AI and crypto use lots of energy. Nuclear power and uranium look like the perfect fix.

By Myra P. Saefong

Constellation power deal with Microsoft includes restarting a nuclear reactor

Data centers are expected to consume more and more electricity thanks to growth in artificial intelligence and cryptocurrency mining - and nuclear energy and uranium appear a good way for investors to gain exposure to this rise in power demand.

Clearly, data centers and AI need "consistent, baseload power," while many information-technology (IT) companies in the sector are also committed to net-zero energy emissions as part of their environmental, social and governance policies, said Jonathan Hinze, president at UxC, a nuclear-fuel-market information and analysis firm. "This is why nuclear power is such a perfect fit for them."

U.S. power providers have seen an impressive rally lately, with shares of Vistra Corp. (VST) and Constellation Energy Corp. (CEG) up by more than 30% this month, buoyed by the growing power needs of rapidly expanding AI data centers

'Nuclear power will definitely be seeing more interest from the AI/data world, and this will translate into actual orders and contracts both for existing plants, restarting reactors and for new reactors.'Jonathan Hinze, UxC

"Nuclear power will definitely be seeing more interest from the AI/data world, and this will translate into actual orders and contracts both for existing plants, restarting reactors and for new reactors," especially small and advanced reactors, said Hinze. Reactors known as smaller modular reactors, or SMRs, can be more easily set up, though their generation capacity is around one-third that of a traditional nuclear reactor.

Global electricity demand from data centers, AI and the cryptocurrency sector could double by 2026, according to the Electricity 2024 report from the International Energy Agency.

The IEA estimated that data centers, cryptocurrencies and AI consumed about 460 TWh, or terawatt hours, of electricity worldwide in 2022, which represents almost 2% of total global electricity demand. It expects that global electricity consumption to climb to a range between 620 to 1,050 TWh in 2026.

"Nuclear power could be a beneficiary of the increasing electric demand, specifically for data centers that require around the clock, high-quality power," said Christian Grant, principal in the power, utilities and renewables practice of Deloitte Consulting.

Early this year, Talen Energy Corp. (TLN) said it sold a 960-megawatt data-center campus to an unnamed major cloud-services provider, which turned out to be Amazon Web Services, a subsidiary of Amazon.com Inc. (AMZN)

Opinion: Tech giants desperate to power AI data centers are turning to nuclear disaster sites - despite the risks

Constellation Energy and Microsoft Corp. (MSFT) said in September that they signed a 20-year power-purchase agreement that would see Microsoft would buy power generated by Three Mile Island's Unit 1 facility in Pennsylvania, which Constellation plans to restart. The facility - adjacent Three Mile Island's Unit 2, the site of a major nuclear disaster in 1979 - was shut down for "economic reasons" in 2019, according to World Nuclear News.

Nuclear vs. renewable energy

Hinze said that IT companies have told him that renewable energy sources "just don't cut it" given their "intermittency and reliability constraints" - so many are becoming "very serious about buying the output from both existing and future nuclear power plants."

Nuclear power plants run 24 hours, 7 days a week, 365 days a year with minimal downtime, Hinze noted. They also produce power without emitting any greenhouse gases. "Nuclear is the perfect fit for data centers," he said.

John Ciampaglia, chief executive officer of Sprott Asset Management, said nuclear power, on average, operates at a capacity factor of 92.5% - only turning off for maintenance and refueling.

By comparison, among renewable sources, solar energy has been growing at very rapid rate as costs have come down - but it only has a capacity factor of about 25% due to "intermittency, which is less ideal for data centers unless you also have grid-scale battery storage or natural-gas plants for backup power generation," Ciampaglia said. Land use is also a challenge for solar as it requires a significant amount of land per megawatt hour of capacity, he added.

Natural gas (NG00 )is a viable option as a source to meet growing power needs given that it's reliable, but it also faces challenges such as infrastructure development, said Deloitte's Grant.

Read: How natural gas may be benefitting from the power needs of AI data centers

Uranium demand

Uranium, meanwhile, is also set to benefit, as a rise in nuclear power would lead to higher demand for the nuclear fuel. Restarting nuclear reactors, such as Constellation's Three Mile Island Unit 1, and building new reactors would translate into additional demand for uranium, said UxC's Hinze.

Around 60 nuclear reactors are under construction around the world, with a further 100 in the planning stage, according to the World Nuclear Association.

Each large nuclear reactor, like Three Mile Island Unit 1, uses up to 500,000 pounds of natural uranium annually, equivalent to around 1% to 2% of the U.S.'s total annual uranium requirements, noted Hinze. "If we see a large uptick in uranium demand due to additional reactors built in the U.S. and elsewhere for AI/data centers, this will require new uranium mines to be developed," he said.

New uranium mines require "incentive prices" - but in many cases that's going to be higher than the current market price of around $80 a pound, according to Hinze, and some new mines might need incentive prices above $100.

Spot uranium prices peaked in February at $106, and were at $82 as of Friday, per UxC. Since the start of 2020, uranium prices are up around 230%, and they have climbed roughly 71% since the start of 2023 -though this year to date, spot uranium has lost around 10%.

Shares of exchange-traded funds that focus on companies related to the nuclear energy, however, have seen strength in the wake of Constellation's planned restart at Three Mile Island. On Monday, the Global X Uranium ETF URA was up 10.5% for the month, while the Sprott Uranium Miners ETF URNM was up 9.6%.

An increase in prices for uranium would "depend on expanding the use of existing nuclear plants and eventually SMRs becoming part of the national fleet to drive," Deloitte's Grant said.

Investors looking for signs of a potential move higher in uranium prices should "monitor geopolitical risks, new nuclear-plant constructions, significant infrastructure investments, changes in market dynamics, and supportive government policies and contracts," he said. These factors could influence the supply-and-demand balance, potentially driving uranium prices higher.

-Myra P. Saefong

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10-01-24 0700ET

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