the last new start was in 1978. Design improvements along with redundant safety systems have provided the regulators with the necessary levels of comfort to allow for new construction. This will add to the current 104 operable commercial nuclear reactors at 65 plants located in 31 states.
In circling back to the investment world, it may be of benefit to investors the ability to invest in companies that focus on the "nuclear" sector. Van Eck Global created the Market Vectors Uranium+Nuclear Energy EFT (NLR) on August 13, 2007. It is pretty easy to determine the purpose of this ETF and how it invests. Obviously 2011 was a significant down year for the fund. It posted a 41.46 percent loss, not including dividends, due to the events in Japan coupled with extremely lower natural gas prices. This double whammy led The Economist magazine to declare "Nuclear Energy: The dream that failed" as its headline on the March 10, 2012, issue. In digging deeper into the NLR ETF it appears that not everyone is convinced nuclear is dead. NLR is up 15.50 percent as of March 20, while the S&P 500 is up 12.10 percent.
We are not recommending that everyone run out and by the NLR ETF. What we are advising is that investors look outside the box when it comes to investing. There are opportunities everywhere and just because something is deemed a failure by some should not exclude it from being a viable option.
Please remember that we are not recommending you purchase any investments mentioned in our articles. You should consult your financial advisor before making any investment decisions. Our intent is to educate you and illustrate investment ideas and concepts you may find interesting. We also want to thank the EIA.gov website for providing much of the technical data for this article.
Editor's note: Agvisors provides commentary about agricultural markets, including grain, dairy, livestock, equities, financials, and energy, highlighted by a live weekly webinar discussing conditions and responding to questions. For more information, visit http://agvisors.com.