Nuclear Energy Has a Future in Japan

Japan's new Basic Energy Plan sees a future for nuclear energy.

Apr 15, 2014 at 1:32PM

Cameco Corporation (NYSE:CCJ) had noted earlier this year that the uncertainty in the uranium market seen in 2013 could continue. One of the reasons behind the uncertainty, as the company noted, was the situation in Japan where after the Fukushima nuclear meltdown, all nuclear reactors were shut. In fact, the previous government in Japan wanted to completely phase out nuclear energy. But, the government of Shinzo Abe sees a future for nuclear energy in Japan as evidenced by its recently adopted Basic Energy Plan. This is good news for the likes of Cameco, Denison Mines (NYSEMKT:DNN), Paladin Energy, Areva, and Rio Tinto's (NYSE:RIO) subsidiary Energy Resources.

New energy plan
As I noted in a previous article, Shinzo Abe's government in Japan drafted a new Basic Energy Plan in which it sees nuclear power playing an important role. Last week, the Abe government adopted the new Basic Energy Plan, which sees a future for nuclear energy in Japan. Despite considerable opposition and the previous government's plan to phase out nuclear energy, the Abe government has pledged to move ahead to restart nuclear reactors once they have been cleared by the Nuclear Regulatory Authority (NRA).

While the plan calls nuclear energy an important source of base load power, it does not provide any details on how much nuclear would account for in Japan's energy mix. Prior to the Fukushima disaster, nuclear energy accounted for 30% of Japan's total power generation. Given the opposition to nuclear energy, it is unlikely that Japan would go back to those levels. Also, the more stringent safety requirements would make restarting all of the idled nuclear reactors difficult. Still, the new energy plan has ended a great deal of uncertainty, which should boost the uranium market.

Nuclear makes economic sense
Although public opinion in Japan seems to be largely against nuclear energy, economics has prevailed in the end. A resource poor country like Japan cannot afford to completely phase out nuclear energy. Therefore the previous government's decision was not correct. There is a need for better safety standards though. This is something even Chinese President Xi Jinping noted at a recent summit on nuclear security in The Hague. Not surprisingly, China also sees a major role for nuclear in the country's energy mix.

If resource poor countries such as Japan reduce or completely cut the share of nuclear energy from power generation, they will be forced to rely on fossil fuels imports. That would have a negative impact on trade figures and growth rates. Given that Abe has focused so much on growth since being reelected, it's not surprising that he wants to reduce dependence on imported fossil fuels by restarting nuclear reactors.

The economic argument is also valid for countries such as China and India. In fact, China and India are expected to be among the key growth drivers for nuclear energy in the future.

Reiterating bullish outlook on Cameco
The development in Japan has shown that nuclear energy has a future even in the post-Fukushima world. Also, companies such as Cameco and Paladin are cutting output. These factors should rebalance the uranium market in the future and push prices higher.

Given the outlook for the uranium market, I am reiterating my bullish stance on Cameco. Year to date, Cameco shares have already gained more than 7%, outperforming the S&P. In the past month, though, Cameco shares have fallen more than 6%. The pullback could be due to some profit booking. But the pullback is a good buying opportunity for long-term investors. 

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Varun Chandan Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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