If there’s ever a fire at a solar farm or wind farm, one thing you’ll never read is …
“… no contamination risk.”
Last week we got word of an explosion at a nuclear power plant in France.
Authorities confirmed that the blast was caused by a fire in an area that’s outside of the nuclear zones of the power station. They also referred to the the blast as a “minor event” and assured that it did not pose a safety risk.
I don’t doubt their analysis. And apparently explosions in turbines are not uncommon. Certainly this is true in the case of coal and natural gas-fired plants. But here’s the difference: No one reports on turbine explosions when they happen in coal and natural gas-fired plants because there’s never any fear of dangerous levels of radiation. Of course, fears of radiation from something similar to what just happened in France are also without merit.
But it’s not about the reality of what happens, it’s about the perceived reality.
Say what you want about nuclear being safe and clean, but if you live near a nuclear power plant and you hear about an explosion, your first reaction isn’t going to be a particularly calm one.
Safety is an Illusion
In the past, I’ve been accused of being anti-nuclear. But I’m not anti-nuclear at all. I don’t find the process of nuclear power generation inherently unsafe either. What I do find unsafe is human behavior. Lax policies, sub-par safety procedures, and poor logistical planning are the things that make rational human beings sour on the expansion of nuclear power.
What just happened in France is not uncommon. And the truth is, no nuclear power plant is 100 percent “safe.” Nothing is, for that matter. There’s nothing in life that comes with an unconditional guarantee of safety, and expecting as much is simply the fault of our own irrational demands.
The same is true for investors.
There is no investment that comes without risk. And if anyone tells you otherwise, you’re being lied to.
Just as in life, when we invest, we decide how much “safety” we’re willing to forgo in an effort to get what we want.
It’s really about proper analysis. How do you analyze your risk? Particularly when it comes to investing in the energy space?
Looking at our energy economy, we rely on a number of primary sources: coal, nuclear, natural gas, solar, wind, and hydro.
Analyzing risk with these, I can tell you that that there are really only two sources here that I find to carry enough risk to be considered unappealing for the sake of long term growth.
Coal is one.
Even with Donald Trump backing the industry, cheap natural gas and the rise of “cheaper” renewables is putting the kibosh on coal.
Three years ago, coal accounted for 40 percent of all electricity production in the U.S. Next year, it’ll fall below 30 percent. As I recently wrote, you can’t lose 10 percent market share every four years and survive.
There will likely be a small push for coal in the first half of this year, but it won’t take long for the Trump effect to wear off, leaving coal’s death spiral to continue.
The other source that carries more risk than I’m typically willing to take on is nuclear. This is for two reasons:
1.) There’s no doubt that nuclear is simply too cost prohibitive to pursue without a steady flow of subsidies. Forty years ago, the promise was cheap nuclear power after the industry got off the ground with the help from the government. Yet here we are today, and without government supports, it simply can’t compete with natural gas or the dual threat of renewables plus storage.
2.) While major nuclear accidents don’t happen everyday, the economic fallout from these events don’t disappear overnight. The steady decline in uranium speaks volumes about this reality.
Despite a small up-tick from 2014 to 2015, uranium prices have continued to trend downward for the past seven years.
However, for uranium investors, the good news is that new global policies to fight climate change are giving a much-needed nudge to new nuclear power plant construction. There are actually 60 nuclear power reactors under construction right now, with most being built in China, South Korea, UAE, and Russia.
Truth is, as much as I don’t like to have exposure to the nuclear power space, I must admit that when uranium fell below $19.00 per pound, I didn’t hesitate to find myself a quality uranium stock. Anything below $30 is a bargain, and I took full advantage.
The one uranium stock I really like right now is Fission Uranium Corp. (TSX: FCU) (OTCBB: FCUUF).
According to uranium investment expert Nick Hodge, Fission owns the largest, shallowest, purest unmined deposit of uranium in the world, and it’s in the best known uranium mining jurisdiction. China’s gonna need it, by the way, and they’ve already bought 19.9% of the company.
It’s also going to double in size from here. A new resource estimate is due out this spring. And it’s also drilling for more right now, growing it’s deposit, but also looking for a brand new discovery on the property.
I like Fission and for the sake of full disclosure, I do own shares. It’s incredibly undervalued right now, and as long as we don’t have another Fukushima hit anytime soon, I suspect the stock price will continue to trend upward along with the price of uranium.
My price target on Fission is $1.50. And once it hits, I’m taking my winnings and going home.
Certainly it could go much higher, but when it comes to investing in the nuclear / uranium space, I’m not going to get too greedy. Because mark my words, another really bad nuclear accident is going to happen and I don’t want to be anywhere near uranium when that happens.
So yes, it’s really about analyzing how much risk you’re willing to accept.
In this case, I’m willing to accept a bit more risk than I typically take on because, well, uranium is just too damn cheap right now, and Fission is a bargain at these levels.