Although the German government has long debated nuclear power, the current administration rapidly adopted a policy expected to phase-out nuclear power by 2022 following the Fukushima nuclear disaster. The costs of moving toward renewable energy have already been observed in industrial production and are now becoming more pronounced, with low-income consumers paying the price.
The country’s third-largest aluminum producer, Voerde Aluminium GmbH, filed for bankruptcy amidst trade groups advocating affordable power. Ulrich Grillo, president of Germany’s non-ferrous metals association, views Voerde Aluminium’s insolvency as proof that the metal manufacturing industry in Germany is endangered by high electricity costs, which are no longer competitive on the international level. The non-ferrous metal industry in Germany consists of more than 650 companies employing more than 105,000 individuals, and was responsible for 55 billion euros worth of trade last year.
Electricity prices for industrial use are 41.7 percent lower in France than in Germany. If similar inefficiencies begin to surface in steel and other critical manufacturing industries, the impact on the German economy will be significant. The country is Europe’s leading exporter of vehicles, machinery, chemicals, and household equipment.
A strong economic case against
In an interview with Uranium Investing News, Edward Kee, vice president of NERA Economic Consulting, offered his opinion on the current policy dynamics, commenting, “before all German nuclear plants are permanently closed, the policy will shift and some of these nuclear power plants will remain in service. However, this view is based on fundamental economics and not by the less-predictable politics.”
Private investment risk
Large utility companies have lost substantial income and stand to permanently lose privately-invested capital by shuttering nuclear plants. Some utility companies have begun selling assets to offset the losses. Kee explained, “any investment in new nuclear plants will be difficult; investors will want some guarantees that any new nuclear plant will not be closed early as a result of a political decision. The legal action by the owners of nuclear plants to get compensation for the lost value of the nuclear plants that have been shut down will be closely watched. It is likely that the countries surrounding Germany will host new nuclear power plants that will generate power to be used in Germany.”
Potential broad impacts within the Eurozone
While the Eurozone’s economic problems have featured prominently in the media, the matter of reliable and safe energy resources is likely to become increasingly important in the future. Kee pointed to several potential impacts, stating, “the first is increased carbon production as a result of a shift to burning more coal and natural gas to generate electricity. This may mean higher costs, depending on the long-term approach to controlling carbon emissions in Europe. The second impact is an increase in imported electricity and a greater reliance on the European grid for power. The third impact may be lower reliability.” An important highlight for investors might be, “if countries with nuclear power plants are seen as having lower electricity costs (and maybe higher reliability), the other countries in Europe may reconsider a negative position on nuclear power.”
Peter Altmaier was recently appointed Germany’s minister for the environment, nature conservation, and nuclear safety. This step may support the case that criticism of the suspension of nuclear power is increasing as the country reconciles the increased costs for the overall economy with the perceived benefits for the environment and safety.
Outlook for uranium producers and explorers
Government policies often involve gradual decisions and guidelines formed over considerable periods of time. In the case of Germany’s current nuclear energy policy, balancing industrial and consumer electricity demand with current sources is already an issue.
The strong economic rationale for new nuclear power plans appears to provide a compelling context for other countries. In the long run, capital investment in these plans and operations should be positive for the value of all global uranium resources, and should initially benefit uranium producers; however, higher uranium prices will inevitably make exploration projects increasingly attractive and generate investment interest.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.