Nuclear is a perilous share pick
ANUCLEAR dawn could be breaking. After decades without a new nuclear generator anywhere in the UK, Britain is just weeks away from signing on the dotted line for a fleet of reactors.
Nuclear power is expected to play a huge part in the future of Britain’s electricity system. There are two reasons for this. First, the UK’s current crop of plants, which have been pumping out power round the clock for decades, are coming to the end of their life. Almost all of them will close within the next ten years.
Even to keep nuclear activity at today’s levels requires a host of new generators.
Second Britain’s energy sources are changing.
Government policy, partly due to edicts handed down from Brussels, is to close ageing coal plants that are seen as dirty and polluting, and replace them with cleaner alternatives such as wind or nuclear.
Offshore wind, as well as being expensive, is intermittent.
Nuclear, however, is never off, making it more attractive if funding can be agreed.
On his visit to China this week, Chancellor George Osborne was closing some of the final details on Hinkley Point.
The £25bn Chinese-backed plant to be built in Somerset by EDF could supply 7pc of Britain’s electricity needs.
Sizewell in Suffolk is expected to follow, with Bradwell in Essex being led by the Chinese.
Further afield, there is something of a nuclear renaissance. China, in spite of slowing growth, is still expected to quadruple its nuclear capacity by the end of the decade. Japan, which shut down all of its reactors following the Fukushima disaster in 2011, has begun switching them back on again.
But how do ordinary investors get into the nuclear game?
EDF is listed in Paris and controlled by the French government. The two Chinese firms involved are state- owned. Hitachi, which has plans for two reactors in the UK, is Japanese. NuGen, the third group vying to build nuclear plants, is a consortium between French firm Engenie and Toshiba of Japan.
In order to gain exposure to nuclear power, investors will have to look further down the supply chain. Engineers that may cash in on nuclear include Balfour Beatty, Costain and Weir. Rolls-Royce makes parts for the reactor.
The Nuclear Industry Association, Britain’s atomic trade body, suggests other options.
A number of firms carry out uranium enrichment. The best known, Urenco, is part-owned by the UK and Dutch governments and German utilities RWE and Eon.
But it is possible to get exposure to smaller firms in the field, such as London-listed Geiger Counter Ltd.
Mining firms that extract the metal are also an option.
Rio Tinto is the largest Londonlisted option after BHP Billiton shut its own Australian copper and uranium mine over the summer.
Of course, any possible benefit from the UK’s nuclear renaissance is only one factor to consider for investors contemplating buying shares in a global mining titan. Along with others in its sector, BHP has recently been hit by the world commodities rout.
Another option i s to i nvest through exchange traded funds (ETF), which track the performance of a particular commodity or stock. Eric Balchunas, an ETF analyst at Bloomberg, lists several possible options, such as Global X Uranium. It holds stakes in 23 uranium mining companies, with 60pc in Canadian stocks, 20pc in Australia and 11pc in the US. But beware – 70pc of its holdings are in small firms, making it volatile. Another option is the Market Vectors Uranium+Nuclear Energy ETF, which has exposure to nuclear operators as well as mining firms.
Balchunas said: ‘They’re both risky – a lot of variables feed into the outlook for nuclear energy, both practical and political.’
He added that ‘any investor venturing into them should be looking at the long term’.
Laith Khalaf, senior analyst at Hargreaves Lansdown, cautioned against flinging head long into the sector. He said: ‘Using ETFs to gain exposure is a pretty risk endeavour and comes with a big health warning.’