I recently released an article regarding the NFWG report. The report sets out a list of ideas that are intended to help restore America’s competitive nuclear energy advantage. Uranium investors had been waiting for for the report for what seemed like an eternity, but now it has finally arrived, confusion has been spreading through the ranks. This is indeed a policy document, but the lack of details and clarity in certain areas needs to be rectified.
That’s why we recently interviewed uranium expert and Bannerman Resources (ASX: BMN) CEO, Brandon Munro. He has provided us with insights throughout the recent bearish noises in the market and these have been incredibly helpful. In the second part of this series of articles exploring the U.S. Department of Energy’s recent announcement, we ask Munro to shine a light on definitions within the NFWG report that many investors have found confusing. In this article, we’re talking about the U.S. government’s stated intention to level the playing field between nuclear energy and the renewable energy industry. What exactly could this mean for the uranium space?
Levelling The Playing Field Between Nuclear Energy & Renewables
The implications would seem to fall into one of two possibilities: either renewables are going to receive fewer subsidies, or nuclear subsidies are going to be increased. How does Munro see this playing out?
Munro feels the “easiest” mechanisms to level the playing field between nuclear energy and renewable energy fall into several categories.
Reward the nuclear industry’s capacity to produce zero-emission energy. This has been the approach in New York state. Nuclear energy has had its reputation damaged in the past, but has this stopped nuclear energy being rewarded for its green credentials, especially given renewable energy has been?
Reward nuclear energy for its resilience. The government needs to recognise that in times of obscurity, only nuclear energy comes out on top. In hurricanes, polar vortexes and other similar incidents, nuclear energy is still able to provide a fuel source for energy-hungry nations. For example, during a polar vortex, coal and gas are unable to continue providing energy. The administration must acknowledge the strategic importance of this resilience.
Is there another side to this definition?
Away from the increase in subsidies for nuclear energy, there are issues with an excess of subsidies on the side of renewables.
Munro refers to these as “serious distortions.” One noteworthy example is in wind energy subsidies. In the wind sector, there are certain instances when subsidies continue to be paid even when the grid doesn’t need the energy. This clearly doesn’t make sense.
This imbalance in subsidies has created a situation where grid operators are imposing congestion charges on all of the players. Gas, for example, can turn off very quickly. However, nuclear power can’t turn online and offline that quickly, so they pay much more in the shape of congestion charges. This comes despite nuclear energy being crucial when the wind stops blowing. Nuclear energy companies no longer want to be paying in order to provide energy. This appears to have been an unusual, unsustainable approach.
The serious distortions find themselves at their most prevalent when wind power operators continue to be paid subsidies, even when they’re paying a congestion charge, so they are able to continue feeding “unneeded” and “destructive” power into the grid, right up until the congestion charge is equal to the subsidy. This mean that renewables find themselves in a privileged situation, while the taxpayer foots the bill by paying for the unnecessary subsidies. The nuclear power operators also suffer the ramifications, because they have to remain on, so they aren’t brownouts or blackouts during interrupted wind activity.
When these issues conglomerate, they create a dramatic impact on a number of US utility companies and their ability to remain competitive in a generalised market. Munro thinks it’s about time the government is finally interfering, and now these “unfortunate structures” can finally be addressed to redress the balance between nuclear and renewables.
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
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