As the world’s search for cleaner, more reliable fuel sources has become increasingly urgent, nuclear power is poised for a renaissance that may attract $1.5 trillion in capital investment through 2050, according to Morgan Stanley Research.
“After more than a decade of decline, nuclear power is making a comeback, potentially bringing investment opportunities across the entire nuclear value chain” says Tim Chan, Morgan Stanley’s Head of Sustainability Research for Asia Pacific. “Among the key factors propelling nuclear demand are the rise of energy-intensive generative artificial intelligence and a multi-country pledge to triple nuclear capacity by 2050.”
Over the next decade and a half, nuclear power plants may generate 17% of the global electricity supply, up from about 10% currently. From an investment perspective, that could benefit everything from uranium mining and nuclear power generation to physical infrastructure and waste handling, Chan adds.
“Nuclear energy can play a critical role toward decarbonization targets by providing stable and low-carbon baseload generation,” says Stephen Byrd, Head of Morgan Stanley’s Global Sustainability Research Team. “As climate change brings about more unstable weather patterns and it takes time for the economics of renewables and storage to become more competitive, we think the benefits of nuclear are obvious.”
Warming to Nuclear
For years, the nuclear power industry has been dogged by high costs; construction; and concerns about safety and waste. The industry has struggled even more since the 2010 accident at the Fukushima plant in Japan, which revived public safety concerns. But in 2023, more than 20 countries at the UN’s COP28 climate conference pledged to add 740 gigawatts of nuclear capacity by 2050, in strong acknowledgement of the role nuclear energy can play in curbing and eventually reaching net-zero carbon emissions.
“The goal of 740 additional gigawatts is lofty. For context, it took the world 70 years to get to 390 gigawatts of nuclear power capacity after the first nuclear power station was connected to the grid in 1954,” says Chan. “That said, we think new nuclear capacity is more likely to roughly double, with about 383.5 gigawatts coming online by 2050.”
Either scenario will require ample financing and much shorter construction times for nuclear reactors.
Government support—such as subsidies in the U.S. and new tax schemes in the EU, Japan and China— will be a key part of the funding equation. “While tax incentives dedicated to supporting nuclear power are still developing, we predict nuclear financing through government as well as corporate-issued green bonds will become increasingly popular,” says Chan.
From a regional perspective, Asia is expected to be the center of growth. China is on track to lead the world in constructing nuclear reactors. The country aims to boost nuclear to 10% of its total power generation capacity by 2035 from 5% today, with an eye toward 18% by 2060. Meanwhile, Japan is gradually restarting its nuclear reactor fleet shuttered since Fukushima and aims for nuclear to account for 20% of its energy mix by 2030 from 5.5% in 2020. However, analysts believe this will be a challenge to realize. Overall, Morgan Stanley Research expects investments in new capacity will total $470 billion in China, $250 billion in the U.S. and $197 billion in the EU by 2050. The new capacity will need about $128 annually to maintain after that.
Tech Drives Demand and Supply
Generative AI’s power demands are expected to skyrocket 70% per year and by 2027 will require the equivalent of Spain’s entire energy needs for 2022. Much of that power will feed data centers—giant warehouses where computing machines and hardware are stored—that are experiencing a surge in demand and investment corresponding with the AI boom.
The U.S., where the majority of data-center growth will take place, has significant potential to scale the use of nuclear energy. In 2020, the country had about 100 gigawatts of nuclear capacity. As of April 2024, the U.S. had only 10.5 gigawatts of proposed new capacity versus the roughly 300 gigawatts of capacity needed by 2050 to meet the country’s COP28 pledge. “We may see more announcements from the U.S. on new nuclear capacity,” says Chan, noting that building nuclear plants and data centers in close proximity would reduce transmission and allow for uninterrupted power without external connections.
Innovations in nuclear energy may also contribute to the investment growth picture, and a new U.S. law aimed at encouraging new nuclear technologies while cutting down red tape could help spur activity. Small modular reactors (SMRs), for instance, are a fraction of the size of conventional reactors and can be factory assembled and transported, offering scalability and flexibility. Though about 80 commercial SMR designs are being developed worldwide, only China, Russia, and Japan have any that are operating. Nuclear fusion, meanwhile, would be a safer, low-waste alternative to fission (and the technology can’t be used to develop nuclear weapons), but it remains elusive. Despite recent breakthroughs, commercialization is a long way off, although AI could aid in simulations that would accelerate research.
The Road to Nuclear
To be sure, the potential for growth in nuclear power must be weighed against a history of cost overruns, long reactor construction times and labor shortages, as well as the ability of uranium miners to meet this demand growth. “There is a large amount of idled supply, driven by a decade of low prices and a constantly changing narrative on the future of nuclear that drove mine curtailments,” notes Morgan Stanley Research Commodity Strategist Amy Gower. Recent uranium price rises are driving mine restart announcements, particularly in the U.S., though Gower highlights risks to delivering on capacity, particularly in jurisdictions where production has been idled for some time or where pushback from negative perceptions of nuclear could limit the amount of uranium available.
In addition, nuclear power requires large amounts of water, which is a concern in drought-prone regions as the effects of climate change intensify. And disposal of radioactive waste remains a significant concern with the general public, environmental groups and regulators.
Despite the hurdles of high costs and untested technology, investors are warming to the potential for a nuclear renaissance, as evidenced by nuclear power stocks outperforming the broader market since the COP28 meeting in December.
“If nuclear power can overcome its challenges, it may reward investors and lead the energy transition away from fossil fuels in a way that renewables can’t,” Byrd says.
For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full report, “A Nuclear Renaissance Is Coming,” (June 10, 2024).
