The Great Nuclear Debates

Overview:

• Western nuclear is entering a new growth cycle after years of dormancy. However, many opportunities and challenges remain unclear to investors.
• Uranium supply seems unlikely to keep pace with demand absent a shift in pricing, and potential bottlenecks in enrichment capacity may limit growth in nuclear capacity.
• Supportive policy and new business models are attempting to restart dormant capacity growth, but their efficacy remains unclear.

The TD Cowen Insight

We see signs of western nuclear entering a new growth cycle after years of dormancy, and investor sentiment is increasingly reflecting this notable shift. That said, path to deployment remains less clear. We present four key debates that have not been broadly discussed until now but believe will help shape investment conclusions and navigate the path to deployment.

Positive Shift in Perception Powers Increased Demand

There has been a dramatic positive shift in perception around nuclear power, and while we believe this is supported by increased demand, particularly from well capitalized tech companies, several opportunities and hurdles are not well understood by investors.

Furthermore, we see this growth not only benefiting an increasingly well-known short list of public stocks, but potentially several public and private companies that are not yet household names.

Four Key Debates Driving Investment

We combine domain expertise across the uranium, nuclear technology and engineering and construction analysts along with insight from Washington Research Group's Energy Policy analyst to identify four key debates we see driving investment conclusions:

• A wide range of agency growth forecasts reflect uncertainty in capacity growth, and valuations of some pure play nuclear power equities appear to reflect even higher growth rates. Still, the government pledges to triple and quadruple nuclear capacity, and if achieved, would provide upside.
• Can new business models and policy support bridge the gap between tech companies' demand for new nuclear power and the power industry's aversion to taking new nuclear projects?
• Can constrained uranium ore and enrichment services capacity be expanded to adequately satisfy nuclear demand projections?
• Considering potential enrichment bottlenecks, could the Canada deuterium uranium (CANDU) reactor design, which does not require enriched uranium, see renewed interest for new builds?

We draw on our years following the nuclear theme to scrutinize hurdles and opportunities across economic, regulatory and policy topics. We have also created a unique overview of the nuclear value chain, mapping all the relevant public (and several private) companies to various categories.

Financial and Industry Model Implications

Our analysis concludes a further tightening of uranium balances and potential shortages of enrichment supply, even under base case nuclear capacity projections. While positive for uranium and enrichment companies, this may be a headwind to nuclear capacity growth where market valuations appear to reflect a sharp improvement. We also see an opportunity for increased interest in CANDU reactor technology as a workaround to enrichment bottlenecks.

What to Watch

Within uranium and enrichment, we're looking for any kind of price signal to incentivize new capacity and progress from U.S. Department of Energy around enrichment offtake. Within nuclear capacity expansion, we'll be looking for Memorandum of Understandings (MOUs) to convert to binding agreements which could be preceded by pre-Final Investment Decision (FID) capital commitments, and any preference across the array of large and small reactor technologies. We'll also be looking for U.S. Government action on recent Executive Orders.