UBS: Fukushima is worse for the nuclear industry than Chernobyl

Fukushima Daiichi before the tsunamiThere has been a great deal of commentary in the last few weeks that the nuclear crisis at the Fukushima plant is not as bad as the Chernobyl meltdown.

We can only hope that prediction proves correct. But for the nuclear industry, say the analysts at UBS, the consequences are already even worse.

In a mammoth 140-page report looking at the future of the global nuclear industry, they say:

While the 1986 Chernobyl accident, at least to date, had a significantly greater environmental impact, we would argue that Fukushima raises even larger credibility issues for the nuclear industry than previous accidents.

They say this is for two reasons:

  • Fukushima is happening in an advanced economy using American/Japanese reactor technology, not in a totalitarian state with substandard technology and no safety culture.
  • The size and duration of the accident is unprecedented. Four reactors are facing significant damage and it has already lasted three weeks without engineers getting the situation under control.

The report predictably forecasts that safety regulations will be tightened, adding that plants’ life extensions will likely be legally limited with many plants forced to shutdown in a bid to appease public anger – naming 30 which are particularly vulnerable.

Even more significantly- especially for investors in nuclear providers - the UBS analysts argue there could be an entire re-evaluation of the risk of nuclear companies, both by governments and insurers.

This could mean not just higher operating costs for operators, but a greater chance that if the worst should happen, procedures will have been put in place to make sure there is no taxpayer bail-out. From the report:

If the government takes the risk, then it needs to take into account this risk when deciding future energy policy. But if liability will be wholly or partly with the operators, we think discount rates will likely need to be higher.

In other words, investors will need to adjust to the new reality of nuclear operators being significantly more risky than other utilities.

It might come as a surprise however that three of their picks for companies to buy are EDF, Eon and Shanghai Electric: all utilities with nuclear capacity.

 

 

 

The rationale, however, is that all three have been oversold in the wake of Fukushima. EDF, the report says, will benefit from supplying Germany with any capacity lost from its own nuclear crackdown, as well as (slowly) increasing market liberalisation in France. Eon is losing less capacity than the market seems to think (2.2GW), and will be helped by increased demand for gas. Shanghai Electric already has a nuclear order backlog of more than 30bn yuan. It also focuses on making AP1000 technology, a modern form of plant which might be one of the winners from the closure of more outdated generators.

In general, UBS argues the big winners from Fukushima will be gas, and to a lesser extent coal and renewables. The losers will be nuclear, consumers (through higher power costs) – and the environment.

 

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