Is a Biden Victory a Win For Uranium?

I have had many questions over the past days about the implications of a Biden presidency for the uranium sector. Most concerns seem to stem from the assumption that Republicans are pro-nuclear and Democrats are anti-nuclear. As it may be on your mind as well, I wanted to pen my thoughts and share with you.

Firstly, although the election has now been called for Joe Biden, it may be some time before we get a clear outcome, given that it is unlikely that President Trump will follow polite convention and concede. More probably, there will be a series of legal dispute in the run-up to 14 December. There remains a possibility, which has diminished given the strength of Biden’s projected electoral college majority, that legal disputes may gain enough traction to disrupt proceedings beyond 14 December and potentially push out to a 12th amendment scenario. There also remains a question mark over control of the Senate, with the most likely scenario being a Republican Senate that will force Biden to moderate some of the Democrat policies to achieve support. For this note, I am assuming that Biden’s win is solidified within a week or two and that the “ Goldilocks scenario “ prevails with a Republican Senate.

Given the strength of the pro-nuclear rhetoric from the Department of Energy, particularly under Secretary Perry’s leadership, many investors are concerned that a win for the Dems would lead to erosion of recent progress in the US nuclear sector, and therefore a weaker uranium market at large.

I have already seen a few articles that, taking the perspective of US uranium companies, have decried a Democrats win as a blow for the sector generally. It is important that I balance that perception.

I went into the election relaxed from a uranium perspective, given that support for nuclear power has become a bipartisan goal — for the first time since the 1970s. On one hand, the Trump administration has promised much support for the nuclear industry, some of which it was starting to achieve. On the other hand, a Biden administration will also be positive for the global uranium market, because Nuclear Energy has finally been recognised within Democrat climate policy as an essential element of the clean energy mix — a move that has reversed a decades-long Democrat policy trend that evolved into benign neglect under the Obama administration.

Bear in mind that a decisive victory is necessarily a good thing for a sector that has grappled continuously with political and geo-political uncertainty for almost three years. The inertia that took hold after the section 232 petition — and was compounded by Iran sanctions waivers, COVID-19, the Russian Suspension Agreement and US election uncertainty — is finally ready to be dislodged. Which means US utilities will soon have the clarity and bandwidth to think about procurement.

However, I believe a Biden administration will be the better outcome for the uranium sector, as I outline below.

In the Short Term, a More Tangible Path to Supporting US Nuclear Power Plants

Some colleagues in the US believe that a Federal Democrat administration will increase the chances of ZEC (Zero Emission Credit) payments being available at state level to nuclear generators (and other similar support being sought by nuclear operators to help them compete against subsidised renewables and fossil fuels). Their reasoning is that the Trump administration did not want to be seen to allow a program that might damage coal-fired power or gas interests. Further, Republican economics are more laissez faire by nature and therefore the party would be reluctant to support subsidies, even at a state level, particularly those linking to climate change. In contrast, Biden’s climate plan calls for various tax incentives and credits for clean energy, including nuclear power.

In the short term, the election’s single largest potential impact on the uranium market will be continued operation of at-risk nuclear reactors. In particular, the four reactors slated for 2021 retirement at Exelon’s Byron and Dresden plants could run for a further 20 years if granted emissions credit support.

In the Medium Term, the Clean Energy Revolution Just Got Real

The most profound impact Biden’s win will have on the uranium sector will occur over the medium-long term as the world’s largest economy adopts polices in favour of clean energy. Under Biden, the US will join the Paris Climate Agreement and push for net-zero by 2050, joining similar pledges from China (2060), Japan (2050) and the EU (2050). This requires a US climate plan ( a $2 trillion climate plan, to be precise) which supports existing nuclear power and future technology development.

As I have said in other notes and articles, nuclear power is an essential pillar of any large economy’s transition to clean energy — and support for nuclear will grow further as the limitations of renewables and the cost of storage become better understood. Accordingly, support for clean energy is a direct endorsement of nuclear, particularly for an administration that won’t hesitate to hasten the replacement of coal.

I understand that Biden has a greater understanding — and more positive view — of nuclear energy than the public domain commentary suggests. He is a centrist and pragmatist, but also has a strong and inquisitive understanding of the science and technology behind nuclear energy. He believes that Small Modular Reactors (SMRs) and advanced reactor technology provide the best chance at reaching carbon neutrality goals. Indeed.

Assuming a Republican controlled senate, Biden will have an impetus to pursue a more reasoned approach to climate change mitigation and deflect some of the more “inspired” ideas that have emerged from the party’s left. He already made headway in this direction, personally intervening to see AOC’s original Green New Deal moderated to include nuclear energy.

Positive News. For the Entire Uranium Sector?

There is one category of uranium companies that are unlikely to be pleased with Biden’s victory: companies with US uranium assets that are hoping for assistance from the Strategic Uranium Reserve (proposed by the Nuclear Fuel Working Group Report). A Democrat administration is less likely to support a strategic reserve, at least in the short term, as evidenced by budget appropriation stalling in the Democrat-controlled House. It is also likely that some of the mining assistance mooted by the Trump administration (such as cutting green tape and streamlining other approvals) may be stalled or walked back by the Democrats.

After the failure of the section 232 process to garner direct support for US uranium mining, this event may be the disappointment that pushes a consolidation of the space. Most of the juniors run hefty G&A expenses on relatively small assets, so rationalisation will be necessary for this production to obtain meaningful scale at full-cost metrics that can compete in the medium term.

As for the Strategic Uranium Reserve itself, although it would have created a helpful additional source of uranium demand (approximately 2Mlbs per annum over ten years), its delay will not materially impact the broader uranium market. The market will be more focussed on whether the DOE uranium barter remains suspended, given that this represented a price-inelastic source of secondary supply worth up to 5Mlbs per year. Although maintaining the suspension is not squarely within the Dems’ policy framework, I think the combination of inertia and a need to be pragmatic with regards to the US uranium sector will most likely see it remain suspended.

The Budding Legacy Will Remain

Finally, it is worth considering the progress that was made under the Trump administration — and whether a Biden administration will seek to unravel the budding legacy it created. Although the rhetoric ran well ahead of tangible outcomes, genuine progress was made over the last two years. This includes the passage of the Nuclear Energy Leadership Act, lifting the prohibition on funding nuclear projects from the US International Development Finance Corporation, several DoE announcements on funding commercialisation of Small Modular Reactors and demonstration plants for advanced reactor technologies, the Nuclear Regulatory Commission approving a new licensing approach to enable faster approval for new technology and the DoE allocating $65 million towards an array of 93 nuclear technology development projects.

With the dismantling of the Democrat’s historical dislike of nuclear energy, I can’t find any reasons to think that the progress made through these initiatives will be unwound, particularly given the Democrats’ positive stance on SMRs/advanced technology and the push for export jobs that will emerge post-COVID.

I trust the above is thought-provoking. In the quest for deeper insights, I would welcome being challenged on my views, so please share any alternative perspectives you have (on the outcome for uranium, rather than the election itself!)

Article written by Brandon Munro for Crux Investor.

Originally published at cruxinvestor.com/articles