Can Nuclear Fill the Energy Supply Gaps?
May 7, 2024
The simultaneous push to develop more advanced AI and promote electrification is placing significant strain on the US electrical grid. Electrification involves transitioning devices from fossil fuel usage to electricity, aiming to mitigate carbon emissions. The surge in AI adoption has substantially increased the energy demands of data centers, which account for approximately 6% of global electricity consumption. Both trends necessitate substantial expansions of the US electrical grid, but wind and solar energy are not yet capable of replacing fossil fuels. They are both intermittent energy sources – requiring substantial battery capacity to ensure consistent supply. Nuclear energy is the only viable option to meet the dual challenge of reducing carbon emissions and satisfying the escalating demands of AI and electrification.
Nuclear energy offers several appealing factors as a means of meeting energy demand. Firstly, despite being a non-renewable resource, it generates no direct carbon dioxide emissions, thus aiding in the attainment of net-zero emissions goals. Major tech companies like Microsoft and Amazon, among the world’s largest energy consumers, have already entered agreements to power some of their data centers with nuclear energy. These tech giants will likely continue to finance nuclear energy projects, as it enables them to power their data centers while aligning with their net-zero objectives.
Nuclear also has a higher capacity factor (a measure of how often a power plant is running at maximum power) than any other energy source currently used in the US. In 2021, nuclear ran at max power 93% of the time, compared to 54% for natural gas, 35% for wind, and 25% for solar. EVs are typically charged overnight when wind and solar have some of their lowest capacity factors. Data centers, of course, run 24/7. Nuclear power, at double the capacity factor wind and solar, is better equipped for these 21st century electric needs.
Lastly, uranium offers greater geopolitical security compared to many fossil fuels or renewable energies. Renewable energies heavily depend on trade with China, which controls significant reserves of metals. However, uranium reserves are in countries that are strategically advantageous for the US. Both Australia, with 28% of reserves, and Canada, with 10%, can produce large amounts of uranium. By relying on nuclear power, US energy generation would become less dependent on global powers with whom the US often has contentious relationships.
Valuations for utility companies are currently low compared to the market and due to their defensive nature could provide upside if markets begin to weaken. Focusing specifically on a subsect of utilities that have exposure to nuclear power could provide long-term upside due to the necessity of nuclear to compensate for higher electrical demand and lower carbon goals.
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