Globally, nuclear energy is undergoing a renaissance. Following its peak in the late 1990s to early 2000s, when it accounted for nearly 17 per cent of global electricity generation, the use of nuclear energy declined. Incidents like Three Mile Island in the US in 1979 and Chernobyl in 1986 increased public anxiety around nuclear energy, while the 2011 Fukushima disaster in Japan resulted in several countries scaling back or halting their nuclear programs, including the US and Germany.
However, there are several catalysts that are driving its resurgence. Nuclear energy is becoming part of the discussion about reliable energy solutions that support decarbonisation efforts and the growing demand for energy supply.
A reliable and carbon-free baseload power source
The first catalyst is the need for reliable, carbon-free baseload power. Unlike renewables such as wind and solar, nuclear energy offers continuous, emissions-free power. Nuclear energy stands out as the only large-scale baseload power source that can reliably bridge the supply gap, combat climate change and avoid the intermittency challenges of other renewables.
For example, wind and solar energy only generate electricity when there is wind or the sun is shining. This requires excess energy to be stored during high-output periods and released during high-demand or low-generation periods. Even though storage technology and deployment has grown rapidly, the costs remain high to implement at scale.
Electrification and AI driving demand for power
Due to manufacturing onshoring, electrification and surging AI data centre usage, the demand for electricity is accelerating. It is estimated that over the next five years, the US will see annual load growth of at least 3 per cent with further upside potential as data centre demand increases alongside demand for AI computing, compared with growth of around 1 per cent today.
According to Berkeley Lab’s 2024 United States Data Center Energy Usage Report, the demand for US data centres will increase from 176TwH in 2023 to 325-580TwH in 2028, which equates to between 6.7 per cent and 12 per cent of total US electricity consumption, up from 4 per cent currently.
Source: Berkeley Lab – 2024 United States Data Center – Energy Usage Report
Investments from hyperscalers
Hyperscalers, which are large technology companies using data centres for cloud computing and data management services, have started turning to nuclear energy as a solution to provide round-the-clock reliable energy supply that is also carbon neutral. At the moment, the main bottleneck facing hyperscalers is the time it takes to build these plants.
The long lead times, of over 10 years, conflicts with hyperscalers’ plans to deliver nascent high-profile artificial intelligence technologies as soon as possible. However, there are hyperscalers like Microsoft and Amazon that have been leveraging existing nuclear capacity and exploring reactor designs to mitigate cost and the long lead times for construction.
Policy support
Government policy has also been increasingly supportive. The most prominent example is the US Inflation Reduction Act (IRA) which contains several tax credit provisions that serve to improve the financial viability of nuclear power plants. These include the production tax credit, which supports both existing operational and new plants, while investment tax credits help reduce the upfront cost to build new capacity.
Note, however, that recently under the Trump administration, the longevity of these incentives has become uncertain, with the US government looking to now reduce or phase out much of the IRA, although it is less onerous for nuclear compared to other renewables. Additionally, despite the proposed IRA changes, the US president has signed a separate executive order to revitalise nuclear generation by reducing regulatory burdens on delivering new capacity.
The investment case for nuclear
We support the nuclear theme as part of the energy transition. However, for us to take exposure with nuclear, the underlying assets must meet our infrastructure definition by either being “regulated” or “contracted”. One or both of these arrangements serves to secure the investment and operating costs of the plant as well as the return to the shareholder.
While we do have nuclear power exposure through multiple US utility investments, such as Dominion Energy, which owns regulated nuclear facilities in Virginia and South Carolina, we are also closely monitoring nuclear-exposed independent power producers like Constellation Energy, Talen and Vistra.
While these stocks appeal in different ways, they currently either lack the cash flow visibility we require in our investments or lack a compelling enough risk-reward proposition amid stretched valuations.
AI-related energy consumption, proactive policies and urgent decarbonisation mandates are all powerful catalysts, consistently driving up demand for nuclear as an effective energy solution. Yet the significant hurdles of long lead times and high construction costs for new builds will continue to be a primary concern for many nations. Still, there is no denying that nuclear energy is undergoing a renaissance.
