In the ongoing conversation regarding the role that renewable forms of energy can play in diversifying the national energy mix, discussion is usually dominated by wind and solar. There is good reason for this, as wind and solar capacity is compelling, and the environmental benefits are indisputable. One form of energy that gets lost in the conversation is nuclear, a form of energy that has been left by the wayside. But nuclear could still have a role to play in the U.S. energy portfolio. It may come as a surprise, but nuclear energy is currently considered a sustainable form of energy, and some analysts believe that in the future, new technology may enable it to be considered renewable.

Concerns over the safety of nuclear energy are well documented. Primarily, the risk of nuclear energy is the safe handling and disposal of nuclear waste. In addition, nuclear energy production is volatile and can carry significant risks to public health during natural disasters, as evidenced by the 2011 Fukushima accident.

Nevertheless, recent industry developments have revived nuclear energy’s standing in the present and future of U.S. energy.

A new standard

In December, the state of New York passed the Clean Energy Standard, which seeks to ensure that half of the electricity produced in that state comes from renewable energy sources. This is one of the most ambitious policies in the nation, and sets a clear standard for states to follow in the future. The Clean Energy Standard sets a mandate with the goal of providing clean energy at a lower cost to consumers. What is most interesting about New York’s Clean Energy Standard is that it uses clear language, in no uncertain terms, about the need for nuclear energy as part of a clean energy mix.

The Clean Energy Standard makes this abundantly clear:

“As New York State continues to aggressively add new renewable resources, it cannot lose ground in the fight to reduce carbon pollution through the unnecessary retirement of safely operating nuclear power plants in Upstate New York. The early closure of those plants would result in increased carbon pollution from fossil fuel generators, reduced fuel diversity and unstable electric prices, as well as job losses and economic distress in Upstate communities.”

This is a notable statement, as it provides significant cover for the nuclear industry, which is important to New York’s economy. Of course, New York isn’t the only state that relies upon nuclear energy, and this statement gives the industry a longer leash to work with. According to the U.S. Energy Information Administration, there are 60 commercially operating nuclear power plants in the U.S., spread across 30 states.

Nuclear is presently considered a sustainable source of energy, not a renewable source. But some analysts believe this could change going forward. Contributor James Conca of Forbes writes that nuclear “could become completely renewable if the source of uranium changed from mined ore to seawater.” The rationale is that there is enough uranium in seawater to ensure an essentially unlimited supply of the element, making nuclear renewable in the same sense as solar power.

This would be huge for the industry, because nuclear energy and the companies that produce it have been under significant public and regulatory scrutiny for years.

 

Companies to watch

Exelon (NYSE: EXC): On Aug. 10, Exelon announced it would buy the James A. Fitzpatrick nuclear power plant in upstate New York from Entergy (NYSE: ETR), for $110 million. The agreement was made after the adoption of the Clean Energy Standard, and the deal was likely due in large part to the favorable sentiment expressed toward nuclear energy and its importance to the state economy. 

Prior to the passage of the Clean Energy Standard, Entergy had indicated it would shut down the 838 megawatt Fitzpatrick facility for economic reasons, and in the aftermath of the sale, CEO Leo Danault said the pending sale was in the best interests of all Entergy stakeholders.

In addition to Fitzpatrick, Exelon operates two other nuclear plants in New York, as well as 21 other reactors in the United States. Exelon is the number one nuclear producer in the U.S., with more than 19,000 megawatts of nuclear generation. But the harsh environment facing nuclear power has negatively impacted Exelon. Its operating profit and earnings per share were lower in 2015 than in 2011, which forced the company to cut its dividend by 41 percent in 2013. For this reason, investors should celebrate the Clean Energy Standard.

Southern Company (NYSE: SO) is another major potential winner if nuclear energy retains its place in the U.S. energy mix. Southern has invested a great deal in nuclear energy, currently developing two major nuclear projects, Vogtle Units 3 & 4, which stand to be the first new nuclear units built in the U.S. in the last 30 years. Like Exelon, Southern could use a boost. Its revenue was lower last year than in 2011, which is why its major nuclear plant projects are so important for the company and its investors.

Bob Ciura is an independent equity analyst. Since 2012, his work has focused on fundamental investment analysis of publicly-traded companies in the energy, technology, and consumer goods industries. Bob has a Bachelor's degree in Finance and an MBA in Finance.