European Commission’s Renewable Energy Proposal Could Drive Demand for Uranium

According to The Guardian newspaper in the UK, the European Commission (EC) has proposed classifying nuclear energy as an “environmentally sustainable economic” activity. The EC is the executive branch of the European Union and is responsible for proposing legislation and enforcing EU laws. If approved by the EU, nuclear energy would be considered essentially green energy in Europe, and uranium miners would presumably be regarded as “green energy stocks.” Green energy stocks generally are accorded higher valuations by investors.

The EC’s goal is to create a classification system which directs billions of euros to clean energy projects to meet the EU goal of net zero emissions by 2050. It would then follow that “environmentally sustainable” nuclear energy would receive direct subsidies from European governments. In turn, global uranium demand would presumably increase, boosting the price of the commodity and the prospects for uranium miners.

Attaining net zero emissions by 2050 on the continent will be extraordinarily expensive. In a December 2020 report, the McKinsey consulting firm estimated that in order to do so, “stakeholders in the European Union would also have to allocate an additional 5.4 trillion euros (an average of 180 billion euros a year) to clean technologies and techniques.” Perhaps allowing nuclear plants, particularly existing plants, to play an important role could cut into such expenditures.

Per the specifics of the EC’s proposal, investments in nuclear plants through 2045 can be considered renewable investments, and investments through 2040 to extend the life of an existing nuclear plant can be similarly designated. The only major conditions to these classifications are that the owners must demonstrate the ability to store the nuclear waste and to provide for the plants’ ultimate decommissioning costs.  

The EC’s proposal must be approved by EU governments and the European Parliament. Gaining approval from these bodies, which must be achieved over a period of around four months, is not considered a certainty. Germany, in particular, has already voiced its opposition. It is moving to shut down its three remaining nuclear plants by year-end 2022. (Germany also wants to eliminate its coal-fired power generation by 2030.)

On the other hand, Hungary, the Czech Republic and France support the nuclear-friendly proposal. Of particular note, France derives about 70% of its electricity from nuclear energy and hopes both to modernize its existing reactors and build new ones to meet its energy needs.

Uranium mining stocks like Energy Fuels Inc. (TSX: EFR) and Uranium Energy Corp. (NYSE: UEC) have rallied more than 10% in just the first couple of trading days of 2022 on this news. If the EU were to approve the EC’s proposal, further gains seem possible. 

Uranium prices have moved little on news of the EC proposal. Nevertheless, the price of this commodity is about 50% higher than its range from 4Q 2020 through 1Q 2021. Uranium spiked around 60% from mid-August 2021 through mid-September 2021 largely based on physical purchases of the commodity by the Sprott Physical Uranium Trust.

Uranium price in US dollars per pound. Source: Trading Economics.

Energy Fuels Inc. last traded at $10.81 on the TSX, and Uranium Energy Corp. last traded at US$3.81 on the NYSE.

Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply