Japan will rekindle its nuclear ambitions - and it's about time.
Prime Minister Fumio Kishida said on Wednesday that Japan will restart its idled nuclear reactors, and is looking to build a next generation of nuclear power plants. It's a key step as the country looks to reduce its reliance on fossil fuels.
Japan imports all its oil, making it the world's largest importer behind China, the United States and India. It has sidelined the vast majority of its nuclear power stations since the disaster in three reactors at the Fukushima Daiichi nuclear plant in March 2011.
A decade later, only six of Japan's 33 nuclear power plants are currently in operation. Kishida said on Wednesday that Japan will also seek to extend the life of these existing plants, which currently normally have a mandated 60-year lifespan. He has instructed officials to prepare a plan by the end of the year for the resumption of the nuclear industry, while still reflecting public opinion, which is divided but warming to the issue as utility bills rise.
Kishida is pushing ahead with his domestic agenda after a strong showing for his Liberal Democratic Party in Upper House elections in July. Further fiscal stimulus as well as Japan's continued emergence from Covid restrictions will be the drivers in the months ahead.
Globally, nuclear power capacity needs to double. That's the verdict of the International Energy Agency in its Net Zero by 2050 report. Not only is a greater reliance on nuclear an aid to green policies, but it also helps enhance energy stability for nations that rely on overseas energy producers. The Russian invasion of Ukraine has revealed how damaging it can be to have a country's energy supply tied to an unreliable near-neighbor.
If global nuclear capacity does double to 812 gigawatts per year, the IEA estimates that would eliminate 1.5 gigatons of emissions around the world, while also cutting global gas demand by 180 billion cubic meters. It makes good economic sense to decarbonize, too: tensions with Russia and Iran have driven up natural-gas prices by 68% so far this year, and coal prices have soared 143%.
Due to technological innovations, nuclear plants can be smaller than ever. There are only two new nuclear plants under construction in the United States, the global leader in nuclear production, so it will be in Asia that the nuclear industry will have its future. However, U.S. expertise would be a boon to would-be nuclear nations. Of the 31 reactors that have started construction in the last five years, 27 are Russian or Chinese by design.
While the United States generates more nuclear power overall, it is France that leads the world in terms of its energy mix, getting almost 80% of its energy from nuclear generation. Nuclear power is about 20% of the U.S. energy mix.
Nuclear is now virtually nonexistent in Japan. We see in South Korea, which gets 25% of its energy from nuclear plants, how East Asia can structure its energy future. And indeed, Japan was getting 30% of its power from nuclear before the Fukushima disaster.
The nuclear-oriented investment options in Japan include some of the largest multinationals.
The largest of the large caps is Hitachi (HTHIY) and T:6501, which has a nuclear joint venture with General Electric (GE) . Wilmington, N.C.-based GE Hitachi Nuclear Energy was formed 15 years ago when the two partners combined their nuclear power businesses. The name is flipped around in Japan, where it is known as Hitachi-GE Nuclear Energy. The company has designed a next-gen nuclear reactor that uses boiling water and steam to generate power, rather than the typical approach using pressurized water, with the first example installed at the Kashiwazaki-Kariwa Nuclear Power Plant near Niigata. There are similar projects under way in Texas as well as in Taiwan.
Mitsubishi Heavy Industries (MHVYF) and T:7011 builds nuclear energy systems, and said in April that it is developing a range of nuclear reactors that are small enough to be delivered by container truck. The systems, about 10 feet tall by 13 feet wide, could be sent to remote districts or the sites of natural disasters. MHI is also working with the state-owned Japan Nuclear Fuel on the Rokkasho plant. Rokkasho will not only engage in early-stage uranium enrichment but also post-use spent-fuel reprocessing, extracting and recovering uranium and plutonium from fuel that has already been used in a nuclear plant.
IHI (IHICY) and T:7013 is a defense contractor - it makes spaceships as well as jet engines and warships - that builds parts for nuclear plant reactors, including next-gen boiling water reactors, and maintains nuclear plants. The engineering expert supplies components such as pressure vessels to contain nuclear reactors and power plant pipes. The company has established a joint venture with the Japanese government to invest in the NuScale Power (SMR) spinoff from Fluor (FLR) . NuScale is building a nuclear plant with seven or so small reactors in Idaho.
Tokyo Electric Power or TEPCO (TKECY) and T:9501 is notorious as the company that was operating the Fukushima reactor at the time of the disaster. The company has seven existing reactors that make up 24.8% of Japan's existing nuclear capacity.
Kansai Electric Power (KAEPY) and T:9503 is one of Japan's largest utilities, and its seven nuclear power plants account for 23.5% of Japan's currently installed capacity. It stands to gain massively as Japan reignites its reactors.
Chubu Electric Power (CHUEF) and T:9502 operates three nuclear-power plants, but they are particularly large. That gives the company 10.9% of Japan's installed nuclear capacity.
The stocks of these Japanese nuclear plays are already on the rise after Wednesday's word that the country will reignite its nuclear reactors.
Mitsubishi Heavy Industries climbed 6.9% on Wednesday in Tokyo, while IHI shares rose 5.4%. Hitachi, with so many other strings to its bow, got a slight 1.9% boost.
Among the utilities, TEPCO shares shot up 10.0%, with Kansai Electric Power up 2.9% and Chubu Electric Power up 1.3%.
Expect further stock price gains as Japan's nuclear program gets back in action. Japanese equities outperformed world markets by 13% in 2Q. They've been remarkably steady, and strong, thanks to the continued support of the central Bank of Japan. Policy is still highly supportive of the stock market. Yet overseas investors have been recent sellers of the Tokyo market, an unusual trend at a time the yen is weak.