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The nuclear disaster at Fukushima has resulted in drastic changes to Japan's power grid. It's also led other countries to make changes, too. Although wholesale shifts may be great for scoring public relations points, they can cause unintended consequences. Look for nuclear and coal power generation, and the companies that supply the plants, to stick around for years to come.
The series of events that led to the nuclear meltdown in Japan was the epitome of the perfect storm. However, the massive scale of the damage from the earthquake, tsunami, and subsequent nuclear plant disaster has left the country scared of a repeat. Japan has effectively shuttered its entire nuclear fleet.
Nuclear plants generated around 30% of the country's power before Fukushima; replacing almost a third of the country's electricity has been difficult. That's why a record amount of coal was used in August. Germany also made plans to shutter its nuclear plants after Japan's disaster.
Germany expects to be nuclear-free by 2022. With a longer lead time, Germany has been trying to make something of a "green" shift in the process. That said, coal imports are up notably in 2013 because of high natural gas prices, which is also one of the main reasons for Japan's coal shift.
Without the option of increasing nuclear output, both Germany and Japan have had little choice but to shift back to coal to keep electricity prices from rising. Not exactly the outcome that environmentalists might have hoped for, but a long-term positive for coal nonetheless.
The United States has seen an increase in nuclear plant closures, too, with five announced over the past year. That will pull over 4,000 megawatts of power out of the U.S. electric grid. Luckily, the main reason for shutting these plants isn't the concern about nuclear power's safety—it's about money. For example, Entergy (NYSE: ETR ) , one of the largest nuclear plant owners in the country, cited the impact that low U.S. natural gas prices have had on the wholesale energy market as a factor in its decision to shutter a nuclear plant.
Edison International (NYSE: EIX ) made a similar call about one of its nuclear sites. The company noted that its "efforts are better focused on planning for the replacement generation and transmission resources which will be required for grid reliability" than paying the potential repair costs. Basically, Entergy and Edison are making good financial decisions for their shareholders and customers by closing down plants that will be more expensive to keep running than to replace.
Servicing the fleet
Luckily, these nuclear closures are just business decisions. The U.S. Energy Information Administration (EIA) highlights that U.S. nuclear capacity is likely to increase by over 5,000 megawatts in the coming years. That's more than enough to make up for the closures. And it's good news for companies like Rio Tinto (NYSE: RIO ) and Cameco (NYSE: CCJ ) that supply fuel to nuclear reactors.
Cameco, a pure-play uranium miner, expects the United States to end up with one new plant over the next decade. Across the globe, however, it is projecting that 91 more reactors will be active in 2022 than are running today. That will bring the total count to 521 potential customers. And that number includes plant closures. China and India alone account for 70 of the new reactors, not surprising since this pair is rapidly industrializing.
Rio Tinto, meanwhile, is a far more diversified company. Uranium production was up 24% in the first half but is a relatively small part of the company's business. In fact, uranium gets lumped with coal in the company's energy business, which represents about 10% of the top line. That said, Rio is in position to benefit from both the broader increase in nuclear power and the demand for coal from nations that have decided to shutter their nuclear fleets.
Rio's big copper and iron ore businesses will also benefit from the building of these new nuclear plants. And that's on top of the expected increase in coal plants that is likely to be occurring at the same time. Which is a reason to also look at diversified miner BHP Billiton (NYSE: BHP ) .
BHP, with massive Australian operations in iron ore and coal, among others, has a front row seat for both the expansion plans in Asia and the shifting energy mood in Japan. And like Rio it has remained profitable despite the downturn that the mining industry is suffering through today. BHP has also been expanding in the oil space, further diversifying its energy exposure. That company's petroleum and potash division makes up about a quarter of the company's earnings before interest and taxes.
Growth all around
Japan and Germany are facing the consequences of their no-nuclear plant stances, which has meant more coal. That's been a rare bright spot for coal miners during an industry rough patch. Long-term, however, neither nuclear or coal are going away anytime soon. And that will be good news for pure-play uranium miner Cameco and more diversified Rio Tinto and BHP.
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