With worldwide oil prices now well off their July highs, a Fool might expect the frenzy of investment in "alternative energy" to have abated. That Fool would be wrong.
In the latest example of how even the most serious of companies (and not just ethanol-drunken daytraders), are enamored with all things non-hydrocarbon, industrial heavyweights General Electric (NYSE: GE ) and Hitachi (NYSE: HIT ) announced last week that they will combine their nuclear businesses. Their aim: To form a company strong enough to compete on the world stage against the likes of Toshiba and Shaw Group (NYSE: SGR ) (the new owners of Westinghouse Electric), and the recently formed alliance between Areva and Mitsubishi Heavy Industries.
The structure of the deal envisions setting up a pair of joint ventures, one in the U.S. (majority-owned by GE) and one in Japan (majority-owned by Hitachi). In addition, Hitachi will contribute several hundred million dollars in cash. According to the companies, the joint ventures will have combined annual revenue exceeding $2 billion -- but things could get better still.
There's a huge amount of money on the table for companies that can compete effectively in this space. Leaving aside the profits to be made from selling nuclear-generated electricity in a post-Hubbert Peak world (where oil production declines because of depletion), the building of nuclear plants alone is big business. According to Hitachi, nations from America to China to India have plans on the drawing board to build more than 100 new nuclear power plants over the next 20 years. (At least 20% of them are expected to be built in the U.S. at the behest of utilities such as Constellation Energy (NYSE: CEG ) , Exelon (NYSE: EXC ) , Southern (NYSE: SO ) , and Entergy (NYSE: ETR ) .)
With a 1,000-megawatt facility costing more than $2 billion to build, that's $200 billion in revenues -- or $10 billion per year on average -- for the taking. To put that number in perspective, consider that last year, Hitachi and GE combined booked just $2.4 billion in nuclear-related revenues. The growth prospects appear to be (forgive me) electrifying.
That said, GE and Hitachi will need to grow their market share or risk losing even the business they've got. At last report, their combined market shares stand at just 13%, trailing Toshiba/Shaw's 24% share. The fact that most of the old U.S. reactors currently being considered for replacement use Toshiba/Shaw's "pressurized water" technology, as opposed to GE/Hitachi's "boiling water," suggests that the newest alliance will need to do something radical if it's to win a bigger slice of this growing (and glowing?) nuclear pie.
For our thoughts on what that "something" might be, read: "Will America Go Nuclear?"
For more details on Toshiba/Shaw, try:
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Fool contributorRich Smithdoes not own shares of any company named above.