Our energy system is in flux. Innovation is afoot in the renewables sphere, in battery storage, smart grid solutions, effective demand management, and regional integration, which should help overcome the challenges of intermittency. Nuclear scientists, for their part, are working on safer, smaller, more nimble nuclear reactors.

Our transportation is increasingly becoming electric. According to Bloomberg New Energy Finance, "there are over 500,000 e-buses, almost 400,000 electric delivery vans and trucks, and 184 million electric mopeds, scooters and motorcycles on the road globally."

This is just the beginning. The world will not need less energy; it will need much more. The composition and the means of its production are already changing radically.

Electricity demand outlook for selected regions by segment.

Source: BNEF. (Note: Percentages refer to the increases in electricity demand caused by EVs in 2030 & 2040)

Technology affects the energy markets dramatically – it always has, from Colonel Drake’s “radical idea” to drill for oil, to the use of so-called fracking methods for the extraction of US shale oil & gas – and this impact is growing exponentially. The pattern-seeking human mind is built for an observable linear universe, but has cognitive difficulty recognizing and understanding the impact of exponential growth.

Paralleling Moore’s Law, the current growth rate of new technologies roughly doubles every two years. In transportation, the global penetration rate of electric vehicles or EVs, was 1% at the end of 2016 and now is probably around 3%. However, a doubling every two years of this level of usage would lead to an automobile market that primarily consists of EVs in approximately 12 years, reducing gasoline demand and international oil revenues to a degree that today would seem unfathomable to the linear-thinking mind.

Renewable energy sources such as solar and wind are well into their exponential growth curves and are even ahead of EVs in this regard. Based on current growth curves for other recent technologies and due to similar growth rates in battery technology and pricing, it is likely that solar power will supplant its fossil fuel rivals in the near future.

Something dramatic is clearly afoot in the global energy mix. Investors need to be one step ahead of the path of progress in order to avoid being on the wrong side of events and to harness the spectacular gains that such changes will unleash for the companies that develop the technological solutions that enable this ongoing transformation.US Energy Mix - Coal continues to decline while NatGas & renewables rise…Is Nuclear next?

Sources: EIA, Duro Data. (Note: Minor electricity sources excluded)

Going exponential

The future is electric, and the path leads to renewable energy and nuclear. A recent Bloomberg New Energy Finance (BNEF) study of comparative costs worldwide shows an 18% improvement in the competitiveness of onshore wind and solar in the last year, and new and rapidly developing roles for batteries. Coal and even natural gas are facing a growing threat to their position in the world’s electricity generation mix as a result of the spectacular reductions in cost not just for wind and solar technologies, but also batteries.

Global short-term EV share of new passenger vehicle sales by region.

Sources: EIA, Duro Data. (Note: Minor electricity sources excluded)

Going Nuclear…

According to the World Nuclear Organization’s 2020 industry report, “electricity generated from the world’s nuclear reactors increased for the seventh consecutive year in 2019. Six reactors started up in 2019. Four large PWRs commenced operation, one in South Korea, one in Russia and two in China. In addition, two small reactors on the first purpose-built floating nuclear power plant, harboured at the town of Pevek in northeast Russia, started supplying electricity.

“New construction began on five reactors, two in China and one each in Iran, Russia and the UK. Given the reduction in overall nuclear capacity, the increase in generation in 2019 is all the more remarkable. In 2019, nuclear generation rose in Africa, Asia, South America and East Europe & Russia. It was fractionally down in North America, and 3 TWh lower in West & Central Europe. Recent trends continue, with particularly strong growth in Asia, which saw nuclear generation rise by 17%.” Regional Nuclear power generation trends

Sources: World Nuclear Association, IAEA

,Evolution over shutdowns…

Nuclear power took a major step back after the biggest nuclear catastrophe since Chernobyl took place in Fukushima, but that does not mean existing Generation III projects (the Fukushima reactor is a Gen II) are not viable and safe. In fact, over the last 30 years, engineers have improved reactor safety considerably. The newest designs, called Generation III+, are just beginning to come online. Generation I plants were early prototypes, Generation II’s were built from the 1960s to the 1990s and include the facility at Fukushima, and Generation III’s began operating in the late 1990s, though primarily in Japan, France and Russia. Unlike their predecessors, most Generation III+ reactors have layers of passive safety elements designed to stave off a meltdown, even in the event of power loss. Construction of the first Generation III+ reactors is well underway in Europe, with Finland and France at the forefront.

While most other advanced economies are slowly pivoting to energy sources like natural gas, solar, and wind, China’s soaring energy demand means it’s spending billions on new power plants across the energy spectrum, from coal and natural gas to renewables and nuclear. China has the world’s most aggressive reactor construction plan, with the goal of boosting its nuclear power capacity by about 70 percent, to 58 gigawatts by 2020. China is becoming the testing ground for a new breed of nuclear power stations designed to be safer and cheaper, as scientists from the U.S. and other Western nations find it difficult to raise enough money to build experimental plants at home. Japan’s companies are another source of real innovation in the space with a strong focus on safety.

In my work for Malmgren Strategic Institute, I recently worked on a report titled ‘The Coming Industrial Transformation’ with Dr. Malmgren and in it, we covered how the confluence of innovative leaps in additive manufacturing and material sciences were acting as a catalyst for paradigm change across industries, including nuclear power. Below is an excerpt, covering how innovation is providing answers on how to manufacture safer, more efficient, and flexible nuclear reactors faster and cheaper:

“The team at Oak Ridge National Lab in the US has deployed additive manufacturing in their pursuit for innovations that can accelerate the future of nuclear energy. They are looking “to figure out a faster way to build a nuclear system that has superior performance and fundamentally change the way we do nuclear.” They have designed and built the components for a new type of the old gas-cooled nuclear reactor but with a distinctive 21st Century twist to the manufacturing process. When it comes online in 2023, it will be the first nuclear reactor in the world with a 3D-printed core. The core will be entirely 3D-printed out of silicon carbide, an extremely rugged material that is almost impossible to melt. The current core, designed and printed at Oak Ridge, is less than a foot-and-a-half tall and will be housed in a reactor that isn’t much bigger than a beer keg. But when it comes online it will generate up to 3 megawatts of power, enough to meet the energy needs of more than 1,000 average homes.

“Gas-cooled reactors are extremely fuel efficient because they operate at very high temperatures. The Oak Ridge team says that ‘3D-printing the reactor core will boost the efficiency even higher. Using traditional machining techniques for building a reactor core has constrained the design until now. The complex network of cooling channels in the Oak Ridge core are too small and tortuous for any conventional machining techniques. But since 3D printers build an object by fusing metal together layer by layer, engineers can build previously impossible core designs. You can break away from the constraints of normal geometries and design something more organic and responsive to the task.’

“3D printing techniques will also enable the nuclear engineers to get a better understanding of what is happening inside the core once the reactor is up and running. With a conventional reactor, the core’s behavior has to be monitored from the outside. The new designs enabled by 3D printing will allow for embedded sensors that will provide data directly from the core. Of further note, 3D printing brings more control over the manufacturing process and accelerates the work and brings down the cost significantly – dealing with two of the major constraints on rolling out next generation nuclear plants. Individual parts of the core take 8-24 hours to print and the entire core can be printed in a few weeks.

“Furthermore, as the process is completely controlled, safety checks can be built into the process. During a print, a machine vision algorithm is using data from infrared cameras and other sensors to determine if any defects occur during printing. Through the test work Oak Ridge is doing the aim is to build solid data analysis protocols using AI and machine learning algorithms that will enable a more effective certification process that will help dramatically lower the cost and time involved with getting a nuclear reactor online safely.”

Thor Vs. Pluto...

In the beginning, nuclear scientists identified two fuel sources for the atomic age: uranium and thorium. They went with uranium. Why? It was not because uranium was the better fuel. Thorium is more abundant. It is simpler. It is safer. But thorium had one strategic disadvantage: you could not make plutonium from it. During the Cold War, the scientific goal was synonymous with the military goal, namely nuclear weapons. Thorium could not compete in this environment.

A Swedish chemist named Jons Jakob Berzelius discovered thorium in 1828 and named it after Thor, the Norse god of thunder, and incidentally believed to be the guardian of mankind. American physicists Edwin McMillan and Glenn Seaborg invented “synthesized” plutonium in 1940 and named it after Pluto, the Greek god of hell/the underworld. As a metaphor for the moral choices made at the dawn of the atomic age, the opposing fuels – Thor vs. Pluto – could not have been more exquisitely named.

“Imagine a form of nuclear energy with greater output and virtually no safety issues. We have a good line of sight on the science to build one.” ~ Kirk Sorensen

Even with their significant safety improvements, Generation III+ plants can, theoretically, melt down. Some people within the nuclear industry are calling for the implementation of still newer reactor designs, collectively called Generation IV. The thorium-powered molten-salt reactor (MSR) is one such design. In an MSR, liquid thorium would replace the solid uranium fuel used in today’s plants, a change that would make meltdowns virtually impossible. MSRs were first developed at Tennessee’s Oak Ridge National Laboratory in the early 1960s and ran for a total of 22,000 hours between 1965 and 1969. Of the handful of Generation IV reactor designs circulating today, only the MSR has been proven outside computer models. The MSR design has two primary safety advantages. Its liquid fuel remains at much lower pressures than the solid fuel in light-water plants. This greatly decreases the likelihood of an accident, such as the one at Fukushima. Further, in the event of a power outage, a frozen salt plug within the reactor melts and the liquid fuel passively drains into tanks where it solidifies, stopping the fission reaction. In addition to safety, thorium power provides other strategic benefits. Without the need for large cooling towers, MSRs can be much smaller than typical light-water plants, both physically and in power capacity. Today’s average nuclear power plant generates around 1,000 megawatts. A thorium fueled MSR might generate as little as 50 megawatts. Smaller, more numerous plants could save on transmission loss (which can be up to 30 percent on the present grid). The U.S. Army has shown an interest in using MSRs to power individual bases and Google, which relies on steady power to keep its servers running, held a conference on thorium reactors during which the innovative company indicated that they would be interested in having a 70- or 80-megawatt reactor sitting next door to a data center.

Canada has been developing thorium power for decades and is currently the leading nation in this field. However, China has shown a strong interest in the technology due to the safety factors and good economics of thorium over uranium. India is also showing strong interest in these developments as they have a gigantic need for reliable low-cost energy supply, with their population set to overtake China’s in the decade ahead. India has huge reserves of easily accessible thorium and relatively little uranium and as a result, has recently made large-scale production a major goal in its nuclear program along with building out the technology over the next 15-20 years.

Updated models of uranium-fueled power plants are struggling mightily to get off the ground in the US, but there are several start-up companies exploring molten-salt reactors, including that of the visionary Mr. Kirk Sorensen (no relation to the Author), whose TED talk, linked below, you should watch for an insightful overview:

As with standard nuclear, China is again charging ahead in the thorium-based reactor space. They have plans beyond the test and development phase, including the plan to have one hooked up to the grid within the next 15 years. If we see a real push in this area, and thorium lives up to its potential, we should see a great and safer future for nuclear power.

Designing better solutions…

Buckminster Fuller, the Renaissance Man and great thinker, stated “you never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” We are seeing this play out in the energy and transportation space.

We live in an energy hungry world. Global GDP is set to treble by 2060, with two thirds of that growth coming from emerging markets which display significantly greater energy and carbon intensity per unit of GDP than developed markets. Each of the renewable sources of energy – Solar, Wind & Water - could, if technologies are maximized, more than cover all of our needs, now and in the future. Add next generation nuclear to the mix and some of the more marginal renewables, such as geothermal, and we have a glut of solutions being unleashed by innovation.

We have no need to dig stuff up and burn it. The future will likely be won by a combination of these technologies, supplying ever-increasing amounts of energy from more and more complex and efficient types of technologies. Such progress, driven by both private and public enterprise, will need more than just compounded technological advances. New financing models and economic marketplaces, systemic innovation including physical and digital infrastructure, and public policy will need to be introduced to maximize this gigantic opportunity. There are signs that such developments are getting underway.

Harness the wind of change…

Bill Gates, another proponent for NextGen Nuclear energy, has said that “we tend to overestimate what can be achieved in a year or two and underestimate what can be achieved over decades.” Changes in the world’s energy mix have been a source of historic wealth creation and destruction, and today investors would be prudent to take note of what is underway.

Innovative companies are set to reap the rewards of harnessing the winds of change in an industry that a Citi Bank report forecasts will be the beneficiary of around $200 trillion (both capital expenditure and fuel) over the next quarter century. History shows that innovations in technology can cause dramatic increases in productivity, transforming industries and setting whole societies on new paths to growth. The world is approaching a tipping point in the development of energy technologies that could generate increases in energy productivity on a scale not seen since the industrial revolution. It is difficult, if not impossible, to talk about energy without mentioning innovation. From the light bulb to unconventional production or clean energy, examples abound.

Unconventional gas now accounts for over 40% of US natural gas production and according to IEA, net installed renewable capacity will grow by nearly 4% globally in 2020, reaching almost 200 GW. Higher additions of wind and hydropower are taking global renewable capacity additions to a new record this year, accounting for almost 90% of the increase in total power capacity worldwide.

Over the last 10 years, the US shale revolution has upended oil and gas markets in the US and the world at large. At first, it was dismissed as unworkable, then it was minimized as unsustainable. Then it changed US & global power markets. The electricity sector is quietly undergoing its own transformation and it is set to yield dramatic economic and social benefits. Thanks to technological innovation, smart government regulation, Chinese industrialization and creative financial engineering, solar panels are becoming cheaper and more accessible than ever before, and the consequences are likely to be profound. As discussed, batteries too have the potential to change the world just as much as shale has, should the technology continue to improve. That is because large-scale batteries could unlock the full potential of renewable power, which has been held back by its intermittent nature.

EVs are already evolving into a significant reality that is only set to expand. And again, the development of viable low-cost, large-scale batteries could be the game changer. As mentioned before, solar panel prices have already plummeted with wide ranging positive side effects, and batteries look set to follow suit in the future with significant knock-on effects across industries.

Nuclear has an important role to play, now and in the future. Investors should look into the related opportunities. Uranium demand is expected to rise 40% by 2040 as new reactors are built, mainly in Asia where China and India are pursuing an expansion of nuclear energy as an attractive source of carbon-free electricity. Industry analysts argue that the price of Uranium will have to double or treble from current price levels in order to spur the development of new capacity at a scale to match this rising demand.

The Uranium market has shifted into a sustained deficit.

Source: Canacord Genuity estimates

Declining investment in uranium exploration

Source: S&P Global Market Intelligence

The energy sector at large offers many opportunities, and, in our opinion, an investor cannot afford to not be on the right side of these changes. The actionable investment universe is wide and deep: from innovative companies across all the segments we have covered, to materials such as graphene, lithium, copper, nickel, uranium & thorium; from the nations that hold them and the companies that mine them to the utility companies with the foresight to get out in front of these trends. And private ventures that are established to replace the ones who get left behind with their own micro-grids feeding into a larger global network should be great cash-yielding assets with underlying real assets, such as land and installations.

A diversified set of holdings that is right for each investor can be devised in this universe: one that not only takes advantage of current trends and transformations, but also is prepared for the fast-approaching future.

Put some power in your portfolio.