Alternative energy sources get cheaper and … should we rethink nuclear?

By Jonathan Jackson. Published at May 1, 2020, in Features

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Who would have ‘thunk’ it?

Energy is the top performing sector this week, up over 12 per cent.

Oil Search (ASX:OSH), Santos (ASX:STO), Origin (ASX:ORG) and Beach Energy (ASX: BPT) all rose over 10 per cent (at time of writing) this week.

It’s a far cry from last week when we saw stunning data highlighting the fall in the oil price into negative territory as West Texas Intermediate Crude hit the lowest level on record.

You may remember that for the first time in history, crude oil prices fell into negative territory as West Texas Intermediate, the US benchmark, traded as low as negative US$40.32 per barrel in a day of chaos in oil markets. The settlement price that Monday was -US$37.63, compared to US$18.27 on Friday.

Big drop, but what does it mean for alternative energy players?

Forbes put out a great article this week looking at the ramifications of the drop in oil price on other forms of renewable energy.

In the past, oil price dips have had a negative impact on renewable sectors, however this time could be different.

Forbes contributor Cherry Reynard reports, “A low oil decreases price competitiveness for renewable energy. This has a number of immediate impacts: governments find it more difficult to subsidise renewable energy initiatives as they are relatively more expensive, while consumers have less incentive to switch out of existing fossil fuel options and embrace alternatives. They are also less inclined to make fuel savings and encourage efficiency.

“However, there are a number of reasons why this time may be different to previous oil slumps. Renewable energy looks much more competitive on its own terms. The World Economic Forum reports: “Since 2010, the benchmark price for solar has dropped 84%, offshore wind by more than half and onshore wind by 49%. The price of lithium-ion battery storage has dropped by more than three quarters since 2012.”

Should we also consider nuclear?

In September 2019, the World Nuclear Association produced a report modelling a predicted divergence in the supply and demand curve globally for uranium. The report showed demand outstripping supply from 2023.

In other words, there is a looming uranium supply and demand mismatch and the Association believes the uranium industry is only a couple of years away from firing again, leaving behind fears of another Fukushima.

There is another reason to be positive about nuclear energy: it could play a crucial role in the decarbonisation of the world.

Such is the shift in thinking around nuclear’s role to combat climate change, that Microsoft co-founder Bill Gates is making the rounds in Washington to persuade the US Congress to spend billions of dollars over the next decade for pilot projects to test new designs for nuclear power reactors.

Nuclear is ideal for dealing with climate change, because it is the only carbon-free, scalable energy source that’s available 24 hours a day,” Gates said in his year-end public letter. “The problems with today’s reactors, such as the risk of accidents, can be solved through innovation.”

Of course, Gates has a vested interest, but he does have a point.

Small cap performers

Speaking of energy, and looking at one small cap in particular in the uranium space, Gti Resources (ASX:GTR) crept from $0.006 to a high of $0.013 this week (it is currently $0.011) on the back of news that it was gearing up to drill its Utah uranium and vanadium project.

The timing is excellent as US look to regain powerhouse status in nuclear production.

US president Donald Trump’s 2021 budget now includes expenditure of AU$230.7 million per annum for 10 years to create a strategic uranium reserve.

GTR is sitting on walk up ready drill targets in underexplored ground along trend from historical workings and looks to be an undervalued uranium/vanadium play, especially as uranium is set to become a bigger discussion point in the clean energy revolution.

Read: Multiple catalysts support GTI’s decision to progress Utah uranium projects

Other ASX small caps to have done well this week include: TAO Commodities Limited (ASX: TAO up as high as 75% following the release of assay results at its Utah based gold project; Decmil Group Limited (ASX: DCG) up 67%; Torian Resources Limited (ASX: TNR) up as high as 46%; The GO2 People Limited (ASX: GO2) up 30% and Energy Empire Limited (ASX: EEG) up 27%).

Highs and lows of the market

Information Technology was one of the best performers on the ASX this week up over 10 per cent while Consumer Discretionary is up over 9 per cent. The worst sectors were Utilities down over 1 per cent, while Consumer Staples and Healthcare are both down just under 1 per cent so far.

Looking at the ASX top 100 stocks, Worley Parsons tops the list up over 30 per cent followed by Virgin Money up over 28 per cent and IOOF up over 27 per cent. The worst performers include Qube, which is down over 7 per cent, while ResMed and Spark Infrastructure are down over 5 per cent.

So what's next for the Australian share market?

As Wealth Within’s Dale Gillham points out, “a week can be a long time in the stock market given that over the past two weeks the market was looking weak, but this week there has been a distinct turn around with it moving to its highest level in seven weeks.

“While I do not believe we are out of the woods just yet, as the current move up may still be a sucker’s rally, the signs are far more promising that the market will return to being strong this year.

“So far, the All Ordinaries Index has stayed above the important level of 5,000 points and is rising. As such, I believe we will experience a more sustained rise over the next month.

“That said, if the market fails to rise above 5,800 points over the next month, it will signal that the market is weak. So while the news is far more positive, I still recommend investors be on their guard and only buy quality stocks.”

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